China Southern Airlines
China Southern Airlines is based in Guangzhou in Guangdong Province in southern China. It’s the world's fifth-largest airline measured by passengers carried, and Asia's largest airline in terms of both fleet size and passengers carried. It was established in 1988 after a restructuring of the Civil Aviation Administration of China, and has grown since then through acquisitions and mergers to become one of China's "Big Three" airlines alongside Air China and China Eastern Airlines. It is a member of SkyTeam.
Air travel dented by train service
The first direct competition on the mainland between the high-speed rail link and the airlines has taken a heavy toll on China Southern Airlines, prompting it to rethink its strategy, said an official from the company.
As the launch of the nation's first high-speed train service approached, China Southern took an aggressive approach to fend off the potential diversion of passengers. The Guangzhou-based carrier has increased the number of Changsha and Wuhan flights to 16 a day from 12, turning it into a shuttle service.
It also set up designated check-in counters, faster security checks and special luggage claim area for shuttle passengers to compete with the new trains, whose passengers need not check in or go through elaborate security screening.
But the carrier admitted the efforts were not as successful as expected. 'Our express service has not stopped the passenger numbers from falling,' Xie Bin, the company secretary of China Southern, said. 'We are studying to see if we should continue with the shuttle service.'
In the first two weeks after the high-speed train entered service on December 26, a substantial number of passengers were diverted from China Southern. The passenger load factor, the percentage of seats sold on a plane, dropped seven percentage points on the Changsha route, Xie said. The ticket price also declined more than 10 per cent on average on the route, he said.
He said the results were disappointing, especially since the air tickets were now priced even lower than the train tickets. The railway ticket for the two-hour and 15-minute ride costs 312 yuan (HK$355.24), while the air ticket falls to as low as 210 yuan, depending on the departure date.
'Maybe the passengers were fascinated by the new train service and wanted to try it,' Xie said.
The high-speed train service between Guangzhou and Wuhan includes two daily express services and more than 20 daily runs stopping at Changsha and other cities in Guangdong, Hunan and Hubei provinces.
Air traffic demand between Guangzhou and Wuhan suffered less diversion because the flight time is longer between Guangzhou and Wuhan than to Changsha, Xie said. The drop in passengers and the ticket price amounted to 5 per cent.
Aviation experts had predicted that flights of less than an hour would be the hardest hit by the high-speed train, while flights over an hour would be less affected, and the results from China Southern verified the forecast. Experience also appears to show that airlines cannot retain passengers simply by increasing the frequency of the flights or - at least as far as has been attempted - lowering ticket prices.
Co-operation instead of competition is now China Southern's tactic. Xie said the airline was studying a plan to adopt sales bundling of air and train tickets. It is a model that has been widely used in Europe, especially at Frankfurt Airport, that they want to adopt on the mainland to mitigate the impact of high-speed trains.
The airline provides an air ticket to a major airport and a train ticket to complete the last leg to the final destination.
China Southern already offers bundled air and train tickets on the route to Amsterdam and Paris. It anticipates duplicating the model on the mainland by teaming up with the Ministry of Railways.
'It isn't necessarily applicable when the network of high-speed trains overlaps with its domestic network,' said Kelvin Lau, a transport analyst at Daiwa Securities SMBC. 'The intermodal transport model usually applies on international flights.'
Scaling back short-haul flights under an hour and deploying more resources to develop long-haul destinations has become China Southern's immediate answer.
The airline would add more resources to developing international destinations to Southeast Asia and Australia, Xie said. Currently, the carrier relies on domestic routes for 80 per cent of its sales.
In addition to China Southern, Air China and China Eastern Airlines also are likely to encounter headwind from high-speed rail competition when the Beijing-Shanghai line is completed, possibly as early as next year. The Beijing-Shanghai airline service was upgraded to a shuttle in 2007 with more than 40 daily flights, mainly by China Eastern, Air China and Shanghai Airlines.
The high percentage of business travellers on the route has made it one of the most lucrative domestic routes. When the high-speed train connects the cities, shortening the ride to five hours, the shuttle service is likely to suffer.
'Only if the all-in air journey becomes more hassle-free will the airlines edge out the high-speed train,' Lau said. Airlines needed to trim the check-in time for the shuttle service to 15 minutes from 30 minutes and encourage more passengers to use online check-in to streamline the lead time, he said.
Increasing the flexibility of the transfer of air ticket - enabling a passenger to switch to the latest flight if he misses the original flight - also could help airlines compete with the trains, he added.
'Mainland airlines should improve their on-time performance substantially in order to retain more passengers,' Lau said. 'There is still plenty of room for mainland airlines to shorten their turnaround time and be more punctual.'