Mainland mega-carrier could emerge amid consolidation

PUBLISHED : Friday, 11 March, 2011, 12:00am
UPDATED : Friday, 11 March, 2011, 12:00am

China's airline industry is set to see more consolidation, including the possible emergence of a mega-carrier, to compete with European and United States giants such as British Airways or United Continental, industry experts said.

John Cheetham, regional commercial manager in the Asia-Pacific for British Airways World Cargo, thought it was 'unavoidable' there would be more airline mergers.

While he gave no examples, Cheetham said the increase in the number of airline joint ventures, which involved bringing in management experience, meant the 'next step' was consolidation. 'Rather than a question of 'if', it's a question of 'when',' he said.

His views were shared by Robert Song, Asia-Pacific vice-president for AirBridgeCargo, who said the airline sector would 'see further steps to consolidate'.

Song said the process of airline mergers, which led to the creation of the big three carriers, Air China, China Eastern Airlines and China Southern Airlines, and last year's takeover of Shanghai Airlines by China Eastern, 'had just started'. Song forecast this 'process would not take years, but a few months'.

Cheetham thought that with the airline consolidation that had been seen so far, it was the aim of the National Development and Reform Commission and the Civil Aviation Administration of China to create a mega-carrier.

Song said a merger involving the three largest Chinese carriers would put them on a scale to European or US competitors. This included British Airways, which completed its merger with Spain's Iberia in January, and last year's tie-up between United Airlines and Continental Airlines in the US.

Song said while there would be economies of scale from such a merger, it would also create an organisation that could be slower to react to market changes. He also questioned if such a merger would be good for the airline industry.

Moves towards further consolidation of the mainland's airline industry would come as the growth in air freight this year is forecast to be hurt by poor economic conditions.

Hong Kong Air Cargo Terminals Ltd (Hactl) has already seen export volumes fall 4.4 per cent to 198,047 tonnes in the first two months of this year, while cargo imports edged up 0.7 per cent to 111,653 tonnes. Cheetham said the drop in Hactl's export volumes, including an 18.2 per cent fall in February, was 'quite drastic' and bigger than expected.

Overall, Cheetham was 'not particularly optimistic' about air cargo prospects this year.

While Roberto Gilardoni, commercial director of Italian air freight airline CargoItalia, said the Lunar New Year and Western holidays had an impact on cargo demand, he agreed with Cheetham that volumes were worse than forecast.

'The economic crisis [in Europe] was disquieting,' Gilardoni said. adding that labour and other costs of production were rising in China.

All these issues 'were not having a positive effect on the production index which had gone down four months in a row', he said.

Nevertheless, the airline executives remained confident about long-term prospects for China's air cargo market. 'Growth is still there,' said Gilardoni.

Cheetham added: 'The economic fundamentals of China are still very strong. The long-term future is very good. There are always roller-coaster risks as the market matures.'

Falling freight

In the first two months of this year, export volumes at Hactl fell to 198,047 tonnes, a decline of: 4.4%