Air China

Airlines cut fares to keep up with high-speed trains

PUBLISHED : Friday, 08 July, 2011, 12:00am
UPDATED : Friday, 08 July, 2011, 12:00am


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Mainland airlines have cut fares on the lucrative Beijing-Shanghai route to match ticket prices on the new high-speed trains between the cities.

'Air fares are down by 15 per cent on average on the route,' China Eastern Airlines director Luo Zhuping said.

The so-called golden route has been a money-spinner for airlines because of the higher proportion of business travellers but the new trains threaten to erode the airlines' market share.

Luo said the impact of high-speed trains would be less severe over the long term as enthusiasm for the new line, which launched this month, dissipated.

He said some cabins on afternoon trains had few passengers because arriving at a destination at night did not suit business trips.

Still, fares on the Shanghai-Beijing air route softened this week. The lowest air fare on the leg dropped to as low as 400 yuan (HK$481), or 65 per cent of the full fare, putting it on par with high-speed train tickets, according to a Civil Aviation Administration of China (CAAC) news website.

Analysts said revenue on the golden route would drop more than 20 per cent, given the drop in air fares and passenger volumes.

'In reaction to the high-speed trains, airlines have reduced not only the fares but also the frequency on the routes,' Nomura Securities transport analyst Jim Wong said.

Total daily services between the two cities operated by Air China, China Eastern and two other carriers, dropped to 38 from 41.

Although it is still too early to tell if the high-speed train will remain a big threat to the airlines, some mainland media claim the impact is likely to be smaller than expected.

The average load factor, or the percentage of seats sold, on the leg declined to 85 per cent in the first three days of this month from 89 per cent last month, according to CAAC. That seems well below the 20 per cent of air passengers who were earlier forecast to be diverted to the new train service.

However, the actual drop in passenger numbers is more than 10 per cent, after factoring in the drop in flight numbers. The five-hour train journey threatens to lure passengers from the airlines' two-hour flights due to the comfort and the shorter commute time from the train station to downtown areas.

The mainland's airline watchdog is making moves to help airlines fend off the competition from trains. The CAAC's east and north regional administrations suggested the carriers improve their on-time performance on the Beijing-Shanghai route by deploying spare aircraft to avoid service disruption.

It also urged operators to transfer passengers between airlines if flights were delayed so passengers could take the earliest service, even if it was not operated by the same carrier.