Airlines fly into headwinds from high-speed trains

Rock-bottom fares and growing competition from high-speed railways have pushed carriers into red ink for three consecutive months

PUBLISHED : Wednesday, 20 February, 2013, 12:00am
UPDATED : Wednesday, 20 February, 2013, 4:50am

Mainland airlines experienced turbulence at the turn of the year, posting losses for three consecutive months due to low air fares and competition from high-speed railways, analysts said.

Air China, China Southern Airlines, China Eastern Airlines and other mainland carriers collectively reported 1 billion yuan (HK$1.24 billion) in losses last month, the official China Business News reported yesterday, citing the Civil Aviation Administration of China.

Passenger demand declined at all three major carriers. Air China's revenue passenger kilometres (RPK), which multiplies the number of paying passengers by the distance travelled, decreased 1.5 per cent year on year last month. The measure at China Eastern and China Southern fell 2 per cent and 1 per cent, respectively.

The drop in passenger demand was partly due to seasonal factors, given that the Lunar New Year holiday fell in January last year, leading to a higher base for comparison.

Meanwhile, the impact from high-speed railways on passengers' air travel demand has been growing.

"The diversion to high-speed trains has become more and more serious as the memory of the high-speed-train tragedy in Wenzhou in 2011 fades out," said Geoffrey Cheng, the head of transport sector research for greater China at MF Global Hong Kong.

The diversion to high-speed trains has become more and more serious as the memory of the high-speed-train tragedy in Wenzhou in 2011 fades out

At the same time, capacity expansion was in top gear at the major carriers during the holidays, weighing on ticket prices.

"Capacity expansion was less flexible because of the contracts with the aircraft manufacturers," said Patrick Xu, a transport analyst at Barclays. "The near-term hope lies mainly with a sharp recovery in demand, which seems lacking in distinct catalysts."

Passenger demand is expected to be sluggish during the off-peak period in the rest of this quarter. Carriers are offering rock-bottom fares to boost demand.

Promotional tickets with discounts of as much as 92 per cent were available for a 75-minute flight from Beijing to Taiyuan, according to online ticketing agent

Tickets for China Eastern's Beijing-Nanjing flight were also available for as little as 100 yuan, a 91 per cent discount to the full fare.

A Beijing-Chongqing flight operated by Air China was priced at 156 yuan, or 90 per cent off, according to the portal. The eye-popping fare was even lower than the price for the cheapest seat on the high-speed train between Beijing and Chongqing, although the 2,000-kilometre railway trip takes 26 hours and 44 minutes.

In response to the long-anticipated impact from high-speed rail, mainland carriers have adjusted their flight schedules by cutting short-haul routes while increasing long-haul services.

Air China, for example, is pressing hard to increase its market share in Europe, announcing Beijing-Geneva and Chengdu-Frankfurt flights this month.

It is now the seventh-largest carrier between Europe and Asia-Pacific by capacity, according to data from Capa, a Sydney-based aviation think tank.