CHINA: China Eastern Airlines Boosts North America Capacity

China Eastern Airlines plans to boost its capacity to North America by 50 per cent in 2016 to tap the rapidly growing travel market between China and the US in the China-US tourism year, chief executive Ma Xulun said in an interview with the South China Morning Post on Friday.

“Air travel between the two countries is expected to rise to more than 5 million passengers this year, with about 3 million being US-bound from China. We have great confidence in the market and hope to capture as much of this opportunity as possible,” Ma said.

He added that the airline is also looking to capture more than half of the 3 to 4 million additional air travellers expected after Disneyland Shanghai opens in June.

China Eastern last year introduced Delta Airlines as a 3.5 per cent strategic shareholder in a landmark deal worth US$450 million.

China Eastern transported 1.12 million passengers on China-US routes last year according to Dong Bo, chief marketing officer and general manager of its marketing and sales committee. “Our capacity increase in 2016 will be about 50 per cent,” Dong said.

The mainland Chinese airline on Wednesday reported a 33 per cent profit rise to 4.54 billion yuan (HK$5.4 billion) in 2015. Ma said all of China Eastern’s US routes turned in profits last year and that flights to New York and to Los Angeles were among its top 10 most profitable routes.

Analysts have expressed concerns about overcapacity as mainland airlines vie to capture the Chinese outbound travel market by aggressively adding international flights. Passenger yield, a unit profitability indicator, dropped at all the big three Chinese airlines in 2015.

China Eastern’s net yield on international routes dropped 3.9 per cent on international routes – the least among its peers. Still, competition and currency headwinds brought a loss of 800 million yuan in the last quarter of the year at China Eastern and a 900 million yuan loss at China Southern.

“There will be downward pressure on ticket prices in the short term,” said Dong. “But China-US traffic rights are near exhausted, so supply growth is capped. We expect oil prices to stay low this year, so it is possible to achieve further bottom line improvement.”

China Eastern is currently the third largest operator on China-US routes after United Airlines and Air China. Ma said China Eastern’s capacity will grow to be near Air China’s this year. He said they are seeking to deepen its partnership with Delta by expanding flight codeshares and moving to joint operations this year.

“We have formed strategic partnerships in the key markets of US, Europe and Australia with Delta, Air France-KLM, and Qantas respectively. This year’s focus will be to deepen our ties,” Ma said.

China Eastern had 590 planes at the end of last year. It suffered an exchange loss of nearly 5 billion yuan last year – a 24-fold rise – because the yuan depreciation multiplied the interest it had to pay on its 87.3 billion yuan worth of US-dollar denominated debts.

Chief financial officer Wu Yongliang said the airline has set a target to bring down its US-dollar debt level to 50 per cent from 53 per cent now through currency swaps to renminbi, and will also increase its yuan financing channels through low interest-rate, short-term commercial paper.

The company did not declare any dividend because of a pending 15-billion yuan private placement plan. “We plan to complete that first and use no less than 40 per cent of 2015 profit for dividend payment at 2016 interim,” Wu said.