The Civil Aviation Administration of China (CAAC) is expected to raise the bar on approving new entrants in the domestic airline industry in light of market saturation and possible excessive competition.
The regulator is reportedly revising relevant provisions of the “Public Transport Enterprises Operation Permit Regulations,” which would disqualify more than half of new applicants. According to an industry insider, out of the dozen airlines that have submitted applications, only one or two would be able to secure approval in this year’s second half.
Earlier this year, the regulator tightened its grip on approving new entrants because of some aviation safety incidents.
Only two Guangzhou-based cargo carriers—AVIC Cargo Airlines and Longhao Air—have received approval from the regulator in the first half.
It is noteworthy the new approved entrants all have a registered capital of more than CNY100 million ($15.08 million), up from CNY10 million previously, which reflects how much the standards have been raised.
As early as 2004 CAAC began allowing privately run companies to launch carriers, which resulted in the prosperity of domestic privately run carriers, including Shanghai-based low-cost carriers Spring Airlines and Juneyao Airlines. However, to limit growth CAAC decided to bar most new domestic entrants from the market until 2010, except for cargo carriers and those that either operated China-produced aircraft or are headquartered in West China.
In 2011, the regulator began to loosen its grip on approving domestic airline entrants and opened the door for more new carriers in 2013, which enabled many airlines to spring up, mainly local carriers launched by domestic airlines in conjunction with different local governments.
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Showing posts with label Juneyao Airlines. Show all posts
Showing posts with label Juneyao Airlines. Show all posts
Friday, 26 August 2016
Saturday, 13 August 2016
HONG KONG: Passengers Kept Awake And Hungry At Hong Kong International Airport
A combination of military drills and bad weather in eastern China left thousands of passengers headed for Shanghai and nearby cities stranded at Hong Kong International Airport for more than 12 hours.
At least 13 flights scheduled for Shanghai Pudong International Airport from 10.55am were still grounded at the airport by 9pm. Passengers with Cathay Pacific, Dragonair, Hong Kong Airlines, China Eastern Airlines, Juneyao Airlines, and Spring Airlines were affected.
No flights departed for Shanghai Pudong International Airport from Hong Kong after 10am because of a combination of air traffic restrictions over eastern China caused by a military drill in the morning and rainy weather in the afternoon, according to airport ground staff.
Zhang Jun, a Dragonair passenger who was having his 50th birthday, was one of many passengers who had been waiting since 4pm. “My biggest birthday wish is to leave now,” he said, standing next to the airline’s counter as it was besieged by angry passengers.
Zhang said he is a frequent traveller to Shanghai but has never seen delays of this kind.
“I have lots of experience with delays on the mainland caused by air traffic control. What I cannot accept is being given new departure times every two hours. If there is no departure time, tell us there is no time.”
A Cathay manager at the scene denied the departure times were arbitrarily set but said they were based on possible departure slots from Shanghai air traffic control.
Passengers in transit who had come from long-haul flights from New York, New Delhi and Singapore complained Cathay Pacific and Dragonair had kept them awake too long without offering any place to rest, nor any food or drink while waiting, endangering their health. They were unsatisfied with the airlines’ explanation of the situation and demanded compensation.
“We are a group of 19 seniors. Many of us have not slept for nearly 24 hours. Now it’s 10pm, we do not want to leave anymore and just want to be put in a hotel and rest. They kept lying to us by giving us new times and keeping us waiting here,” said Ren Hongxing, a 70-year old man from Shanghai who was returning from a Malaysia-Singapore tour via Hong Kong.
Passengers on his flight had boarded and waited for four hours on the aircraft before being offloaded. A delay certificate issued by Dragonair said the flight - originally scheduled for 1pm - was delayed because of “adverse weather” and “air traffic flow control”.
Dragonair ground staff said “Shanghai has given us no time. We do not know if and when a flight could take off.”
Air traffic controls over eastern China last summer caused delays of up to 15 hours at the Hong Kong international airport.
Cathay cancelled CX5808/KA808, a Shanghai Pudong bound flight originally scheduled for 4:55pm, at around 10pm. By 11pm, passengers on the 10:55am CX 5804/KA804 flight had boarded the plane but still did not take off.
Hundreds of passengers from three other Shanghai-bound flights were still waiting near midnight in the hope of getting a chance to depart.
As of 9am Wednesday morning, all flights had been rescheduled and many were still waiting to depart.
At least 13 flights scheduled for Shanghai Pudong International Airport from 10.55am were still grounded at the airport by 9pm. Passengers with Cathay Pacific, Dragonair, Hong Kong Airlines, China Eastern Airlines, Juneyao Airlines, and Spring Airlines were affected.
No flights departed for Shanghai Pudong International Airport from Hong Kong after 10am because of a combination of air traffic restrictions over eastern China caused by a military drill in the morning and rainy weather in the afternoon, according to airport ground staff.
Zhang Jun, a Dragonair passenger who was having his 50th birthday, was one of many passengers who had been waiting since 4pm. “My biggest birthday wish is to leave now,” he said, standing next to the airline’s counter as it was besieged by angry passengers.
Zhang said he is a frequent traveller to Shanghai but has never seen delays of this kind.
“I have lots of experience with delays on the mainland caused by air traffic control. What I cannot accept is being given new departure times every two hours. If there is no departure time, tell us there is no time.”
A Cathay manager at the scene denied the departure times were arbitrarily set but said they were based on possible departure slots from Shanghai air traffic control.
Passengers in transit who had come from long-haul flights from New York, New Delhi and Singapore complained Cathay Pacific and Dragonair had kept them awake too long without offering any place to rest, nor any food or drink while waiting, endangering their health. They were unsatisfied with the airlines’ explanation of the situation and demanded compensation.
“We are a group of 19 seniors. Many of us have not slept for nearly 24 hours. Now it’s 10pm, we do not want to leave anymore and just want to be put in a hotel and rest. They kept lying to us by giving us new times and keeping us waiting here,” said Ren Hongxing, a 70-year old man from Shanghai who was returning from a Malaysia-Singapore tour via Hong Kong.
Passengers on his flight had boarded and waited for four hours on the aircraft before being offloaded. A delay certificate issued by Dragonair said the flight - originally scheduled for 1pm - was delayed because of “adverse weather” and “air traffic flow control”.
Dragonair ground staff said “Shanghai has given us no time. We do not know if and when a flight could take off.”
Air traffic controls over eastern China last summer caused delays of up to 15 hours at the Hong Kong international airport.
Cathay cancelled CX5808/KA808, a Shanghai Pudong bound flight originally scheduled for 4:55pm, at around 10pm. By 11pm, passengers on the 10:55am CX 5804/KA804 flight had boarded the plane but still did not take off.
Hundreds of passengers from three other Shanghai-bound flights were still waiting near midnight in the hope of getting a chance to depart.
As of 9am Wednesday morning, all flights had been rescheduled and many were still waiting to depart.
Monday, 9 May 2016
CHINA: Aviation Stocks Go High
Aviation stocks rose the most among A shares on Wednesday, even though Chinese travel fervour during the Labour Day holidays was not strong enough to keep planes as full as they were last year.
China Southern Airlines rose by the daily limit of 10 per cent while five other airlines listed in Shanghai rose at least 6.29 per cent. Airline and airport stocks as a whole rose 6.9 per cent, compared with a 0.05 per cent dip in the Shanghai Composite Index.
But Chinese airlines did not do particularly well during the “mini golden week”. Haitong Securities said passenger load factor – a measure of plane utilisation – slid 2 percentage points on average at mainland airlines during this year’s Labour Day holidays, compared with last year’s.
Chinese airlines have been aggressively expanding, especially on international long-haul routes, in order to tap the travel potential of the world’s most populous nation. That has outpaced demand growth and resulted in weak sales in recent months.
Despite a 7 per cent rise in mainland visitor number to Hong Kong during the period to 470,000 – the highest in four years – load factor at Hong Kong Airlines remained flat compared with the same period last year, the airline’s commercial director, Li Dianchun, said.
“Most of that increase had come from border-crossers on land. We didn’t feel much of a boost,” he said.
Yu Nan, a Shanghai-based analyst with Haitong, said aviation stocks, which had “significantly underperformed”, had been buoyed by valuation correction and improving fundamentals.
“There are signs that the industry’s supply-and-demand imbalance is getting better,” he said. “Business was weak in recent months because capacity grew too fast during the low season. Now we enter May, demand is picking up.”
Yu said that although the airlines’ planes were emptier than at the same time last year, the absolute load factor numbers showed supply-and-demand had improved.
Haitong said mainland airlines’ booking rates for the coming seven days are 5 percentage points higher than last year, 2 percentage points higher for the coming two weeks and 1 percentage point higher for the coming three weeks, showing a rebound.
Yu said airline stock might rise further, mainly because they had been underperforming. “Plus the Disney factor [in Shanghai], there is room for valuation correction,” he said. His top pick for the medium-term is Shanghai-based Juneyao Airlines.
Friday, 18 March 2016
Juneyao Airlines May Join Global Alliance
In 2010 the Star Alliance lost its member in China's financial heart -- Shanghai Airlines -- when SkyTeam member-elect China Eastern merged with Shanghai Airlines. Privately owned Juneyao Airlines is based in Shanghai and plans to decide by the end of 2016 whether to join a global alliance. Partnerships could add impetus to Juneyao's nascent plans to fly long haul by the end of the decade.
Any decision to join an alliance would almost certainly result in Juneyao selecting Star. Star presents the greatest opportunity for Juneyao to receive connecting passengers. Long haul Star capacity into Shanghai Pudong is larger than the combined capacity from oneworld and unaligned airlines (and some of them, like Qantas, are cosying up to China Eastern). Juneyao is ruling out being in the same alliance as China Eastern, which is currently SkyTeam (and perhaps in the future - oneworld). Juneyao's network is complementary to existing Star members Shenzhen Airlines and Air China and the airline codeshares with Air China, which for a few years has wanted Juneyao to join Star.
Juneyao and Star would benefit, but alliance membership is also a competitive ploy from Air China against China Eastern. Juneyao in Star would further enhance Air China's presence in Shanghai, adding to its group presence in other mainland Chinese cities: Beijing, Chengdu and Shenzhen. Other than the mainland, in Hong Kong Star Alliance's Air China owns part of oneworld's Cathay Pacific, while in Taiwan EVA is a member of Star.
At Shanghai Pudong, Juneyao Is Third Largest Airline and the Largest Non-SkyTeam Airline
Juneyao first flew in 2006, which would make it the youngest member of a global alliance, and is primarily a domestic airline. In March 2016 Juneyao will operate 187 daily domestic fights compared with 37 international/regional flights. International capacity is mostly to Northeast Asia, carrying outbound Chinese tourists.
76% of Juneyao's domestic seat capacity is to/from Shanghai and like others it has a split presence there, operating out of (primarily) domestic Shanghai Hongqiao and (mainly) international Shanghai Pudong. Juneyao's domestic presence in Pudong is larger than in Hongqiao, according to OAG data.
Normally this would be a disadvantage since Hongqiao is typically the preferred airport for Shanghai, being closer to the downtown core. Hongqiao is also attached to a large railway station that enables easy intermodal High Speed Rail connections.
Other airports where the airline has a notable presence are smaller, and unlikely any time soon to be major transfer points for potential alliance partners.
Juneyao positions itself as a full service airline. It is sometimes mistakenly characterised as an LCC like Spring Airlines, which was launched in China's post-2000 aviation reforms as well, and is also based in Shanghai. In 2015 the first services of Juneyao's LCC subsidiary, 9 Air, were launched. The LCC does not fly into Juneyao's Shanghai hub, operating instead from Guangzhou, and there are no codeshares or interlines. Management of 9 Air comes from Juneyao, but the airlines use different IT platforms.
Spring Airlines has received interest from foreign airlines expecting to benefit from connection with onward Spring flights and the airline has been considering a partnership strategy for a few years. It has yet to implement it, largely due to the IT changes that would be needed.
Juneyao's alliance decision would need IT changes but it does have some experience, since it already codeshares and interlines. However, IT upgrades for alliance membership are typically more involved than the IT changes required for simple partnerships along the lines that Spring has envisaged. Further, Spring is larger in Hongqiao than Pudong, whereas that situation is reversed for Juneyao.
Juneyao is unique in being a major Shanghai airline that has a larger presence in Pudong than in Hongqiao. Pudong International Airport accommodates most of Shanghai's international traffic and Chinese airlines partnering from Pudong would welcome new passenger flows. Pudong services typically have lower yields than Hongqiao, as demand for the more remote airport is lower.
By contrast, the limited number of international flights into Hongqiao are all short haul and mostly point-to-point. Being closer to more of central Shanghai and a hub for rail and bus journeys to around the area, Hongqiao's airline yields are consequently generally higher. As a consequence, there is less need to fill up with long haul traffic, with its lower yields.
Juneyao is larger than Air China at Pudong, but Air China is slightly larger than Juneyao at Hongqiao. From Pudong, Juneyao offers 28 domestic destinations against Air China/Shenzhen Airlines' combined 37.
All of Juneyao's Pudong destinations are served by Air China or Shenzhen Airlines, according to OAG data. Even where they may overlap on destinations, Juneyao would provide overall frequency thickness. (The additional destinations shown served by China Eastern are mainly smaller markets.)
Juneyao Chairman Wang Junjin told Bloomberg that Juneyao will decide by the end of 2016 whether or not to join a global alliance. Juneyao has ruled out joining an alliance that already has a presence in Shanghai. China Eastern and wholly-owned Shanghai Airlines are the only local Shanghai airlines that are members of an alliance: SkyTeam.
However, China Eastern has been weighing a decision to leave SkyTeam and instead join oneworld. China Eastern has growing oneworld relationships: JAL (historical), Qantas (new) and British Airways (perhaps to come). China Eastern has expressed dissatisfaction with some of its SkyTeam members, believing that there is too much competitive overlap, whereas oneworld would be more welcoming and less competitive.
(This would be less than welcome news to SkyTeam leader Delta, which invested nearly half a billion dollars in 2015 to buy 3.6% of China Eastern, ""solidifying" its partnership with the Chinese airline. oneworld is however a relatively loose alliance; Qatar Airways is for example a member, while Qantas has an extensive JV with Emirates.
Whatever China Eastern decides, Juneyao remains a strong fit with Star for strategic reasons, and because Air China wants Juneyao in its fold.
Juneyao accounts for 9% of domestic seat capacity at Hongqiao and 12% at Pudong. The addition of Juneyao to Star would give the alliance a comparable domestic capacity share as in Guangzhou, where there is no locally based Star member (but Air China and Shenzhen Airlines have a large presence). Star's domestic Pudong presence would increase from 11% to 23% compared with SkyTeam's 45%. At Hongqiao, Star's share would increase from 11% to 20% compared with SkyTeam's 45%.
China Eastern leaving SkyTeam for oneworld would fragment capacity since the airline's share would go to oneworld, while China Southern and Xiamen would remain in SkyTeam. This would then make Star's share more comparable.
Star's existing presence in the domestic Chinese network gives scale for Juneyao to work with. While oneworld (if China Eastern does not join) would present no competitive overlap, it would also not give Juneyao recognition or scale to work with. Juneyao already has a partnership with Air China, established to help Air China and Juneyao gain scale in Shanghai against China Eastern. Juneyao also codeshares with Shenzhen Airlines, owned by Air China. China Eastern protested about the Air China cooperation, and as a result Juneyao codeshares with China Eastern as well.
There are a few key reasons an airline joins a global alliance. As discussed above, there is strengthening of an airline's existing network and the addition of a virtual network. There is also the opportunity to add connecting passengers, such as from long haul flights. Shanghai is largely an O&D market (unlike a Frankfurt or Amsterdam) but there is a considerable opportunity to increase connections as its network increases.
Long haul partners would be interested in Juneyao's domestic network. China has not cultivated sixth freedom hubs, but these are growing and in the future will become more prominent.
Star has the largest inbound long haul seat capacity operated by foreign airlines, and this is slightly larger than the combined capacity size from oneworld and unaligned airlines. Since the figures are for foreign airlines, they exclude long haul flights by Chinese airlines.
Yet there could be some partnership opportunity, as Air China is growing its long haul base at Shanghai.
Star Alliance is the strictest of the three global alliances regarding partnerships outside the alliance. As a result Juneyao's affiliation with Star could potentially prevent it from partnering with other airlines. (Conversely, Star airlines will find it difficult to partner with airlines outside Star.)
The question is whether the upside of feed from Star is worth Juneyao being excluded from working with other airlines. Star Alliance has approximately 5% more long haul seat capacity than oneworld and unaligned operators combined. Further, some of the oneworld and unaligned capacity could become affiliated with a China Eastern partnership. Qantas already has a partnership with China Eastern, and others are considering how to get closer to China Eastern.
Global Alliances Have Helped Chinese Airlines Go Long Haul, and Could Help Juneyao Too
Chinese airlines have used global alliance membership to help them expand into long haul markets. Global alliances can facilitate (and pressure) partnerships. Most recently, Xiamen Airlines formed a JV with fellow SkyTeam airline KLM for their joint operation on the Xiamen-Amsterdam route. China Eastern and China Southern have various partnerships with the AF-KLM Group while Air China and Lufthansa are working on a JV.
Juneyao received its 50th aircraft (all A320 family aircraft) in December 2015 and said that by the end of 2020 it expects to double its fleet to 100 aircraft. This includes widebody aircraft, which Juneyao said would be used to fly from Shanghai to Europe and North America at an unspecified time. Shanghai is a desirable long haul hub, but route allocations are being swallowed by China Eastern, Hainan and Air China.
Then again, by 2020, more competition could be allowed, or an exception could be made since Juneyao -- unlike Air China and Hainan -- is a Shanghai-based airline. Global alliances could help Juneyao grow long haul. Alliances may not be the perfect solution, but Juneyao would likely find them to be a significantly easier option than setting out on its international expansion as an independent airline.
Juneyao's Selection of Star Alliance Would Mean Air China Consolidating Its Position as China's Flag Carrier
As much as a Juneyao selection of Star Alliance has strategic benefits for the airline and alliance, there is no denying the competitive element from Air China. The monolithic CAAC airline was broken up decades ago, with the strategy of establishing an airline as the hub of each of China's major regions.
Inspiration was drawn from the US: Northwest was unchallenged in Detroit, American in Dallas, Delta in Atlanta. Consolidation and competition, especially in recent years, have resulted in a blurring of China's plan in major cities, as in the US where American and Delta are for example jockeying for a stronghold in Los Angeles.
Shanghai has long been a target given its commercial/financial success and China Eastern's relative weakness. Air China, and more recently Hainan Airlines, both based in Beijing, have grown long haul flights from Shanghai and are trying to increase their domestic presence. China Southern has been rebuffed in Beijing but should finally grow once the new Beijing airport opens.
Hainan has been prevented from joining an alliance (it would bring too much competition to the state-owned airlines) but Juneyao is different: it is small enough not to be a threat, yet big enough to be of value.
Juneyao joining Star would not be revolutionary but would be significant for Air China. China Eastern and China Southern, both state-owned but not bestowed with the same privileges as Air China, will continue to need to respond competitively. Yet for all their troubles, they have a far easier time than Hainan, Spring and others.
Although a merger is unlikely, and equity involvement has not been discussed, Juneyao would give Air China (the smallest domestically of the three state-owned airlines) a stronger position in Shanghai, adding to its main base in Beijing, its secondary base in Chengdu and presence in Shenzhen via Shenzhen Airlines.
In Hong Kong, Air China owns a minority stake in Cathay Pacific but any larger shareholding would trigger a takeover offer; this is expected one day. In Taiwan the ties are looser (there is no equity involved), but EVA Air is part of Star and Air China was central in EVA's joining process.
Juneyao offers another step for Air China to consolidate its presence across greater China -- and, by extension, Asia -- and to reaffirm its role as China's one and only flag carrier. This is a part of the world where aviation continues to carry incredible symbolism, and government recognition of the economic benefits.
Spring A
Any decision to join an alliance would almost certainly result in Juneyao selecting Star. Star presents the greatest opportunity for Juneyao to receive connecting passengers. Long haul Star capacity into Shanghai Pudong is larger than the combined capacity from oneworld and unaligned airlines (and some of them, like Qantas, are cosying up to China Eastern). Juneyao is ruling out being in the same alliance as China Eastern, which is currently SkyTeam (and perhaps in the future - oneworld). Juneyao's network is complementary to existing Star members Shenzhen Airlines and Air China and the airline codeshares with Air China, which for a few years has wanted Juneyao to join Star.
Juneyao and Star would benefit, but alliance membership is also a competitive ploy from Air China against China Eastern. Juneyao in Star would further enhance Air China's presence in Shanghai, adding to its group presence in other mainland Chinese cities: Beijing, Chengdu and Shenzhen. Other than the mainland, in Hong Kong Star Alliance's Air China owns part of oneworld's Cathay Pacific, while in Taiwan EVA is a member of Star.
At Shanghai Pudong, Juneyao Is Third Largest Airline and the Largest Non-SkyTeam Airline
Juneyao first flew in 2006, which would make it the youngest member of a global alliance, and is primarily a domestic airline. In March 2016 Juneyao will operate 187 daily domestic fights compared with 37 international/regional flights. International capacity is mostly to Northeast Asia, carrying outbound Chinese tourists.
76% of Juneyao's domestic seat capacity is to/from Shanghai and like others it has a split presence there, operating out of (primarily) domestic Shanghai Hongqiao and (mainly) international Shanghai Pudong. Juneyao's domestic presence in Pudong is larger than in Hongqiao, according to OAG data.
Normally this would be a disadvantage since Hongqiao is typically the preferred airport for Shanghai, being closer to the downtown core. Hongqiao is also attached to a large railway station that enables easy intermodal High Speed Rail connections.
Other airports where the airline has a notable presence are smaller, and unlikely any time soon to be major transfer points for potential alliance partners.
Juneyao positions itself as a full service airline. It is sometimes mistakenly characterised as an LCC like Spring Airlines, which was launched in China's post-2000 aviation reforms as well, and is also based in Shanghai. In 2015 the first services of Juneyao's LCC subsidiary, 9 Air, were launched. The LCC does not fly into Juneyao's Shanghai hub, operating instead from Guangzhou, and there are no codeshares or interlines. Management of 9 Air comes from Juneyao, but the airlines use different IT platforms.
Spring Airlines has received interest from foreign airlines expecting to benefit from connection with onward Spring flights and the airline has been considering a partnership strategy for a few years. It has yet to implement it, largely due to the IT changes that would be needed.
Juneyao's alliance decision would need IT changes but it does have some experience, since it already codeshares and interlines. However, IT upgrades for alliance membership are typically more involved than the IT changes required for simple partnerships along the lines that Spring has envisaged. Further, Spring is larger in Hongqiao than Pudong, whereas that situation is reversed for Juneyao.
Juneyao is unique in being a major Shanghai airline that has a larger presence in Pudong than in Hongqiao. Pudong International Airport accommodates most of Shanghai's international traffic and Chinese airlines partnering from Pudong would welcome new passenger flows. Pudong services typically have lower yields than Hongqiao, as demand for the more remote airport is lower.
By contrast, the limited number of international flights into Hongqiao are all short haul and mostly point-to-point. Being closer to more of central Shanghai and a hub for rail and bus journeys to around the area, Hongqiao's airline yields are consequently generally higher. As a consequence, there is less need to fill up with long haul traffic, with its lower yields.
Juneyao is larger than Air China at Pudong, but Air China is slightly larger than Juneyao at Hongqiao. From Pudong, Juneyao offers 28 domestic destinations against Air China/Shenzhen Airlines' combined 37.
All of Juneyao's Pudong destinations are served by Air China or Shenzhen Airlines, according to OAG data. Even where they may overlap on destinations, Juneyao would provide overall frequency thickness. (The additional destinations shown served by China Eastern are mainly smaller markets.)
Juneyao Chairman Wang Junjin told Bloomberg that Juneyao will decide by the end of 2016 whether or not to join a global alliance. Juneyao has ruled out joining an alliance that already has a presence in Shanghai. China Eastern and wholly-owned Shanghai Airlines are the only local Shanghai airlines that are members of an alliance: SkyTeam.
However, China Eastern has been weighing a decision to leave SkyTeam and instead join oneworld. China Eastern has growing oneworld relationships: JAL (historical), Qantas (new) and British Airways (perhaps to come). China Eastern has expressed dissatisfaction with some of its SkyTeam members, believing that there is too much competitive overlap, whereas oneworld would be more welcoming and less competitive.
(This would be less than welcome news to SkyTeam leader Delta, which invested nearly half a billion dollars in 2015 to buy 3.6% of China Eastern, ""solidifying" its partnership with the Chinese airline. oneworld is however a relatively loose alliance; Qatar Airways is for example a member, while Qantas has an extensive JV with Emirates.
Whatever China Eastern decides, Juneyao remains a strong fit with Star for strategic reasons, and because Air China wants Juneyao in its fold.
Juneyao accounts for 9% of domestic seat capacity at Hongqiao and 12% at Pudong. The addition of Juneyao to Star would give the alliance a comparable domestic capacity share as in Guangzhou, where there is no locally based Star member (but Air China and Shenzhen Airlines have a large presence). Star's domestic Pudong presence would increase from 11% to 23% compared with SkyTeam's 45%. At Hongqiao, Star's share would increase from 11% to 20% compared with SkyTeam's 45%.
China Eastern leaving SkyTeam for oneworld would fragment capacity since the airline's share would go to oneworld, while China Southern and Xiamen would remain in SkyTeam. This would then make Star's share more comparable.
Star's existing presence in the domestic Chinese network gives scale for Juneyao to work with. While oneworld (if China Eastern does not join) would present no competitive overlap, it would also not give Juneyao recognition or scale to work with. Juneyao already has a partnership with Air China, established to help Air China and Juneyao gain scale in Shanghai against China Eastern. Juneyao also codeshares with Shenzhen Airlines, owned by Air China. China Eastern protested about the Air China cooperation, and as a result Juneyao codeshares with China Eastern as well.
There are a few key reasons an airline joins a global alliance. As discussed above, there is strengthening of an airline's existing network and the addition of a virtual network. There is also the opportunity to add connecting passengers, such as from long haul flights. Shanghai is largely an O&D market (unlike a Frankfurt or Amsterdam) but there is a considerable opportunity to increase connections as its network increases.
Long haul partners would be interested in Juneyao's domestic network. China has not cultivated sixth freedom hubs, but these are growing and in the future will become more prominent.
Star has the largest inbound long haul seat capacity operated by foreign airlines, and this is slightly larger than the combined capacity size from oneworld and unaligned airlines. Since the figures are for foreign airlines, they exclude long haul flights by Chinese airlines.
Yet there could be some partnership opportunity, as Air China is growing its long haul base at Shanghai.
Star Alliance is the strictest of the three global alliances regarding partnerships outside the alliance. As a result Juneyao's affiliation with Star could potentially prevent it from partnering with other airlines. (Conversely, Star airlines will find it difficult to partner with airlines outside Star.)
The question is whether the upside of feed from Star is worth Juneyao being excluded from working with other airlines. Star Alliance has approximately 5% more long haul seat capacity than oneworld and unaligned operators combined. Further, some of the oneworld and unaligned capacity could become affiliated with a China Eastern partnership. Qantas already has a partnership with China Eastern, and others are considering how to get closer to China Eastern.
Global Alliances Have Helped Chinese Airlines Go Long Haul, and Could Help Juneyao Too
Chinese airlines have used global alliance membership to help them expand into long haul markets. Global alliances can facilitate (and pressure) partnerships. Most recently, Xiamen Airlines formed a JV with fellow SkyTeam airline KLM for their joint operation on the Xiamen-Amsterdam route. China Eastern and China Southern have various partnerships with the AF-KLM Group while Air China and Lufthansa are working on a JV.
Juneyao received its 50th aircraft (all A320 family aircraft) in December 2015 and said that by the end of 2020 it expects to double its fleet to 100 aircraft. This includes widebody aircraft, which Juneyao said would be used to fly from Shanghai to Europe and North America at an unspecified time. Shanghai is a desirable long haul hub, but route allocations are being swallowed by China Eastern, Hainan and Air China.
Then again, by 2020, more competition could be allowed, or an exception could be made since Juneyao -- unlike Air China and Hainan -- is a Shanghai-based airline. Global alliances could help Juneyao grow long haul. Alliances may not be the perfect solution, but Juneyao would likely find them to be a significantly easier option than setting out on its international expansion as an independent airline.
Juneyao's Selection of Star Alliance Would Mean Air China Consolidating Its Position as China's Flag Carrier
As much as a Juneyao selection of Star Alliance has strategic benefits for the airline and alliance, there is no denying the competitive element from Air China. The monolithic CAAC airline was broken up decades ago, with the strategy of establishing an airline as the hub of each of China's major regions.
Inspiration was drawn from the US: Northwest was unchallenged in Detroit, American in Dallas, Delta in Atlanta. Consolidation and competition, especially in recent years, have resulted in a blurring of China's plan in major cities, as in the US where American and Delta are for example jockeying for a stronghold in Los Angeles.
Shanghai has long been a target given its commercial/financial success and China Eastern's relative weakness. Air China, and more recently Hainan Airlines, both based in Beijing, have grown long haul flights from Shanghai and are trying to increase their domestic presence. China Southern has been rebuffed in Beijing but should finally grow once the new Beijing airport opens.
Hainan has been prevented from joining an alliance (it would bring too much competition to the state-owned airlines) but Juneyao is different: it is small enough not to be a threat, yet big enough to be of value.
Juneyao joining Star would not be revolutionary but would be significant for Air China. China Eastern and China Southern, both state-owned but not bestowed with the same privileges as Air China, will continue to need to respond competitively. Yet for all their troubles, they have a far easier time than Hainan, Spring and others.
Although a merger is unlikely, and equity involvement has not been discussed, Juneyao would give Air China (the smallest domestically of the three state-owned airlines) a stronger position in Shanghai, adding to its main base in Beijing, its secondary base in Chengdu and presence in Shenzhen via Shenzhen Airlines.
In Hong Kong, Air China owns a minority stake in Cathay Pacific but any larger shareholding would trigger a takeover offer; this is expected one day. In Taiwan the ties are looser (there is no equity involved), but EVA Air is part of Star and Air China was central in EVA's joining process.
Juneyao offers another step for Air China to consolidate its presence across greater China -- and, by extension, Asia -- and to reaffirm its role as China's one and only flag carrier. This is a part of the world where aviation continues to carry incredible symbolism, and government recognition of the economic benefits.
Spring A
Wednesday, 9 December 2015
CHINA: Budget Airlines Expand And Open New Routes
Since late 2013, the Civil Aviation Administration of China has encouraged budget airlines as Beijing has seen how they have taken off elsewhere. Freeing up new routes for low-cost carriers also helps develop economic growth in western China.
Low-cost carriers account for 7 percent of China’s domestic air travel market, and that’s expected to more than double by 2020, according to OAG, an aviation data and analytics company.
China, the fastest growing major air travel market, has overall passenger volume of 392 million, rising at more than 10 percent a year, according to official data, and planemaker Airbus predicts it will leapfrog the United States as the world’s largest domestic air traffic market within 10 years.
Low-cost travel has become a life style. Many of my colleagues would start chatting about how to get those 9 yuan ($1.41) or 99 yuan ($15.48) special offer tickets.
As Europe’s pioneer no-frills airlines such as Ryanair and easyJet mature and move more upmarket, they are attracting business travelers as a way to stand out in the budget crowd.
China’s four budget airlines offer sharply discounted air fares to full-service carriers.
For example, West Air, a subsidiary of Hainan Airlines’ parent HNA Group, offers a round trip from Chongqing to the popular southern resort of Sanya and a 3-night stay in a five-star hotel for just 999 yuan ($156), for bookings made well in advance. That compares with 770 yuan for the cheapest one-way ticket offered by full-service carriers, according to Ctrip.com.
In Europe, the cheapest budget airline return ticket for a similar flight – from Luton in England to Barcelona – without accommodation, costs 98 pounds ($148) on cheapflights.co.uk.
All of China’s low-cost carriers, except newest entrant 9 Air, are profitable. Much of that is down to severe paring of their costs.
At China United, flight attendants clean up inside the plane between flights. The airline has squeezed more seats into its fleet of Boeing 737 planes, and turned one of the jets into a flying billboard, advertising Huangguoshu waterfall, China’s biggest, said executive vice president Zhang Lanhai. With money from the local government, China United passengers are offered big discounts on hotels and tours in the area.
Spring Air, China’s first and largest budget carrier, took out nearly all the light bulbs on the corridor to chairman Wang Zhenghua’s office, and staff must turn off the lights when they leave for the day. Both the chairman and president eat at the staff cafeteria, and flight attendants share hotel rooms on trips.
The carrier on Thursday said it signed a $6.3 billion deal to buy 60 A320neo jets from Airbus to help it meet rising demand, tap new markets and improve fleet fuel efficiency. Spring Air has halved the size of the kitchen on some existing A320s to accommodate extra seats.
Attracted by the sector’s growth potential, some state airlines have converted to low-cost carriers, and others are likely to follow suit.
This year alone, China Eastern Airlines converted its China United unit into a budget carrier, and Juneyao Airlines set up a low-cost subsidiary in Guangzhou. West Air converted in 2013, and Lucky Air, another HNA carrier, is also going through that transition. China Southern Airlines is also considering setting up a budget subsidiary.
The budget carriers have grown in part by flying routes that aren’t covered by the bigger airlines.
China United, for example, flies to nearly a dozen cities in Inner Mongolia, more than any other carrier including Air China, which even has a branch there, said Zhang.
Because Inner Mongolia’s transport network is still patchy, the quickest way to travel from one city to another is often to fly around 500 kms (311 miles) to Beijing with China United and connect there to a flight to the Inner Mongolian destination.
“More and more people are doing this because it’s faster and cheaper,” said China United’s Zhang.
Spring Air, which also flies to popular Asian leisure destinations, started flights in late October to Dongyin, an oil-rich city in eastern China whose only connection to Shanghai was previously by a lengthy bus trip and then by high-speed rail. The maiden flight was packed, a company executive said.
Frustrated at not having enough slots at Beijing International Airport, Spring Air offered passengers free high-speed rail tickets to Shijiazhuang airport nearly 300 kms away, where it has better slots and offers more flights.
As more Chinese take to the skies, one challenge for the budget airlines is to manage passenger expectations.
Air travel has always been seen as a mode of transport for the privileged in China, and some passengers have been unhappy about meals and leg-room or when asked to pay for luggage or in-flight drinks.
But 9 Air’s marketing chief Huang Hui says: “Some passengers who initially complained keep coming back.”
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