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People's Daily Online>>China Business

Flying Low

By Fang Yunyu (Global Times)

08:04, April 20, 2012

China saw its economic growth reach 9.2 percent last year, and it was still at 8.1 percent in the first quarter this year. But for the country's airline industry, the slowdown has been a lot more pronounced.

China Southern Airlines Co and China Eastern Airline Corp, China's biggest and second-biggest airlines by passenger numbers, disclosed last week that they expect their net profits in the first quarter to fall by 50 percent year-on-year.

They also announced in March that their profits for 2011 declined by 12 percent and 7.7 percent, respectively, compared to 2010.

Air China, the country's third-biggest airline by passenger numbers, posted in late March its financial report for last year, which showed that its net profit slumped by 39 percent year-on-year to 7.48 billion yuan ($1.18 billion).

"Many factors have influenced the airline industry and led to it suffering such losses," Zhu Qingyu, director of market research at the China Air Transport Association, told the Global Times.

Problems to address

In a statement released last month, Air China said high jet fuel costs and a higher-than-expected impairment charge from retiring old aircraft were the main reasons behind the company's disappointing results.

China Southern said its profit decrease was due to higher fuel prices and slower domestic travel growth. China Eastern also blamed the rising fuel prices.

The price of imported airline fuel rose by 16.94 percent in 2011 over the year before, according to Xinhua News Agency's financial service website

"Indeed, these are some of the reasons why the domestic aviation giants failed to post good financial results for last year," Zou Jianjun, director of the Institute of Air Transport Services, told the Global Times, noting that jet fuel generally accounts for more than 40 percent of airlines' operating costs.

However, Zou said, there are other "important factors" behind the losses, such as inadequately developed cooperation with upstream and downstream industries, and increasing labor costs due to fierce competition in the sector.

Zhu Qingyu echoed Zou's opinion, saying the domestic carriers' industry chain is not complete. For example, high-end aviation services and tourist package cooperation with travel agencies have been neglected for years by the big carriers.

"Previously, the country's economy was so strong it was hard to detect problems in the aviation sector," said Zhu. "But once the economy started to slow down, problems emerged."

If Chinese consumers want to go abroad for holidays, they usually choose to contact travel agents or travel websites to arrange trips, rather than refer to airlines, mainly because airlines have a lack of travel package products, according to Zhu.

"Moreover, China's large interior aviation market hasn't developed much, even though it has many secondary airports," Zhu noted.

Secondary airports in the country's inland areas account for 80 percent of the domestic total of over 180 airports, yet they handle only 10 percent of the country's airline passengers, according to the outlook of China's civil airports in 2010-15, a report by commercial research institution CIConsulting.

Industry insiders say that airlines have few incentives to expand their business inland due to the small passenger volume, so the market has not developed well.

This is one of the reasons why many secondary airports lost money last year.

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