CAAC Puts Emphasis on Management for Elimination of Losses

This third report on the determination to win the decisive battle for the reform of State-owned enterprises and lifting them out of difficulties is written by Our Staff Reporter Liu Guilian. Following are highlights of this report.

In 1998, the Civil Aviation Administration of China (CAAC), which had been profitable for many years, suffered losses for the first time, with deficits amounting to 2.44 billion yuan and a total 4.7 billion yuan worth of profit reduction and deficit increase compared to the previous year. Large affiliated airlines all suffered losses. In 1999, CAAC scored notable results in its effort to turn deficit into profit. The whole trade earned 0.79 billion yuan of profits, reducing deficit and increasing profits by 3.77 billion yuan over 1998, achieving the goal of eliminating losses in one year.

Controlling Total Volume, Adjusting Transport Capacity

Strictly controlling increase in the number of airplanes and trying every possible means to digest surplus carrying capacity are the common view reached by all levels of CAAC in their efforts to eliminate deficit and increase profit.

Seeing its rapid development over the past dozen years, CAAC has overestimated market demands. In 1997 when there was a drop in air transport, CAAC still set the rate of growth at over 20 percent, with the planned total volume of passenger transport being fixed at 100 million people in 2000. Under such estimation, many airlines bought large numbers of airplanes. In 1998 when the Southeast Asian financial crisis broke out and the growth rate of China's national economy was slowed down, the aviation market further shrank, a negative growth emerged in the passenger transport volume, CAAC, however, had an increase of more than 60 airplanes, entailing a sharp drop in efficiency.

For airlines, increase in the number of airplanes and a fall in the utilization rate of airplanes, the seating rate of flight and the carrying rate actually mean duplicate construction. Controlling increase in the number of airplanes and reducing overproduction capacity is an effective way to reduce cost and tap potential. For this reason, while strictly controlling increase in the total number of airplanes, the CAAC supported various airways to sell and sublease airplanes and reduce transport capacity in a planned way.

Last year, thanks to their common efforts, all CAAC departments effectively controlled and digested transport capacity and reduced cost.

It is worthy of note that many airlines did not cut down carrying capacity in an oversimplified manner, instead they closely integrated the reduction of transport capacity and related reform with future development.

Strengthening Management, Reducing Cost and Increasing Efficiency

In 1998 CAAC experienced a profound market economy test, and it came to understand through practice that great efforts are required to raise the level of management.

Air China, a "big household with a lot of work" which has scored brilliant achievements of 45 years of safety flight, has great management potential.. The company has intensified management efforts in various aspects, lowered cost and reduced losses. It has introduced scientific management. This act alone saved 100 million yuan for it last year.

In the face of the status quo of high total cost, the various airlines have actively introduced cost target management in a bid to reduce cost, quite a few enterprises have established related systems such as improving cost decision, cost accounting, cost control and cost check-up, others have achieved notable results in the practice of whole process, all-directional and all-personnel control in the field of production. Last year, the income of the main business of the whole trade grew by 10.2 percent, while cost increased by only 7.7 percent, cutting the outlay of cost.

Market Exploration Is Fundamental

Striving to increase production, and bringing about more income through increased production represent a major breakthrough made by CAAC in market management last year. Under the circumstance of inadequate social effective demand, the air transport of the whole trade witnessed a relatively big growth, with the total rotation volume growing by 13.1 percent over the previous year, of which the international air route rose by 24.4 percent, and the Hong Kong air route by 29.9 percent. International, Yunnan, Hainan and Shandong aviation companies have achieved notable results in their efforts to explore markets. These air companies registered an increased income of 6.5 billion yuan through increasing production.

In the course of market competition, airlines have also enhanced their awareness of the need for joint cooperation. The Xiamen Airline took the lead in presenting the idea for joint operation and share of profits. In their opinion, joint operation is not only a method for airlines to lift themselves out of the current predicament, but also represents the orientation of long-term development.

Changing the operational situation of international airlines, strengthening marketing work, stressing the structural analysis of both passenger and goods sources, selecting the focal points of sales work and increasing the competitiveness of international airlines is also an important aspect of CAAC's effort to eliminate deficit.

This year, CAAC is faced with more arduous tasks. Despite the elimination of deficit in 1999, the profits earned were limited, the overall profits were rather low, profitable enterprises were not stable and consolidated, the foundation work was fragile, greater management effort is still required to fulfill this year's target. Centered closely round the endeavor to improve economic efficiency, CAAC will continue to reduce cost, actively explore markets, expand sources of income and guarantee the income level. CAAC staff members are determined to create new achievements in the new year.

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