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China's Civil Aviation: Reorganization and Joint Competition
People who are concerned about the development of China's civil aviation have finally heard the good news: Substantive progress has been made in the reorganization of various Chinese airline companies since the month of June this year. Soon after CAAC (Civil Aviation Administration of China) declared organization of three major air transport enterprises, the Zhongyuan Air Company as a local airlines declared on August 4 joining the China Southern Airlines. As a result, China's civil aviation's plan for reorganization of assets worth 150 billion yuan began to be put into practice.
In the second half of May this year, in a talk with a correspondent from a central information department, an official with the CAAC revealed the Administration's intention of reorganizing Air China, China Southern Airlines and China Eastern Airlines into three major air transport groups.
Two months thereafter, the CAAC official further disclosed the concrete content about the strategic reorganization of civil aviation enterprises, this means that CAAC will organize three major air transport group companies on the basis of Air China, China Eastern Airlines and China Southern Airlines. Relevant CAAC official has repeatedly stressed that the principle guiding the reorganization of enterprise assets follows: enterprise participation on a voluntary basis, guidance given by the government and promotion of group advantages. Airlines in various localities all participated in the three major group reorganization on a voluntary basis.
In the reorganization plan published by the CAAC, the 10 airlines directly under the Administration first respectively joined the reorganized three major airways, they are: Air China, the China Southern Airlines, the China Eastern Airlines, the China Southwestern Airlines, the China Northwestern Airlines, the China Northern Airlines, the China Xinjiang Airlines, the China Yunnan Airlines, the Great Wall Airlines, and the Air China Zhejiang Airlines.
According to CAAC's plan, the reorganized three major aviation group companies each have total assets of around 50 billion yuan. The three major group companies have, in compliance with the requirements of a modern enterprise system, established a corporate management set-up featuring each undertaking its responsibility, coordinated operation and effective control. The CAAC will adopt the policy of supporting the superior and the strong in the aspects of market access and the distribution of air routes, so as to promote enterprise reorganization.
Most people hope that after the reorganization of the three major group companies of the CAAC, the overall competitive capacity of China's civil aviation can be enhanced, competition between companies will be carried out in an orderly manner, the allocation of resources will be optimized, the public will get benefits from the standard development of civil aviation.
Judged from the related agreement on Zhongyuan Airlines' joining the China Southern Airlines, the first reorganization of the State key airlines and local airline companies did express both sides' idea about their voluntary association. Zhongyuan Airlines is an aviation company set up earlier in China. Founded in 1986, it was subordinated to Henan Provincial Communications Department. After more than 10 years of strenuous efforts, it has experienced fairly big development. The company's total assets have reached 1.46 billion yuan; it possesses five Boeing 737s and two Yun-7. Owing to its small scale and inadequate distribution of air routes, it has taken great pain to keep the airlines going over the past few years. Whereas the China Southern Airlines, one of the country's three major aviation group companies, possesses 81 Boeing airplanes and 20 A320 passenger airplanes, leading other domestic airlines in the number of aircraft, furthermore, the company has 334 international and domestic air routes. In the distribution of domestic air routes, Zhongyuan Airlines and the China Southern Airlines have many redundant air routes. It is believed that the merger of the two airways can reduce duplicate input and effectively raise the seating rate.
The fact that Zhongyuan Airlines took the lead in joining the China Southern Airlines marks a real step forward in the association of civil aviation enterprises. It also reflects from one aspect the gradual transformation of China's civil aviation industry from the past pursuit of quantitative growth to qualitative and efficiency growth resulted from enterprise structural readjustment.
Air transport industry is one of China's fastest growing industries over the past 20-odd years of reform and opening up, passenger transport volume approached 60 million persons/times, and the number of air routes developed to 1,122 and air planes to more than 500. However, the low-level, scattered competition consistently carried out alongside the development of civil aviation has been a headache problem. Owing to inadequate transport capacity in the initial stage of development and the profitability of air transport industry, various social quarters showed great enthusiasm for running aviation companies, for quite a while, there emerged 34 airline companies of different sizes in China embracing a total of over 500 airplanes, which were fewer than that of even an American airline company. There are nearly 70 flying bases nationwide, the redundant construction of flying bases as well as production and welfare facilities has taken up a huge sum of money. The duplicate operation of one air route by several airline companies has led to competition between them for the limited number of passengers, to seek survival, they often compete with each other for sales at reduced price in disregard of cost. The staff of China's civil aviation have been expanding at an annual rate of 10,000 people, the present number of personnel has exceeded 170,000, while that of a foreign airline company with the same transport size is much less than China's. In 1998, the main reason for the deficit of the whole trade of China's civil aviation was, under the circumstance of decline in main business income, the main business cost, management expense and sales expense, instead of falling correspondingly, increased notably, up by about an average of 10 percent over the previous year.
Although people in various social circles take a favorable look at the major reorganization of China's civil aviation this year, it is not an easy matter to really achieve a smooth accomplishment of the readjustment involving 73,000 people and the reorganization of assets worth 150 billion yuan.
External conditions are none too ideal, either. In addition to the need of coping with the large-scale offensive by foreign airways, various Chinese airlines have to digest the cost increase brought about by the sharp rise in recent oil price. Owing to the 35 percent oil price hike, the whole trade of civil aviation had to bear additional cost expenditure of 1.27 billion yuan in the first half of this year. Taking a look at the international civil aviation circle, people have noticed that along with the acceleration of the process of integration of the world economy and the general trends of internationalization and globalization of the air transport market, news about amalgamation or merger of companies has kept pouring in from the civil aviation industry.
Foreign airline enterprises have fixed their eyes on China's aviation market. Indeed, China is the world acknowledged region with the fastest growth in air transport volume. Boeing Company predicted: In the next 20 years, the annual growth rate of China's aviation market is estimated to surpass 9 percent, much higher than the world average growth level, and 20 years later, China will become the world's second largest aviation market after the United States.
China's entry into the WTO is only a matter of time, plagued by internal and external difficulties, Zhongyuan Airlines' taking of the move to merge itself with the China Southern Airlines has enabled people to see the effort made by China's civil aviation to cope with fierce international competition and, at the same time, it also once again indicates the common view reached between the upper and lower levels of China's civil aviation: Association leads to prosperity, decentralization spells failure.
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