China's largest airline, Air China (
) yesterday said the Chinese aviation sector is not yet ready for
budget airlines and Air China will not be competing within the
A top unnamed Air China official simply cited China's
policies and market environment as not ready for low budget
Air China chairman Wang Changshun stated that the Chinese
aviation industry "is facing a more severe situation than that
during the financial crisis in 2008... So, Air China will mainly
focus on improving its current major services."
This was similar to statements he made three months ago
meeting in Beijing after China Eastern Airlines (
) and Australia's Qantas Airways (
partnered up to create a low cost carrier
now known as Jetstar Hong Kong.
Changshun says the Chinese aviation sector is being impacted
on three separate fronts: the euro debt crisis is impacting
Chinese airlines, while slowing growth in the U.S., and slowing
growth locally within Asia are all hindering the space.
"Passenger transport service is better than cargo", stated
Changshun, "the domestic market is better than the international
one and regional routes are better than the artery ones." It is
important to note that Changshun is referring only to the
Chinese aviation sector in this statement.
The Chinese aviation sector is being hit hard. Air China alone
saw net profits fall 38.8% in 2011 compared to 2010 net profits.
Reports suggest it was mainly due to the price of fuel. Air
China's 2011 profits were $1.17 million, or roughly ¥7.5 billion,
well off the pre-2008 pace.
Changshun is expecting the market to expand this year, with
volume increases of nearly 350 million from last year's 290
million, and Air China snagging about 200 million.
The stage is set for an old fashioned showdown in the Chinese
aviation sector, with the largest airline in the business on one
side - full service - and the second largest airline partnering
up to create a budget airline, effectively creating a new segment
in China's aviation industry. Who will win?