Chinese aviation turnaround: Lower fuel costs, international routes’ growth

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BEIJING, China – China’s airlines are reporting major turnaround in their mid-year results of 2015.

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BEIJING, China – China’s airlines are reporting major turnaround in their mid-year results of 2015. China Southern Airlines made a strong recovery, reporting net profits of RMB3.4 billion ($547.5 million) to RMB3.6 billion ($578 million), while China Eastern Airlines will also enjoy profits on similar scale. Meanwhile newly listed Juneyao Airlines expects to achieve 130%-170% growth in profits during the same period.

The turnaround is attributed to lower fuel costs and explosive growth in international air routes. The rapid growth of China’s outbound tourism market and the State’s “One belt one road” policy have also bolstered China’s demand for global transportation connections, according to Boeing Commercial Airplanes’s managing director of China and Northeast Asia marketing, Darren Hulst.

Leap in demand for long-haul flights

“In 2009, long-haul flights only made up 36% of China’s aviation operations, but this has risen to 45% this year, indicating the long-haul flight market has roughly doubled in size. This means the long-haul operations of China’s carriers have been growing at an annual rate of 20% over the last six years,” Mr. Hulst said.

“It’s worth noting that the US, Europe and Australia are easing visa restrictions for Chinese nationals, so we can expect rapid growth in international air routes operated by Chinese carriers. Boeing expects to see a sharp increase in demand for high planeload capacity wide-bodied aircraft from China’s carriers,” he said.

Scale of domestic flight operations still greater than international flights

Although Chinese carriers’ international flight operations are growing at a faster rate than domestic operations in 2014, the scale of the international flight operations is still significantly smaller than domestic flight operations, according to Civil Aviation Administration of China data.

Domestic flights carried 360.4 million passengers/trips last year with growth at 10.1%, whereas international flights had just 31.55 million passengers/trips in the same period at a growth rate of 18.8%.

Of the 3,142 scheduled flight routes in the Chinese aviation industry, 2,652 routes were domestic and 490 routes were international as of 2014.

Chinese carriers announce big budgets for fleet expansion

With performance figures looking up, Chinese carriers are announcing plans to raise funds to restructure their fleets and boost transportation capacity. According to published data, it is estimated that the Chinese aviation industry will spend over RMB25 billion (approx: US$4 billion) to purchase aircraft.

China Eastern announced in April that it would allocate RMB12.1 billion (approx: US$2 billion) of the RMB15 billion (approx: US$2.4 billion) it was raising to purchase 28 aircraft, including Boeing 777-300ER and 737-800 and Airbus A330-200 and A321.

Hainan Airlines also said in April that in would use RMB11 billion (approx: US$1.77 billion), of the RMB24 billion (approx: US$3.8 billion) it was raising to purchase 37 aircraft, including Boeing 737,787 and Airbus A330 series aircraft.

Juneyao Airlines also recently announced it would set aside RMB2.74 billion (approx: US$441 million) of the RMB3.5 billion (approx: US$563 million) it planned to raise to purchase aircraft. Air China also recently announced plans for a private offering to support its future development.

Boeing predicts that China’s carriers will need about 1,500 planes over the next 20 years, equivalent to around 20% of global demand. Boeing’s 777-300ER and 787 type aircraft are deployed for about 75% of Chinese carriers’ long-haul routes, including the Beijing-Boston, Beijing-San Jose, Nanjing-L.A. and Wuhan-San Francisco services inaugurated last year.

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