High-speed trains impacting China airline earnings

China’s three major Stateowned airlines, Air China, China Southern Airlines and China Eastern Airlines, all pointed out the impact from high-speed trains in their latest half-year earnings reports, and only China Eastern achieved positive growth in net profits.

In the first half year, China Eastern saw its net profits jump 34.46 percent over the previous period. Air China and China Southern saw their net profits fell by 3.79 percent and 11.62 percent, respectively, according to their earnings reports.

For sales revenues, however, all three major airlines achieved positive growth. China Eastern, China Southern and Air China netted sales revenues of 48.02 billion yuan ($7.17 billion), 60.32 billion yuan and 58.16 billion yuan, respectively, up 3.64 percent, 11.54 percent and 8.65 percent year-onyear. In addition, the passenger load factor of all three major airlines stood above 80 percent in the period.

Air China said in its report that China has built the largest high-speed train network on the global, and the routes are expanding to the midwestern area. For medium and short-haul trips, many passengers prefer to choose high-speed trains as their way of transportation, given the high frequencies, cheap prices, on-time arrivals and convenience of high-speed trains, placing the aviation sector at a disadvantage.

Li Guijin, a professor at the Civil Aviation Management Institute of China, said China’s aviation sector should learn from their competitors in the high-speed train sector, and provide more convenient services for the passengers.

“Civil aviation, railways, roads and water routes are all critical parts of comprehensive transportation system. Those methods should deeply integrate with one another, improve the efficiencies through combinations, and achieve healthy competitions.”

He also added that Air China is ready to innovate in Terminal 2 of Beijing Capital International Airport, and said China Eastern and China Southern should embrace the opportunities that emerge from the new airport facility.

Meanwhile, besides China Eastern, which is among the first in a batch of Stateowned enterprises slated for mixed-ownership reforms, Air China and China Southern also mentioned that they are exploring and pushing forward such reform.

In June, China Eastern Air Holding Co, the State-owned parent company of China Eastern, sold part of its freight business to four private firms, as it stepped up the efforts to diversify its holdings.

The mixed-ownership reform is part of the Chinese’s government’s push to further rejuvenate State-owned enterprises with private capital, which is expected to provide a number of investment opportunities.