China Eastern, Singapore Air combine Shanghai cargo carriers to boost hub
BEIJING: China Eastern Airlines Corp., Singapore Airlines Ltd. and partners agreed to combine three air-cargo carriers to bolster their presence in Shanghai, China's busiest air freight center. China Eastern, Singapore Air's cargo unit, a unit of Taiwan-based EVA Airways Corp. and China Ocean Shipping (Group) Co. will invest a total of 2.05 billion yuan ($307 million) in China Cargo Airlines to support the takeover of two other freight carriers, according to a Hong Kong stock exchange statement today.
China Eastern is consolidating freight operations following the takeover of Shanghai Airlines Co. to strengthen its presence in Shanghai, where the company is based. The move will help the carrier compete with a Cathay Pacific Airways Ltd. and Air China Ltd. cargo venture that's due to start services by Dec. 31.
"Managing one company rather than three will help save costs," said Kelvin Lau, a Hong Kong-based analyst at Daiwa Institute of Research. "Exports are still in the growing phase for China and imports are also doing quite well."
China may become the world's largest exporter and second-biggest importer by the end of the year, with total foreign trade of $2.9 trillion in 2010, Xinhua News Agency said Dec. 16, citing Chinese Commerce Minister Chen Deming.
China Eastern, the nation's second-biggest carrier, will invest 1.05 billion yuan in China Cargo and hold a 51 percent stake, while China Ocean Shipping (Group) Co. will put up 348.5 million yuan for a 17 percent stake. Singapore Air's cargo unit and Concord Pacific Ltd., a unit of EVA Airways, will each invest 328 million yuan in exchange for a 16 percent stake apiece.
China Cargo, which will acquire the assets of Shanghai Cargo Airlines and Great Wall Airlines, will have registered capital of 3 billion yuan following the restructuring. Prior to the new arrangement, the company was owned by China Eastern and Cosco Group.
Shanghai Cargo was formed as a venture between Shanghai Air and EVA Air. Great Wall is owned by China Eastern's parent, Singapore Air and Singapore investment company Temasek Holdings Pte. China Eastern already manages operations. China Eastern fell 3.2 percent to HK$3.60 as of 12:21 p.m. in Hong Kong trading, while Singapore Air gained 0.5 percent to S$15.16. Cathay fell 1.6 percent to HK$21.85.
Growth in China has encouraged FedEx Corp., the second-largest U.S. package-shipping company, to add two new services linking China and the U.S., and Hong Kong's Cathay to boost freight capacity from next year. Cathay's cargo venture with Air China will give the carrier access to freight hubs in Shanghai and Beijing.
Airlines in the Asia-Pacific region are forecast to post a combined profit of $7.7 billion this year, the highest of any region, led by growth in China, the International Air Transport Association said Dec. 14. Global freight traffic at Asia-Pacific airports increased almost 23 percent in the first 10 months of the year, according to the Airport Council International. The surging traffic may help Cathay surpass Korean Air Lines Co. as the world's biggest international air-cargo carrier this year. Hong Kong, which neighbors the Pearl River Delta, China's main manufacturing hub, is on course to surpass Memphis, Tennessee, as the world's busiest air-cargo airport this year. Memphis is the home to FedEx's main hub.
In a separate news item, Jetstar, the budget unit of Qantas Airways Ltd., makes its first Singapore-Melbourne flight today, marking the beginning of its challenge to Singapore Airlines Ltd. on long-haul routes. The carrier sold 210 tickets for the 8:50 p.m. flight, including 24 in business class, Simone Pregellio, a spokeswoman, said today. The low-fare airline will operate the daily seven-hour flight using an Airbus SAS A330-200 that can carry as many as 303 passengers. Jetstar may base as many as four A330s in Singapore by the end of next year, as it adds flights to Auckland in March and possibly services to north Asia and southern Europe later in 2011, Jetstar Asia Chief Executive Officer Chong Phit Lian said today. The carrier is touting fares 30 percent cheaper than rivals as it seeks to lure travelers from full-service carriers.
"Competition will increase and this will put some pressure on Singapore Air," said Kelvin Lau, a Hong Kong-based analyst at Daiwa Institute of Research, who has an 'outperform' rating on Singapore Air. "There will always be people who will want the cheapest fares."
Jetstar offers one-way flights to Melbourne from S$428 ($327), including taxes and surcharges, it said in its e-mail. The carrier's passengers have to pay an extra S$20 if they want to take check-in baggage, according to its website.
Singapore Air is running a promotion on its website offering return flights to Melbourne from S$818, including baggage, taxes and surcharges. Passengers buying these tickets have to travel this month and return in late January.
Singapore Air, which operates 21 weekly return flights between the city-state and Melbourne, welcomes and advocates competition, Nicholas Ionides, a spokesman, said in an email reply to Bloomberg questions. -Bloomberg