Hainan Air seeks assets abroad in a bid to build global network
beijing — Like its acquisitive parent HNA Group, Hainan Airlines Holding Co is looking to bolster growth by buying assets on its own outside China, undeterred by potential headwinds posed by regulatory scrutiny of the parent’s overseas deals.
The nation’s fourth-largest carrier is exploring airlines and companies along the industry’s “value chain,” president Sun Jianfeng said in an interview, without elaborating. As part of its growth strategy, Hainan Air will double down on international flights from the nation’s second-tier cities where a travel boom is under way as it takes on bigger state-owned rivals, he said.
“We’ve gone past challenging, following and imitating others,” Sun said on June 23 in his office overlooking the carrier’s base at a terminal of Beijing Capital International Airport. “We now want to build a new order and set new standards.”
Hainan Air is no stranger to acquisitions, though they were all backed by HNA in the past. It has stakes in a Brazilian and Portuguese carrier, Tianjin Airlines and Changan Air. The string of deals pursued by the parent since last year — HNA announced more than $30 billion in asset purchases, becoming shareholder in companies including Hilton Worldwide Holdings and Deutsche Bank — has attracted attention worldwide. And, lately, official scrutiny.
The China Banking Regulatory Commission has asked some banks to provide information on overseas loans made to five conglomerates — HNA, Dalian Wanda Group Co, Anbang Insurance Group Co, Fosun International and the owner of Italian soccer team AC Milan. Sun, who took the top job at the carrier in November after a six-year stint as the deputy chief of Hong Kong Airlines, said he is not aware of any impact such scrutiny may have on Hainan Air’s business and future investment plans.
Founded by billionaire Chen Feng more than two decades ago with George Soros among its early investors, Hainan Air is seeking to build on HNA’s deals spanning Europe to South America as it expands in a market forecast to be the world’s biggest around 2024.
We’ve gone past challenging, following and imitating others. We now want to build a new order and set new standards Sun Jianfeng, President of Hainan Airlines
Standing in its way are Air China Ltd, China Southern Airlines Co and China Eastern Airlines Corp, the nation’s big three that corner most of the lucrative air rights in major hubs by virtue of being government owned.
As airlines globally sell small stakes to each other, forming alliances that help acquire more slots and air rights in major hubs, Sun is under pressure to embark on a similar strategy. Air China owns 30 per cent of Cathay Pacific Airways Ltd; China Eastern sold a minority stake to Delta Air Lines and China Southern to American Airlines Group, enhancing each others’ networks around the world.
Earlier this month, the carrier changed its name to Hainan Airlines Holding Co, from Hainan Airlines Co, signalling preparations for its expansion.
“The new name is a better reflection of what we are doing,” Sun said. “We have already had stakes in other carriers and with this name, investors will know we have the capabilities and can live out our name.”
Headquartered in Haikou, the capital of the Chinese tropical island Hainan, the eponymous carrier started its first international route at the start of the century from the province to Seoul, ferrying tourists. In the decade and a half since, air travel has exploded in the world’s most populous country. About 487 million people few to, from and within China in 2015, and that is set to almost double by 2025, according to forecasts by the International Air Transport Association.
Leading an aggressive expansion, Hainan Air recorded a 57 per cent increase in international capacity — the highest among the top four — with most of the new flights departing from second-tier cities. That’s because air rights to start direct services from the hubs of Beijing, Shanghai and Guangzhou to the US, Europe and Japan are running out as the airports operate close to capacity. Besides, the three state-owned carriers own most of those rights.
Still, smaller cities present great potential for non-stop flights to popular overseas destinations, backed by subsidies offered by local governments for the services, Sun said. Demand is “enormous” by international standards from what he calls “quasi-top-tier” cities such as Chengdu in Sichuan province and Kunming in Yunnan.
“Travellers prefer direct flights and we have concluded that it is worth exploring the market for direct flights from these cities,” Sun said.
Passenger traffic has grown as much as 20 per cent annually in such places, while statistics from China’s aviation regulator show that around 70 per cent of China’s newly added international flights in 2016 depart from second-tier cities. — Bloomberg