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Chinese Aviation Invasion

Chinese aviation is booming

Unal Basusta, eTN Staff Writer  Sep 07, 2009

This year, as many airlines around the world are struggling to figure out how to be profitable with fewer passengers, Chinese air traffic is up 16.4 percent in the first half of 2009, according to the Civil Aviation Administration of China (CAAC).

The world’s third largest economy is moving fast in terms of capacity for air transportation, new airports, air navigation services, and air traffic management infrastructure. The in-service commercial aircraft fleet in China has reached 1,365.

The fallout from the world financial crisis long ago spread to China, although the country continues to see much higher growth rates than most countries in the West. China’s top three carriers, Air China, China Southern Airlines and China Eastern, collectively lost more than RMB 27.8 billion in 2008. China Eastern alone posted a loss of RMB 13.9 billion last year, while Shanghai Airlines reported a loss of RMB 1.25 billion.

Thanks to the government’s timely and effective interference, the outlook in the near term looking much better, even though China’s export industry continuing to experience stunted growth.

For example, Shanghai Airlines and China Eastern recently announced merger plans, allowing them to take 50 percent of the Shanghai market, while reducing competition among 80 percent of their routes.

Authorities have also allowed some smaller and unprofitable airlines to go through bankruptcy proceedings rather than support them financially.

Struggling with excessive capacity, fuel hedging losses, and declining demand, Chinese airlines similar to those of international carriers responded by cutting capacity, eliminating unprofitable routes and merging with other domestic airlines. CAAC has reacted with cash subsidies, tax returns, and put in place ten supportive measures aiming to guide the industry through the crisis.

To boost domestic demand and investments, the Chinese government has announced a (US$586 billion) stimulus package, 45 percent of which will support infrastructure projects including new airports across the country.

Ä°n addition to these initiatives, the Chinese government started cutting jet fuel prices, allowing airlines to increase ticket prices, reducing airport fees and subsidizing some domestic and international routes. These factors have influenced the aviation industry directly or indirectly, leading to rapid growth in domestic passenger traffic volume in particular.

Government interference worked and China's civil aviation industry is experiencing an overall recovery. In the first half of 2009, passenger traffic volume showed rapid growth, with an average month-on-month growth rate of more than 13 percent. In particular, the year-on-year domestic passenger traffic volume growth rate stood at 20.4 percent in the first half.

Chinese aviation is booming
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