Original title: 2020 Civil Aviation Trends: Left with Tianhe, Right Huanyu China Southern Airlines Strikes Back, Sichuan's New Airport Hits Four Major Hubs Source: Tencent News
Written by Zhang Zexiang
Editor/ Ji Guohua
Alliance transformation
In November 2017, China Southern Airlines employees suddenly received an additional email in their email, with the content that the company invited them to evaluate cooperation with SkyTeam Alliance (SkyTeam Alliance) members and asked employees to evaluate the possibility of the company leaving SkyTeam.
What is intriguing is that this year just happened to be the last year China Southern Airlines joined SkyTeam's 10-year contract period. At this juncture, it sent such a signal, and there was an uproar in public opinion.
The email was of course not sent out rashly. In July 2017, China Eastern Airlines, which is also a member of SkyTeam, announced that it will jointly invest 375 million euros each to participate in Air France-KLM's targeted increase, holding 10% of the shares. Both Delta and France-KLM are founding members of SkyTeam and are strong players on both European and North American routes. This is definitely about starting a small circle on the back of an alliance, especially on the back of brothers. The “Delta-China Airlines-France-KLM” axis has been formed since then, and the influence within the alliance is self-evident.
According to the established plan, after this fixed increase is completed, China Eastern Airlines'”PacificThe “Plan” and the “European Profit Plan” will follow the trend, and the right to speak on international routes will be greatly enhanced. Xu Zhao, chief accountant of China Eastern Airlines, described the deal as a “long run of love,” and the hidden text behind it was very deep.
As the first SkyTeam member in China, China Southern Airlines and Air France-KLM once had joint routes between Guangzhou and Paris and Beijing and Astrid. Seeing that the old lover and the brother at the same table successfully held hands, China Southern Airlines was naturally unhappy. But who made Shanghai have two major aviation hubs? Naturally, crab soup packs are more appealing than fried pho. After all, there are no real money alliances; they are all false prosperity.
Watching Guangzhou's throughput being overtaken by Shenzhen next door day by day, the 5 A380s were put on short-haul domestic flights. Others were big fish and meat. China Southern Airlines was so bitter that there was nothing to say. Along with the investment of oneworld (oneworld) “one brother” American Airlines, China Southern Airlines and SkyTeam said goodbye at the end of the story.
The advent of aircraft is only 100 years old, and large-scale airline operations were only widely carried out in the mid-20th century. Whether it was SkyTeam or Universal, they all appeared one after another in the late 20th century.
It was an age where the aviation industry in various countries was highly regulated.
When the aviation industry is highly regulated, the battle for air rights between airlines is full of clandestine battles. Even China Southern Airlines, which was compared to the “Airlines that never sets the sun” by former chairman Liu Shaoyong, did not weave a global route network and join SkyTeam news groups. Sharing interests is a serious matter.
As the skies become freer, the aviation market is changing rapidly. Many small and medium-sized airlines that have little voice within the alliance and are restricted everywhere have withdrawn from the alliance, or switched to other alliances, or developed a “no alliance” movement among airlines. The future of this historical product also doesn't seem that clear. The airline alliance that was born at the turn of the century will probably change qualitatively in the second decade of the 21st century, and China Southern's withdrawal may have been the trigger for SkyTeam's collapse.
Among the three major airlines, SkyTeam's infighting is the most intense. In 2018, after China Southern Airlines announced its withdrawal, SkyTeam's founding member Delta also publicly expressed dissatisfaction with the alliance. In September 2019, Delta Air Lines CEO Bastian criticized SkyTeam in the media, saying that it was just a self-deceptive trick that did not bring great value to customers, nor did it bring great value to member airlines.
Just a few days after Bastien's statement, Delta Air Lines announced that it had reached an agreement of 2.25 billion US dollars with South American Airlines, the largest airline in South America, including Delta spending 1.5 billion US dollars to acquire 20% of South American Airlines shares, while also investing 350 million US dollars in cooperation between the two sides.
South American Airlines was originally a member of OneWorld. Faced with Delta's strong position, the world's third-largest airline alliance showed aggrievance. “Despite our disappointment, we respect their decision. South American Airlines has been an important long-term member of the alliance, and we wish them all the best”.
After investing in South American Airlines, Delta, which holds shares in Aeromexico and Gol Brasil, and codeshare with Aerolíneas Argentinas, has controlled almost half of the Latin American airspace. Coupled with investments in Virgin Atlantic, Korean Air, France-KLM, and China Eastern Airlines, Delta's circle of friends has formed its own system of friends.
Bastii is increasingly convinced that “although we can't own them in a wholly consolidated manner, we can make a meaningful enough investment to establish a network of international carriers that will form a unique Delta-centered network. That's our goal.” Simply put, my little circle is tough enough that we can have fun playing on our own after leaving the big leagues.
Not only is there SkyTeam for infighting, but OneWorld has received just as much criticism. OneWorld member Qantas cut off cooperation with its brother British Airways in 2013 due to unequal distribution of benefits, and instead reached a cooperation with non-affiliate Emirates to improve the kangaroo route that jumped back to Europe one by one.
Overall, the one that is still stable among the three major alliances is Star Alliance (Star Alliance), but the aviation industry is a typical capital-intensive industry with heavy assets. Any aircraft can be worth hundreds of millions of dollars, and small to medium sized airlines have many financial problems. Whoever can bring them enough benefits is their best friend. This was reflected in China Southern Airlines. At the 2018 China Southern Airlines Shareholders' Meeting, China Southern Airlines Chairman Wang Changshun proudly said, “After leaving the alliance, our international business will develop faster.”
Three Kingdoms Kill in Civil Aviation
On December 25, 2019, a week before it officially withdrew from SkyTeam, China Southern Airlines finally announced the transition schedule.
The announcement clearly stated that China Southern Airlines will continue to maintain its original codeshare cooperation with SkyTeam member airlines through bilateral cooperation; continue to maintain frequent passenger cooperation with more than 10 SkyTeam member airlines, including Xiamen Airlines, Air France-KLM, Delta Air Lines, and Korean Air; develop bilateral codeshare cooperation with five airlines including American Airlines and British Airways. The frequent flyer cooperation with American Airlines was launched on March 20 this year, and frequent flyer cooperation with British Airways is expected to begin in June 2020.
Overall, the biggest winners in this plan are China Southern Airlines frequent flyers. Their original benefits are not affected. Incidentally, they can also experience the elite benefits of British Airways and American Airlines. The gold and silver cards in their hands are even more valuable. China Southern Airlines itself comes second. The flexibility brought by the “Non-Aligned Movement” will gradually be reflected in the next few years. China Southern Airlines, which has the largest fleet in Asia, will become a target for all parties to win over a period of time. The worst was China Eastern Airlines, which was removed from the circle of friends by China Southern Airlines.
You should know that Liu Shaoyong, the current chairman of China Eastern Airlines, was the chairman of China Southern Airlines for 4 years, led China Southern Airlines in introducing the Airbus A380, and also brought China Southern Airlines and China Eastern Airlines into SkyTeam. Ma Xulun, the current general manager of China Southern Airlines, has also been with China Eastern Airlines for 8 years.
Obviously, this kind of “origin” is useless. Although the three major airlines have always had a tradition of exchanging executives, the “Three Kingdoms” game has been played for 20 years, and grudges have continued.
The first clash between the three families took place in January 2008. After experiencing the huge benefits brought by the overall recovery of the global aviation industry over the past year, all three major airlines want to take advantage of the passenger flow brought by the Beijing Olympics and find ways to expand their business scale.
China Eastern Airlines took the lead. In December 2007, China Eastern Airlines announced the introduction of Singapore Airlines and Temasek Holdings as strategic investors. After only a month, on January 8, 2008, at the China Eastern Airlines Shareholders' Meeting, this plan was collectively rejected by Air China, which absorbed China Eastern Airlines shares in the secondary market ahead of schedule, and other small and medium-sized shareholders.
Air China made its own offer to China Eastern Airlines, at HK$4.85 per share, which is HK$1.5 higher than Singapore Airlines' price of HK$3.8. Overall, it cost HK$2.2 billion more. China Eastern Airlines is not moved by this price and believes that Air China has no sincerity.
However, the Party Secretary of Air China at the time thought, “This is the only way to strengthen China's aviation company more quickly.” Air China's bid is significantly higher than Singapore Airlines, and Air China has far more international routes than China Eastern Airlines, and the cooperation between the two sides is a strong alliance.
Air China's sudden disruption made the market unoptimistic about China Eastern Airlines' prospects. At one point, there was also a rumor that China Eastern Airlines was selling Chinese assets cheaply. As a result, China Eastern Airlines' stock price plummeted to HK$3.75, falling below Singapore Airlines' offer of HK$3.8. Faced with changes in the market, Singapore Airlines remained silent and did not continue to make offers.
The greatest meaning brought about by a three-legged situation is balance. China Eastern Airlines and Air China suddenly announced that they have signed a framework agreement on business cooperation with China Eastern Airlines, which has a huge fleet but is located in Guangzhou and is relatively weak.
China Southern Airlines claims that this does not involve changes in equity; it is simply seeking close ties with Shanghai to improve its domestic transportation network.
Whether it's Air China or China Southern Airlines, the logic of cooperation with China Eastern Airlines is not difficult to understand. The three major airlines each account for Beijing, Shanghai, and Guangzhou, three percent of the world. On the face of it, Capital Airport is the airport with the largest throughput in the country, but Shanghai has two airports, Pudong and Hongqiao. It is the second-largest air passenger throughput city in the country, and the quality of high-end business travelers and international travelers is generally superior to Beijing.
Not to mention Guangzhou, the status of an international hub next to Hong Kong Airport is unshakable.Shenzhen AirportThey are also eyeing it. If they want to be a world-class hub, they are still facing encirclement at airports in Incheon, Tokyo, Singapore, Dubai, etc. China Southern's “Silk Road in the Sky” has been stumbling and stumbling.
The era when land was king is long over. In the second decade of civil aviation reform, mutual penetration between airlines became mainstream in the industry. China Eastern Airlines, which was sniped by Air China on “Dongxin Love,” was unwilling to fail, and went backwards and gave Beijing a huge double. Through the restructuring with Shanghai Airlines, China Eastern Airlines completed the merger of China United Airlines.
Although China United Airlines is a low-cost airline, it relies on small profits and has an innate advantage of Beijing's Nanyuan Airport. It has long been the most profitable company among the three major airline subsidiaries. It contributes more than 20% of China Eastern Airlines' net profit every year, and is a veritable cash cow.
On the other hand, Air China did not succeed as a shareholder. In 2009, Air China chose to officially penetrate the Shanghai market and establish Air China's Shanghai branch. However, the Shanghai market is controlled by China Eastern Airlines, Jixiang, and Chunqiu. The differentiated competition system is very obvious. It was difficult for Air China to open up the situation for a long time. It wasn't until 2017 that Air China Shanghai branch had 10 A321 narrow-body airliners, and only introduced the first A350-900 wide-body airliner to cover Australia, Europe and North America in 2018.
According to Air China's caliber, the A350's additional capacity will mainly operate international routes from Shanghai to Europe, further enhancing Air China's operational strength and regional influence at the Shanghai International Gateway. In terms of specific route arrangements, in addition to the main line networks between major domestic cities, the A350 will also be launched on international long-haul routes such as Beijing-Milan, Shanghai-Frankfurt, and Shanghai-Milan in the future.
But how many waves can be turned over by just a few planes in Shanghai, where China Eastern Airlines holds 40% of the market share?
Changes in 2020
The establishment of the three major aviation strategy systems is a product of the times. The General Administration of Civil Aviation also proposed a merger plan between China Southern Airlines and Air China in 2000, which later ended without incident.
In 2002, the restructuring plan was finally settled. At the request of the General Administration, China Southern Airlines merged with Beijing Airlines and Singapore Airlines and establishedChina Southern AirlinesGroup; Air China merged China Airlines and Southwest Airlines to form China Airlines Group; China Eastern Airlines joined forces with Northwest Airlines and Yunnan Airlines to form ChinaEastern AirlinesGroup.
It may seem like an internal system adjustment, but the acquisitions are all real money, and the pressure on the three major airlines is not small, especially China Southern Airlines. In November 2004, China Southern Airlines signed an acquisition agreement with China Southern Airlines Group to acquire the main business assets of Beijing Airlines and Singapore Airlines at a cost of nearly 16.9 billion yuan, of which the debt alone was 15 billion yuan. As a result, China Southern Airlines had to borrow a short-term loan of 1 billion yuan and also allocated 889 million yuan on its own, instantly falling into a financial black hole.
The benefits brought about by the major acquisition are that China Southern Airlines rapidly expanded to more than 30,000 people, with total assets exceeding 70 billion yuan and more than 230 aircraft, making it the aviation company with the largest share of the domestic market. Xinjiang Airlines, in particular, occupies a prime position at Urumqi Airport, allowing China Southern Airlines to instantly project power from the coast of the South China Sea to the hinterland of Asia.
The benefits are clear; however, the tight funding situation still needs to be addressed urgently. Yan Zhiqing, then chairman of China Southern Airlines, said in an interview with the media that by the end of 2005, the company's guarantee goal is to never lose money. This was just Yan Zhiqing's wishful thinking. By the end of 2005, China Southern Airlines had a huge loss of 1,794 billion yuan. A corruption case also broke out, and two core executives were arrested.
Liu Shaoyong took over China Southern Airlines in such an environment. After taking office, he proposed a dual hub plan for Guangzhou and Beijing. Basically, Guangzhou will be the main hub, and Beijing will go north to build an important hub, and use the upcoming Beijing base as a breakthrough to successfully implement international routes.
This is also the strategic plan China Southern Airlines has continued to this day. China Eastern Airlines plans are similar to China Southern Airlines. “Double Dragon Goes to Sea”. The one on the left is Shanghai, and the one on the right is drawn over Beijing. As for “going out to sea” to be better understood, the vast international routes are China Eastern Airlines' sea of stars.
In October 2019, Daxing Airport was officially opened. One foot is in Hebei and the other foot is in Tianjin. Among the three major airlines, Air China received 10% of flight times; China Eastern Airlines only had 30%, China Southern Airlines had the most, and had a 40% share of the new airport. The happy China Southern Airlines brought in an A380 during its maiden flight and raised its eyebrows in front of Air China.
According to the Civil Aviation Administration's plan, all airlines will fully transfer to Daxing Airport in 2020, and Daxing Airport's throughput will reach 28.6 million passengers in 2020. Looking at 2019 as a whole, consumer demand for civil aviation declined markedly, with several tens of millions of airports experiencing negative growth. It is a foregone conclusion that the throughput of Hong Kong Airport, the former Asia Pacific shipping center, was surpassed by Guangzhou Airport.
In this general environment, there are three main problems that test airlines entering Daxing Airport. The first one is how big is the actual demand at Daxing Airport? The second is how to cultivate the habit of travelers going to Daxing Airport; the third is how are routes and times distributed? These questions will take time to answer.
In addition to Capital Airport, Chengdu's Tianfu Airport will also be completed in 2020. Chengdu will soon follow the footsteps of Shanghai and Beijing to become the second dual airport city in mainland China. For the newly completed Tianfu International Airport, three runways have been planned in the first phase of the project. The estimated throughput by 2025 is 40 million passengers. The long-term plan will reach four terminals and six runways.
You need to know that not only is Shuangliu Airport a major airport in the Sichuan and Chongqing region, but Chongqing's Jiangbei Airport has also ranked among the top ten airports in the country, with an annual throughput of over 40 million passengers, which is only 10 million fewer than Chengdu Shuangliu Airport. The commissioning of Tianfu Airport is also testing the actual aviation demand in the Sichuan region.
After Shenzhen Airport became the fifth airport in the country with a throughput of over 50 million, the position of the fourth national aviation city under Chengdu's butt didn't seem that stable.
In 2020, another of the civil aviation industry's suspense about the “four” is about to be unraveled. After the rapid contraction of Hainan Airlines, which of Shenzhen Airlines, Sichuan Airlines, Xiamen Airlines, and China Airlines will successfully take the position of the fourth largest airline in the second tier.
It is worth noting that the battle between the three major airlines is also reflected in the second tier. Both Shenzhen Airlines and China Southern Airlines are controlled by Air China; Xiamen Airlines is under China Southern Airlines and is also a member of SkyTeam; Sichuan Airlines is relatively independent, but China Southern Airlines and China Eastern Airlines are also among the shareholders.
Of the 50 million passenger throughput completed at Shenzhen Bao'an Airport in 2019, Shenzhen Airlines contributed 25.59% of the capacity. Counting Air China and China Southern Airlines, Air China accounted for 34.4% of the capacity of Shenzhen Airport, far higher than the 28.5% capacity of China Southern Airlines. Air China stuck a nail in the back of China Southern Airlines.
On the Chengdu side, the battle between Sichuan Airlines and Air China is already at a standstill. Sichuan Airlines has introduced quite a few wide-body aircraft in recent years. On international routes departing from Chengdu, the destinations of Sichuan Airlines have far surpassed that of Air China.
For China's civil aviation industry, the opening of Daxing Airport in 2020 may be the starting point for all changes. Air China strives for victory through stability, China Eastern Airlines co-operates, and China Southern Airlines actively seeks change.
To a certain extent, Hainan Airlines once embarked on a different kind of airline operation, but its ultimate fate also tells us that it is easy to get to that or something if you take a quick step.
(Cover photo by Juhasz Imre from Pexels)