China Eastern Airlines
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- 2550 Hongqiao Road, Hongqiao International Airport
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- Shanghai Pudong Airport
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China Eastern Airlines
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Shanghai-based China Eastern Airlines is one of China's 'big three' state-owned airlines, with hubs at Shanghai's Pudong and Hongqiao airports, as well as Kunming Airport in southwest China. The airline operates a fleet of Airbus, Boeing, Embraer and Bombardier aircraft to support an extensive network, serving over 350 domestic routes and 40 international destinations, including cities in Australia, Europe, Korea, Japan, North America and Southeast Asia. China Eastern merged with Shanghai Airlines in 2010 and joined China Southern in the SkyTeam Alliance in Jun-2011.
Location of China Eastern Airlines main hub (Shanghai Pudong Airport)
China Eastern Airlines share price
4,601 total articles
337 total articles
There can be no doubt about the long-term growth opportunity for Chinese airlines in long haul markets. But the short term is challenged by air traffic rights being exhausted or nearly utilised in key markets such as Canada, Germany and the US. The foreign parties have sticking points – slots, overflight rights – that are not easily solved, meaning that Chinese airlines could face a few years of dancing around bilaterals that are maximised, or they may experience only incremental growth.
Yet widebody aircraft deliveries are growing. The four main Chinese airlines – Air China, China Eastern, China Southern and Hainan – will take 22 further widebodies in 2016, 18 in 2017 and then 37 in 2018. These are official figures and exclude pending deals (10x 777-300ERs for China Eastern) as well as aircraft that appear on order books at the last minute. This also excludes the growing widebody operation at secondary airlines such as Beijing Capital Airlines, Tibet Airlines and Xiamen Airlines. Air China and China Eastern have 50-80% as many widebodies on order as they do in service.
The pace of change in Chinese aviation can be daunting. The growth of Chinese airlines in international markets in 2015, one year, was the same as in the previous three years combined. Chinese airlines are growing outside their hubs to have wider coverage. Shanghai's lucrative market has drawn Air China and Hainan Airlines to launch long haul flights.
Now, in a matter of months, Shenzhen in southern China has gone from having no long haul routes to having six air services launched by four airlines during 2016. The Sydney route has already been opened and it could be followed by Auckland, Frankfurt, Los Angeles, Melbourne and Seattle – with surely more to come. Shenzhen did not meet an earlier target, but this is an impressive roster, even if mostly backed by handsome subsidies.
The expansion is notable given Shenzhen's underdevelopment in short haul international, let alone long haul. International traffic has flowed to other hubs, notably Hong Kong, which has excelled in becoming an intermodal transport hub by enlarging its catchment area through a network of ferries and coaches. Even as Hong Kong comes under a capacity crunch, it will not want Pearl River Delta traffic to flow back to Shenzhen, even if this is inevitable.
The international growth of Chinese airlines is increasingly evident. Air China will have upwards of three daily flights to Los Angeles; China Eastern has received investment from Delta Air Lines; Xiamen Airlines will launch four long haul routes in 10 months; and Hainan Airlines has invested in airlines as far flung as Brazil and South Africa. Closer to home, visitors from China are the number one source market for many Asian countries and growing fast.
Chinese airlines have been growing at double digit rates in international and domestic markets for a number of years. It is only in recent times that international growth has taken its place in a structural shift where international gains more prominence.
In 2016 Air China could fly more internationally than domestically. China Southern has increased international's share of capacity from 27% in 2014 to a projected 34% in 2016. Chinese airlines are realising their potential, are benefitting from increased outbound travel demand and are being pushed by the government to grow internationally. Yet as much as Chinese airlines have already had an impact, there is no sign that they have yet reached their peak. The growth of international traffic on Chinese airlines in the 12 months of 2015 was the same as in the previous three years combined.
In 2010 the Star Alliance lost its member in China's financial heart – Shanghai Airlines – when SkyTeam member-elect China Eastern merged with Shanghai Airlines. Privately owned Juneyao Airlines is based in Shanghai and plans to decide by the end of 2016 whether to join a global alliance. Partnerships could add impetus to Juneyao's nascent plans to fly long haul by the end of the decade.
Any decision to join an alliance would almost certainly result in Juneyao selecting Star. Star presents the greatest opportunity for Juneyao to receive connecting passengers. Long haul Star capacity into Shanghai Pudong is larger than the combined capacity from oneworld and unaligned airlines (and some of them, like Qantas, are cosying up to China Eastern). Juneyao is ruling out being in the same alliance as China Eastern, which is currently SkyTeam (and perhaps in the future – oneworld). Juneyao's network is complementary to existing Star members Shenzhen Airlines and Air China and the airline codeshares with Air China, which for a few years has wanted Juneyao to join Star.
Keep your friends close and your enemies closer: over recent years Air New Zealand has transformed its long haul network – and New Zealand's aviation market – by turning one competitor after another into a joint venture partner. Air NZ's latest is a revenue-sharing JV with United Airlines, to come into force on 01-Jul-2016 when United resumes New Zealand services.
The JV follows link-ups between Air NZ and Singapore Airlines, Cathay Pacific and Air China. Yet this is not just another JV: Air NZ-United will be the largest, accounting for 25% of Auckland's long haul seat capacity. It will be twice the size of the Air NZ-Singapore Airlines JV. In total, 80% of Air NZ's long haul capacity from NZ will be under JVs, with the balance in monopoly markets.
A billion dollars is difficult to ignore. So with little surprise Cathay Pacific's HKD8.5 billion (USD1.09 billion) realised fuel hedging loss dominated the story of its 2015 annual results. Many of Cathay's peers – airlines in mainland China and the Gulf – are unhedged, but those that are hedged are generally coming off their most restrictive hedges in 2016. Yet Cathay has hedged twice as long as other airlines, so hedging losses will continue well into 2016. The hedging volatility is in contrast to Cathay being consistent and conservative elsewhere in the business.
Despite increasing profits, there is large concern over underlying business fundamentals. Cargo, accounting for a quarter of revenue, has been a depressed story for some years and is now worsening. Cargo's underperformance has demanded stronger result from the passenger business. Yet the passenger business faces increasing challenges as competitors embark on ambitious growth and Cathay's premium strategy fails to deliver sufficient passenger volumes and yields. Long haul premium demand is weakening and new destinations planned for 2017 are being postponed. A 6% decrease in total operating costs in 2015 was mostly passed on to passengers as yields dropped 11%. Ex-fuel costs grew 2%, lower than the 6% increase in capacity. Further cost savings will be as necessary as they are precious.