The Civil Aviation Administration of China (CAAC) may have escaped Beijing's directive that requires other agencies to divest their interests in the industries that they regulate, but aviation is not entirely unscathed by the latest belt tightening aimed at boosting China's weak economy and currency.
Heading the list of austerity measures is a one-year freeze on aircraft orders. The CAAC announced its moratorium, the second in six years, in early February. It has blocked new orders since last September, but is now publicising the freeze. CAAC officials stress that it will not affect delivery of the 43 aircraft - 23 from Boeing and 20 from Airbus - which are due in 1999, but some delays in future deliveries are likely. The moratorium aims to slow capacity growth and cut capital outflows.
The CAAC is also halving infrastructure spending. Work on Beijing's airport and Shanghai's Pudong Airport will proceed as planned, but other projects face delays. The status of Guangzhou's new airport is unclear as local officials were working on funding issues before this announcement. This cutback could accelerate the search by airport authorities throughout China for alternate funding sources, such as equity and debt offerings.
Beijing is also pressing airline managers to boost financial performance. Except for regionals in Xiamen, Yunnan, Xinjiang and Sichuan, all the major airlines lost money last year.
Liu Jianfeng, CAAC director, has put airline executives on notice, saying: "One year's losses have given them a yellow warning card. Two years of losses, [and] they will be relieved of leadership."
Holding individuals responsible for systemic problems is typically Chinese, but the CAAC is not only relying on threats. It is also intervening in structural issues such as route capacity and tightening price controls in tandem with the Development Planning Commission. The CAAC limited fare discounting last year, but airlines have evaded those limits by offering passengers gifts such as free telephones or hotel stays.
In an effort to reverse 1998 losses - including ´72.3 million ($9 million) in the first half - China Southern Airlines agreed to codeshare on many overseas routes and launched a media blitz in the USA. It is also offering promotional commissions to US travel agents to boost bookings.
Source: Airline Business
