China is having mixed success in its aviation policy. Despite easing the moratorium on aircraft orders, Beijing is now having to curb international capacity growth for fear of Chinese carriers losing out to their foreign counterparts. But the authorities are having more success in their drive for domestic consolidation.
China Southern's new twice weekly Amsterdam flight appears to be the only near-term growth in Europe-China capacity, following on the heels of recent Air China cutbacks. Some European carriers fear any net reduction in Chinese airline capacity to Europe could prompt Beijing to cut their traffic rights at a time when they claim it should be allowing even more growth.
Analysts identify two major reasons for China's European restraint. First, its recent moratorium on aircraft orders has left Chinese airlines with too few aircraft to handle all the growth. Second, as on other international routes, Chinese airlines are worried that more capacity will benefit non-Chinese carriers more than them, since passengers seem to prefer the non-Chinese airlines. Hence, some European carriers claim the Civil Aviation Administration of China's current strategy is to keep capacity so tight that all airlines enjoy good loads, even if passengers are turned away.
To circumvent these limits, several European airlines are seeking Chinese partners who they hope will help lobby the CAAC for more flights. KLM and Virgin Atlantic both admit to this strategy, although the UK independent is still barred by bilateral constraints from serving China. Virgin is trying to obtain clearance to launch a Shanghai route ahead of rival British Airways.
In contrast, another prong of the CAAC's growth control campaign - its pressure to consolidate domestic aviation - is paying off, with the number of Chinese airlines starting to shrink.
The CAAC recently confirmed that two of China's regional airlines have been acquired, talks are underway on another takeover, and two other local carriers have merged.
The completed acquisitions are China Northern's takeover of Swan Airlines and China Northwest's purchase of Nanjing Airlines. China Southwest Airlines is still negotiating for a takeover of Guizhou Airlines. Separately, Xiamen Airlines, which is a subsidiary of China Southern, has merged with Fujian Airlines. Significantly, the end result in all these takeovers is a consolidation favouring the CAAC-controlled carriers.
The only transaction counter to this trend is the recent purchase by China National Aviation Corp of Zhejiang Airlines. China Eastern formed Zhejiang in partnership with a local province six years ago, but recently decided to divest in preparation for its overseas IPO (see story opposite). CNAC has raised eyebrows with its purchase because there is still much uncertainty about its long term intentions.
Source: Airline Business
