Shanghai-based China Eastern Airlines is finally to face homegrown international competition from local rival Shanghai Airlines, just as the first example emerges of close cooperation among a group of provincial Chinese carriers.
After years of lobbying Shanghai Airlines has won approval from Beijing to launch international flights and begin competing offshore with China Eastern. But the fledgling international carrier still faces restrictions, with services limited to Macau and southeast Asian destinations such as Thailand, Singapore, Malaysia and Indonesia. The carrier has also been cleared to serve Hong Kong but is prevented from competing to North America or Europe, or to lucrative destinations such as Japan and South Korea.
The national government's prior refusal to allow the local government-owned carrier to fly abroad was seen as protecting China Eastern, which is majority controlled by the regulatory body Civil Aviation Administration of China (CAAC). This gave China Eastern breathing space to prepare for its partial flotation early this year, when the carrier dual listed its shares on the New York and Hong Kong stock exchanges.
Shanghai Airlines' fleet of eight Boeing 757s and one B767-300 is small compared to China Eastern's 50 aircraft. But Shanghai has four more B767s on order and wants to purchase several B737s next year. No date has yet been set for the launch of its first international service. The airline is known to be ambitious, with expansion plans revolving around the opening of Shanghai's new US$1.7 billion Pudong airport in 1999.
Shanghai is China's fastest-growing economic centre and local airline officials say the government's decision to allow Shanghai Airlines access to international routes was driven by a conviction that there will be plenty of business for a second local operator.
While Shanghai Airlines prepares to enter new markets, six of the country's small provincial airlines are banding together to form China's first domestic alliance. Shenzhen Airlines, Sichuan Airlines, Shandong Airlines, Wuhan Airlines, Zhongyuan Airlines and Hainan Airlines have been cleared by the CAAC to pool staff, aircraft and ground facilities, the Xinhua news agency reported in early September.
The linkup, dubbed the Xinxing Alliance, will officially start on 1 January next year. Approval is seen as a step towards consolidation of China's airlines. Beijing has a long-standing policy of reducing the large number of carriers operating in the country.
Meanwhile, Dragonair seems undeterred by the prospect of more Chinese operators flying into Hong Kong. Plans for a Dragonair listing, however, have been indefinitely shelved as a separate listing by its largest shareholder, China National Aviation Corp (CNAC), continues to suffer delays.
Nevertheless, Dragonair is continuing its expansion and in mid-August it announced a renewal and expansion of its A320/A330 fleet through a combination of leases and orders in a deal valued at US$452 million. If all the options are exercised the carrier will double in size in just four years. Such growth is fuelled by an expectation of Dragonair gaining clearance for more Chinese routes later this year, along with more slots in Hong Kong when Chek Lap Kok airport opens next year.
CNAC still plans its own Hong Kong flotation which includes its 36 per cent stake in Dragonair. However CNAC delayed its listing after a 15 per cent plunge in Hong Kong stock prices.
D Knibb/T Ballantyne
Source: Airline Business
