VTCIE
Topic Author
Posts: 293
Joined: Wed Oct 10, 2018 11:10 am

Why are small Chinese airlines so successful?

Thu Apr 18, 2019 7:25 am

It is an extremely sad moment for my country as one of its biggest aviation brands, Jet Airways, has been driven into the ground—most likely for good. When so many Indian airlines have folded (not only 9W and Kingfisher, but also Air Costa, Paramount, Air Deccan 2.0, etc.), I find it astonishing that the number of airlines in China—a market that, like India, is among the fastest-growing in the world—is booming. Not only that, small, unheard-of Chinese airlines are extremely successful. It may not be an exaggeration to say that China is one of the best countries in the world to start a new airline, while India has become one of the worst.

Boeing and Airbus are happily filling their order books with the likes of Colorful Guizhou Airlines, GX Airlines, Air Guilin, Longjiang Airlines, Hongtu Airlines, Qingdao Airlines, Ruili Airlines and countless others who continue to crop up every year. If you see the 10 or 20 most recently delivered aircraft on an aviation database site, you are guaranteed to find at least one B-registered (Chinese) aircraft, more often than not an A320 or 737. (However, ATR, Bombardier and Embraer do not get more than a couple million dollars from China.)

I wonder how in the world China manages to sustain so many new airlines when India miserably can’t. Granted, the Big Three state-owned airlines—CA, MU and CZ—own big stakes in many of them, as does the struggling HNA Group, but this does not explain the meteoric rise of, say, Sichuan Airlines. As a newcomer to the aviation scene, can an expert explain why the situations are so drastically different in India and China?

(Interesting fact: after the collapse of Jet Airways (code 9W), Sichuan Airlines (code 3U) is the only full-service carrier in the world whose IATA code begins with a number.)
In grieving remembrance of the thousands of people who lost their lives on ET-AVJ, PK-LQP, XA-UHZ, S2-AGU, CP-2933, SU-GCC, EI-ETJ, D-AIPX, PK-AXC, 9M-MRD, VT-AXV and above all 9M-MRO, besides many more. Your deaths are not in vain. Safety first, always.
 
Byrdluvs747
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 7:43 am

Just some observations....

- Political interference
- Stupid 5/20 rule
- Tax on spare parts
- Air India subsidies
- Higher lease costs due to India's inability to comply with Cape Town Treaty
- Corrupt and/or incompetant "promoters" instead of qualified CEO's.

I'm sure there are other reasons.
The 747: The hands who designed it were guided by god.
 
TheEuphorian
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 9:15 am

For Chinese airlines:

2 Words: Government Subsidies.
 
Fuling
Posts: 132
Joined: Sun Apr 10, 2011 4:41 am

Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 9:17 am

For long-haul at least its usually about subsidies, subsidies and subsidies often at both ends of the flight.

Its also why there are some foreign carriers in secondary cities like CTU or CGO
 
VTCIE
Topic Author
Posts: 293
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 9:31 am

Fuling wrote:
For long-haul at least its usually about subsidies, subsidies and subsidies often at both ends of the flight.

Its also why there are some foreign carriers in secondary cities like CTU or CGO

Exactly why Tibet Airlines launched LXA-TNA-HEL, which seems very roundabout at first sight. TV launched this route not to connect Lhasa and Helsinki but to serve Jinan better (and put it on par with big boys like CTU and XIY) by giving it a new flight to Helsinki, which will now be even more overrun with Chinese tourists.

But my question is not so much about the spate of new European routes like CGO-PRG, XIY-OSL, CTU-OTP, etc.—I’m only making these routes up—as much as it is about why so many airlines can come up in the first place.
In grieving remembrance of the thousands of people who lost their lives on ET-AVJ, PK-LQP, XA-UHZ, S2-AGU, CP-2933, SU-GCC, EI-ETJ, D-AIPX, PK-AXC, 9M-MRD, VT-AXV and above all 9M-MRO, besides many more. Your deaths are not in vain. Safety first, always.
 
Blerg
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 10:52 am

How does government taxation of airlines in India and China compare?
 
anshabhi
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 10:59 am

Blerg wrote:
How does government taxation of airlines in India and China compare?


Also how do laws compare in case of frauds committed by Airline promoters?

In China we are mostly talking about a very rich government (5 times than Indian govt) which can support (if not subsidize) the operation of loss making airlines, have tight control and checks in place to ensure no Airline is engaging in siphoning off funds or other similar activities, and can interfere in internal affairs of airline if it wants to.


IMO, in India you can view 9W failure in isolation as something wrong with 9W only.

Whereas in China if there's something wrong, it could signify something wrong across industry barriers. It's possible that Huawei is subsidizing CZ ops and we just don't know it.

Apart from that, average incomes in China are twice or more than India, while the fixed costs i.e. fuel, maintenance, aircraft cost etc are similar in both countries. Making Fares lesser in India with almost no premium domestic demand
Last edited by anshabhi on Thu Apr 18, 2019 11:03 am, edited 1 time in total.
 
VV
Posts: 704
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 11:02 am

Maybe it is because they are not big.
 
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Polot
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 11:07 am

Most of the small Chinese airlines are not actually private independent airlines. They are typically owned by local governments, local companies well connected to the government (or themselves owned by the local government), larger Chinese airlines (themselves owned by larger Chinese airlines or government), and a combination of all of the above.

You mention the “meteoric” rise of Sichuan airlines. Well, Sichuan is 39% owned by China Southern. And 10% owned by China Eastern. And 10% owned by Air China. And Sichuan has a subsidiary, Chengdu Airlines, that is also part owned by state owned COMAC.

When everything in the end is owned by the government of course they seem “successful”, when your metric for success is they are still flying and taking new aircraft.
 
VTCIE
Topic Author
Posts: 293
Joined: Wed Oct 10, 2018 11:10 am

Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 11:15 am

Polot wrote:
Most of the small Chinese airlines are not actually private independent airlines. They are typically owned by local governments, local companies well connected to the government (or themselves owned by the local government), larger Chinese airlines (themselves owned by larger Chinese airlines or government), and a combination of all of the above.

You mention the “meteoric” rise of Sichuan airlines. Well, Sichuan is 39% owned by China Southern. And 10% owned by China Eastern. And 10% owned by Air China. And Sichuan has a subsidiary, Chengdu Airlines, that is also part owned by state owned COMAC.

When everything in the end is owned by the government of course they seem “successful”, when your metric for success is they are still flying and taking new aircraft.

I heard somewhere, I think on CAPA, that every Chinese province wants its own airline. They are certainly well on course to achieve this!
In grieving remembrance of the thousands of people who lost their lives on ET-AVJ, PK-LQP, XA-UHZ, S2-AGU, CP-2933, SU-GCC, EI-ETJ, D-AIPX, PK-AXC, 9M-MRD, VT-AXV and above all 9M-MRO, besides many more. Your deaths are not in vain. Safety first, always.
 
zakuivcustom
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 11:40 am

VTCIE wrote:
Polot wrote:
Most of the small Chinese airlines are not actually private independent airlines. They are typically owned by local governments, local companies well connected to the government (or themselves owned by the local government), larger Chinese airlines (themselves owned by larger Chinese airlines or government), and a combination of all of the above.

You mention the “meteoric” rise of Sichuan airlines. Well, Sichuan is 39% owned by China Southern. And 10% owned by China Eastern. And 10% owned by Air China. And Sichuan has a subsidiary, Chengdu Airlines, that is also part owned by state owned COMAC.

When everything in the end is owned by the government of course they seem “successful”, when your metric for success is they are still flying and taking new aircraft.

I heard somewhere, I think on CAPA, that every Chinese province wants its own airline. They are certainly well on course to achieve this!


Not just province, but also some municipal gov’t. Kunming Air? Fuzhou Air?

Side note - IIRC air fares are regulated on certain domestic routes within China. Thus you don’t have throatcutting price war going on between all the tiny operators.
 
Blerg
Posts: 1881
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 11:53 am

One advantage to having so many smaller, region airlines is that regional connectivity is, in theory, improved. That's important in large countries such as China or India.
 
mdavies06
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 2:08 pm

China central, provincial and local governments are strongly committed financially to support airlines in the form of direct and indirect subsidies. This is at the expense of ballooning government debt which will go bust (spectacularly IMO) at some point but not yet. Once the latter happens you will see growth comes to a halt in the industry.
Nearly all Chinese airlines are linked to the central government and follow their directives.
There is no policy of favouring the flag carrier (CA) over non-flag carriers with exception of access to PEK and this too is changing with PKX.
China domestic flight prices are regulated in fact.
Severe slot constraint at a number of airports limiting supply of seats. Most of the top airports in China are slot restricted.
Many of those secondary to secondary long haul routes are run at very low weekly frequencies. Adding them all up means each of those secondary airports really only have say three long haul flights per day. It doesn't hurt much to run them at this rate.
 
c933103
Posts: 3685
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 2:29 pm

The key is many of those small Chinese airlines are essentially regional arm of larger Chinese airlines
This is a placeholder.
 
zakuivcustom
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 2:33 pm

mdavies06 wrote:
Many of those secondary to secondary long haul routes are run at very low weekly frequencies. Adding them all up means each of those secondary airports really only have say three long haul flights per day. It doesn't hurt much to run them at this rate.


And those routes are often subsidized. Load factors on some of those routes are awful anyway (No clue about Europe/AusNZ, but for China-US the load factors from secondary cities are often in 60-70% range at best).

mdavies06 wrote:
China central, provincial and local governments are strongly committed financially to support airlines in the form of direct and indirect subsidies. This is at the expense of ballooning government debt which will go bust (spectacularly IMO) at some point but not yet. Once the latter happens you will see growth comes to a halt in the industry.


In terms of debt, airline subsidiary is only a small portion of the pie anyway, at least when compared to the "build and they'll come" empty cities with "state of the art" infrastructures that's a bubble waiting to be burst.

But ultimately, as I already mentioned:
mdavies06 wrote:
China domestic flight prices are regulated in fact.


This is the key factor. In India, SpiceJet/Indigo/AI/9W/Vistara/GoAir (Did I missed anyone? Kingfisher? IC?) are undercutting each other. In PRC, LCC barely exist (Spring Airlines being the only large player) and relatively unprofitable regional route are subsidized (Not too different from something like EAS...), while, with a regulated flight price, airlines are more or less guarantee to make certain amount of money on many domestic sectors. Domestic flights are where CN3 (+3U/Sichuan perhaps, throw in HO/Juneyao or 9C/Spring in there also; and HU/Hainan before its parent holding company HNA Group decided that it's a good idea to just buy up everything at twice the value while borrowing heavily) makes their money anyway.
 
workhorse
Posts: 614
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 3:27 pm

As has been already discussed here, most of them are not "real" airlines. They are joint ventures between local (and not central!) governments and one of the big 4. Local governments invest money into the newly created entity (because they want "their" airline flying their colors around China and sometimes around the world) and the airline provides airplanes and crew.

Think of it as of sports parks and arenas in the US named after their sponsors. You are a sports venue in Somewhere, Somestate, called "Somewhere Arena". Whatever, Inc. company gives you some money, so you rename your venue into Whatever Arena.

Same here. You are an airline (CA, CZ HU or MU), you have a hub or a focus city in Shenmedifang, Shenmesheng. The local government gives you some money, so you repaint your planes based at that hub into Shenmedifang Airlines.

I actually like this. The quality of service on these airlines is exactly the same as on their "parents" and it makes for more diversity in the skies and airports and produces some nice liveries. Why not?
 
Adipocere
Posts: 219
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 3:50 pm

In addition to what’s been said, another factor to consider is that China is so far ahead of India economically. GDP per capita in China is over 4x where India is at around $2000pp.
 
Blerg
Posts: 1881
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Re: Why are small Chinese airlines so successful?

Thu Apr 18, 2019 3:59 pm

This might be a stupid question but given the nature of China's aviation industry, does it mean airlines never/rarely suspend domestic routes?

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