China's airlines and the development of the nation's aviation industry

Although the Chinese have made an impact on the beginnings of the world's aviation history by inventing the first flying object, the kite, and later on even rockets, the nation's airline industry has been slow to keep up with the development pace of international aviation companies, who have succeeded in establishing worldwide service networks and in building one huge jumbo jet after another -- the biggest one currently being the Airbus A380 superjumbo.

The latest news of China's purchase of 170 airplanes from European airplane maker Airbus is the most recent development in China's strive to boost its aerospace industry. The Chinese have long contributed to the flourishment of international aircraft giants such as Boeing and Airbus by working as subcontractors for them. Through this arrangement they have acquired the necessary knowhow for building airplanes, which they can now put to profit on a larger scale to assemble the first entirely domestically built large passenger jets.

China has already made its mark as a builder of short and medium range aircraft, namely through the success of the Xi'an Aircraft Industry Group, but with air travel volumes expected to peak within twenty years, China is looking to increase its capacity to build its own large aircraft. Since 2000, China's airline industry has been growing at an annual rate of 16 percent. Last year, the nation's air travel volume hit 138 million, which makes it Asia's largest air travel market. In 2005, China took a first step in helping to promote the domestic aviation industry by ending the state monopoly in the airline sector and now it is set on boosting aircraft manufacturing as well. With China being at the verge of a new era in its civilian airline history, we took a look at the nation's aviation history and its major fliers.

The beginnings of civil aviation

Before the end of the 1970s and the era of Deng Xiaoping, air travel in China was relatively rare. The country had only one airline, the Civil Aviation Administration of China (CAAC), and airports and airspace were controlled by the military. Technical equipment such as radars were primitive, which meant that most airplanes were grounded during bad weather. It wasn't until Deng Xiaoping gave China's civil aviation the green light that the country's air travel industry really took off. Existing airports were rapidly expanded and renovated and about 40 new ones were built.

Currently there are about 37 different airlines operating in China. If companies specializing in cargo flights are omitted from the list, about 30 are left. Let's look back at some of the achievements of China's aviation industry.

Aviation's biggest players and major milestones of Chinese airlines

China Airlines, founded in 1959, was the first airline with shares completely held by the ROC government.

China Southwest Airlines was founded in 1987. It merged into Air China in 2002. It was the first major airline to abide by the principle of separation of responsibility between administration and enterprise.

China Southern Airlines has been ranked China's largest airline based on annual passenger traffic volume. Today, China Southern Airlines is one of the world's Top 10 passenger airlines.

Shanghai Airlines was established in 1985. It is China's first commercial airline, which is responsible for its own operational profits and losses. In May of this year it was announced that Shanghai Airlines will become the 19th member of the Star Alliance.

Air China, founded in 1988, is the nation's largest commercial airline in terms of traffic volume and company assets. Air China is the only national flag carrier in China.

Hainan Airlines Company Limited is the first Chinese civil airline company to be listed in both A and B stock markets. It was founded in 1993.

Xiamen Airlines, founded in 1984, is the first airline company in People's Republic of China to be run by private individuals.

The end of a monopoly

Spring Airlines is China's first budget flights provider (Image: China News Service)

The policy change was a move to promote the development of the private economy, end state monopoly in the sector, as well as to make air travel available to more Chinese. The shift helped meet growing demand and competition from foreign airlines as the market opened further in accordance with China's commitments to the World Trade Organization. Following the new regulation, anyone with a minimum of three airplanes could set up an airline company. In 2005, the CAAC issued a total of 14 air operating certificates (AOCs) to private domestic airlines.

Chengdu's United Eagle Airlines, Shanghai-based Spring Airlines and Beijing-based Okay Airways were the first private airlines to receive approval from civil aviation authorities to offer low-cost services. This marked the debut of China's low budget air transport operations. Spring Airlines was marked down in history books as being the first Chinese airline to offer cheap, no-frills services, which it accomplished by simplifying services. In December 2005, two more private airlines, East Star Airlines and Junyao Group (Shanghai Auspicious) followed suit.

Currently China's top three airlines are still the state-owned companies China Eastern Airlines, China Southern Airlines and Air China. China Southern Airlines is the nation's largest airline. In 2005, the airline carried over 44 million passengers.

Current situation

China Southern is currently one of China's three largest airlines (Image: Radio86)

Analysts find that the prospects of China's airline industry are good, but that it is hard to see real profits in the short term. While China's new private airlines have brought healthy competition to the sector, the companies do face problems that the state-owned companies do not have to struggle with. The number one challenge is cost-control, followed by problems involving human resources, logistics services and fleet expansion.

About 80 percent of the total costs of operating a private airline arise from aircraft leasing or purchasing fees, maintenance and repair costs, and most importantly, jet fuel. About 40 percent of airlines' total costs arise from fuel. The airlines are also faced with a shortage of qualified pilots because the country's booming aviation industry is taking off faster than the country can train pilots. A solution to this problem is looming in the horizon as the CAAC is currently drafting a policy to allow airlines to recruit foreign pilots, but their salaries are usually higher than those of domestic flyers, which could increase expenses further. Some private airlines have solved the problem by offering attractive compensation packages, which have succeeded in getting some pilots of state-owned carriers to jump ship.

The future

Analysts say that private airlines are presently still too small to have a significant impact on China's aviation market. Despite their strong start, the skies are still dominated by state-owned giants such as Air China, China Southern Airlines and China Eastern Airlines.

China's aviation industry has been growing at a rate much faster than the country's GDP, which has analysts predicting that China will be the world’s second largest aviation market after the US by 2020. By 2010 China is expected to have 145 airports handling an estimated 500 million people and 10 million tons of cargo a year. Previously, expensive air fares and limited seat availability kept air travel volumes in check but now low prices and increased travel options have got more and more ordinary Chinese choosing airplanes over trains. For the competing airlines it's a dog eat dog world, and the battle for control of the eastern skies has only just begun.

List of mainland China's major passenger airlines:

Major airlines: Air China, China Eastern Airlines, China Southern Airlines
Private airlines: East Star Airlines, Shanghai Auspicious Airlines, Spring Airlines, United Eagle Airlines, Okay Airways, Shenzhen Airlines
Others:

1. Chang'an Airlines
2. China Flying Dragon Aviation
3. China National Aviation Corporation
4. China Northern Airlines
5. China Northwest Airlines
6. China United Airlines
7. China Yunnan Airlines
8. China Xinhua Airlines
9. Guizhou Airlines
10. Hainan Airlines
11. Shaanxi Airlines
12. Shandong Airlines
13. Shanghai Airlines
14. Shanxi Airlines
15. Sichuan Airlines
16. Wuhan Airlines
17. Xiamen Airlines

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