Beijing Capital International Airport

Jetstar misses another opportunity in Singapore as it reduces focus on China market

This is the second report in a three-part series on Jetstar’s Singapore-based operations, which includes Jetstar Asia, Jetstar Airways and Valuair. The first report analysed the booming Singapore-Indonesia market, where Jetstar is now looking to expand after several years of flat capacity.

This report looks at Jetstar’s position in the Singapore-China market while the third part will look at the overall outlook for Jetstar Asia. Jetstar has significantly cut back in the China market since the end of 2011, reversing a strategy from 2010 and 2011 that focused on using its Singapore hub to pursue rapid growth throughout mainland China. This strategy included using Jetstar Asia’s A320 fleet to operate medium-haul flights to southern China while using Jetstar Airways’ A330 fleet to access markets in northern China that are beyond narrowbody range from Singapore.

Harbin Airport seeks a hub role for Russia and Siberia, but home airlines are less interested

Siberia-China seat capacity grew 202% between 2003 and 2012 and China's northern City of Harbin is now jockeying to become a network hub for Siberia. The airport accounts for 15% of Siberia-China capacity, far less than the largest Chinese airport, Beijing, 1000km to its southeast. Harbin offers geographical advantages to Siberian cities in the far east while Beijing can serve those with some circuitry as well as western Siberian cities. Urumqi in China's far west could also be a hub for Siberia, supporting China Southern's development of Urumqi as a West Asia/CIS hub. 

The motivation is simple. Siberia's 40 million population has proven an increasingly important trade relationship for China – so much so that in the economic turmoil of 2009, Siberia was the only part of Russia to maintain a positive investment trend. China is tapping Siberia for resources ranging from wood to oil and, increasingly, hydroelectricity from Siberia's numerous rivers. Russia's largest private energy company forecasts Siberia's GDP could triple in 15 years.

Delta Air Lines improves China position with better slots from partners China Eastern & Southern

Slots at Chinese airports cannot be openly swapped the way they can at other airports – such as at London Heathrow where slot trading over the past year has occurred between Jet Airways and Etihad, Cathay Pacific and Air New Zealand, Qantas and British Airways, Delta and unnamed partners and perhaps soon Aer Lingus and British Airways. This has become problematic for carriers like Delta, which are given late arrival times and early departures that stymie critical connecting traffic.

But Delta in recent months has been able to leverage its partnerships with fellow SkyTeam carriers China Eastern and China Southern to adjust their slot portfolio to maximise connections, which benefit both parties. Delta has been able to move its Detroit-Beijing/Shanghai Pudong services to arrive in the afternoon and depart in the evening, key times for foreign long-haul carriers. While this improves Delta's position in China – the smallest of the three US carriers present – its ability to tap into new cities appears limited owing to fleet limitations.

Air China turns attention to international markets, but its profits are regional and domestic

Air China's hub at Beijing Capital is effectively at capacity for movements between 07:00 and midnight. Consequently the carrier is increasingly using its existing slots to launch international services that support its positioning as China's international flag airline; this also allows Air China to grow revenue, which in 2012 surpassed RMB100 billion (USD16 billion) for the first time. But these services, aside from Taiwan, offer only lower yields and faint glimmers of profitability – unlike the domestic heartland operations.

With Air China's domestic RPKs growing only 0.5% in 2012, the carrier is seeking to assure the market it has domestic growth opportunities left by expanding its hubs at Chengdu and Shanghai, although the latter is also constrained by slots. The Air China Group also has a portfolio of domestic carriers, including Shenzhen Airlines (the country's sixth largest), Shandong Airlines and Tibet Airlines. They account for about a third of the group's domestic revenue and most traffic growth.

China Southern's A380 operation is still struggling as most remain restricted to domestic routes

This is the second part of a report looking at China Southern's A380 operation. While the carrier waits for all interested parties to sign off on its Beijing-Paris joint operation with rival Air China, it still has three A380s currently on domestic routes for which it needs to find suitable long-haul services.

In addition to a daily Guangzhou-Los Angeles return service that commenced in Oct-2012, China Southern has double daily Guangzhou-Beijing and daily Guangzhou-Shanghai Pudong services. China Southern has scale in those markets, unlike its brief A380 service between Hong Kong and Beijing, where losses ultimately saw China Southern replace the daily A380 with a daily A321 flight.

Long-haul routes to Frankfurt and New York would be most viable for China Southern's A380, but would probably require cooperation with Air China if to be served out of the preferred hub of Beijing. China Southern has casually floated the idea of A380 services to London and Sydney, but deployment there would face spool-up challenges.

SkyTeam seeks clarity on proposed China Southern-Air China joint A380 operation

As China Southern nears 18 months since taking delivery of its first A380, the carrier has yet to receive authority to operate its full fleet on viable services, creating a quiet debacle for Chinese aviation. Losses from the mere three A380s China Southern had in 1H2012 amounted to a figure the carrier would quantify only as less than RMB100 million (USD16 million).

Full year 2012 losses for the A380 fleet, now at four aircraft, are reported to be between RMB150-200 million (USD24-32 million). The high sums come despite Chinese carriers being traditionally stronger in the second half as well as China Southern launching the A380 between Guangzhou and Los Angeles in Oct-2012.

Plans announced in Aug-2012 for China Southern to cooperate with Air China by deploying the A380 between Beijing and Paris were dragged out by Air China and China Southern working through the details and finally the SkyTeam alliance, of which China Southern is a member, reportedly raising concerns about the cooperation. Although the concerns are unspecified, China Southern operates a joint venture with SkyTeam members Air France and KLM, suggesting the A380 operation would be conducted outside of that venture. As China Southern prepares to take its fifth and final A380 – adding further financial burdens – the carrier is being tested between profitability, national allegiance and international cooperation.