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China’s aviation industry is growing rapidly, in line with its burgeoning economy. The CAAC is the aviation authority under the Ministry of Transport of the People's Republic of China responsible for civil aviation and the investigation of aviation accidents and incidents. The military controls Chinese airspace (restricted), in addition to flight clearances and authorisations. Non-commercial air travel is subordinate to military traffic and as such, general and private aviation in the country is rare.
Airports in China
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Economic and political upheaval in Brazil during the past couple of years has essentially isolated many of the country’s companies, including airlines, from credit markets. Some of the country’s legislators made a bold move earlier in 2016 to lift all foreign ownership restrictions on airlines; but that specific element of legislation was vetoed by the country’s interim government in order ensure other pieces of a larger bill were ratified.
The push for 100% foreign ownership still appears to have some momentum in Brazil’s uncertain political climate. The country’s transportation minister has reportedly stated that the debate over foreign ownership is not over, and he aims to push for re-opening the discussion about ownership caps in the country’s Senate.
In the meantime, Brazil’s 20% foreign ownership cap remains at status quo in a fast-changing Latin American aviation landscape where Avianca is courting foreign investors and Qatar has just tabled its plans to take a 10% share in LATAM. It would be an unprecedented move for Brazil to allow for 100% foreign ownership of its airlines but raising the cap to 49% seems reasonable, and could possibly help Brazil’s largest airline Gol as it works to restructure billions in debt. But changes in ownership laws may not result in investors flocking to Gol when other Latin American airlines offer less risk to investors.
Lucky Air to be China's first long haul LCC, to Europe/N America in 2016; China international up 29%
There are debates about impacts from China's "new normal" of slower growth. Yet from an aviation perspective, it so far remains evident that aviation is not as impacted – despite the typical correlation between traffic growth and GDP. Chinese traffic is heavily leisure-oriented; China's middle class is growing; thirst for international travel is expanding; visa liberalisation continues to improve and foreign countries (and their airports) are embracing of Chinese visitors. All these factors make travel easier, and the Chinese government is encouraging – sometimes by force – for its airlines to "go out".
The first four months of 2016 experienced a smaller growth rate of 29% compared with 4M2015's 40% increase, but the net addition of passengers in 2016 so far is larger than in 2015. The international market is becoming more crowded with new operators.
The latest will be Lucky Air – the Kunming-based LCC division of the HNA Group and U-FLY Alliance. Lucky intends to deploy 787-9s to Europe and North America by the end of 2016.
The decision to merge by Avianca and Grupo TACA in 2009 is what kickstarted consolidation in Latin America. The merger of the two companies, now operating as Avianca Holdings, arguably triggered the combination of LAN and TAM to create LATAM – the region’s most powerful grouping of airlines.
As Avianca and TACA and LAN and TAM were integrating their respective operations, other South American airlines garnered investment from foreign airlines – SkyTeam partners Air France-KLM and Delta invested in the independent Gol, and United and HNA Group took stakes in Azul.
Now Avianca is seeking a strategic investing partner, and many airlines are reportedly interested in obtaining a stake in the company. The investment will allow Avianca to weather difficult near term economic conditions and remain on equal footing with its competitors, while the company’s suitor obtains strategic positioning in one of most important growth markets – Latin America – for the next decade and beyond.
In an interview with Bloomberg on 15-Jun-2016, Virgin Atlantic CEO Craig Kreeger said that the airline was open to "accords" that would complement the North Atlantic joint venture with its 49% shareholder Delta. These would be "most likely focused on Asia and other eastbound markets" where Virgin reduced its exposure after the Delta deal.
Although 'Asia and other eastbound markets' are both the world's largest and fastest-growing aviation markets, Virgin has reduced its exposure to Asia Pacific and Middle East since Delta acquired a 49% stake in the UK airline in 2012 and subsequently formed its North Atlantic JV in 2013. Virgin withdrew from Mumbai and Tokyo Narita in 2015, after dropping its Australia route in May-2014.
Mr Kreeger also said that Virgin was looking at adding to its existing seven codeshare partners, which are Air China, Air New Zealand, All Nippon Airways, Delta, Flybe, Jet Airways and Singapore Airlines. This report considers which airlines in "Asia and other eastbound markets" might make attractive partners for Virgin Atlantic, whether through new JVs or codeshares. Mr Kreeger may be open to JVs in the region, but he will first need to increase Virgin's very small online presence in Asia. Imminent new deals seem unlikely. In reviewing likely attractive enhanced relationships, Delta's interests will form one ingredient, but Virgin Atlantic remains an airline in its own right.
Airline groups are now common, if not ubiquitous in Asia today. Their evolution, still often at experimental stage, involves addressing issues like multiple brand management, connectivity, coordination and associated issues. They are not easy to manage, but appear to be generating some success as established full service airlines adapt to new marketplace conditions.
Part 1 of this analysis of northeast Asian airline groups, with their "houses of brands", covered Mainland China and Hong Kong.
Part 2 reviews the courses being followed by airlines in Taiwan, Japan and Korea. Each of these markets has its own characteristics, influenced by domestic features, by government peculiarities - notably in Japan - and by the beliefs of the airline managements themselves.
Most Asian full service airlines have responded to LCC competition by establishing groups, in some ways similar to Europe's, but usually with greater differentiation in role and establishment. As a result they have for some time been houses of brands. There was typically limited consolidation in these sprawling mansions; there was also little coordination between the airlines in the group. This has led to redundancy, missed opportunities and confusing marketing. But the Asian market is dynamic, competitive pressures are increasing and constant adaptation is necessary. With experience now of these conditions more strategic thinking is emerging, along with the management resolve to shed complacency.
Brand consolidation is still some time off. Taiwan’s EVA Air and China Airlines are mulling consolidation with their respective regional arms UNI Air and Mandarin Airlines. But on the whole, the number of brands in Asia is growing, especially in mainland China. The initial changes at Asian airline groups include better coordination of group airlines.