Morton Shen, a manager at a Shanghai-based company, no longer needs to spend more than 17 hours to fly to Madrid after a layover in Amsterdam.
A Chinese airline now can whisk him direct to Spain’s capital in about 13 hours – and for a cheaper fare.
“Most travelers would prefer the direct flight as transfers waste too much time,” said Mr Shen, 29.
Air China, China Eastern Airlines and China Southern Airlines, the nation’s “big three”, are increasingly ferrying passengers from the mainland to Europe and the United States without hopping over in Hong Kong or Singapore. Hundreds of billions of dollars of new aircraft in the past decade have helped the state-owned airlines to expand in a market where some 488 million people – or the combined populations of the US, Germany and the United Kingdom – take to the skies every year.
“Chinese travellers prefer to fly with Chinese airlines and hence, as the Chinese travel more, their airlines benefit,” said Steve Saxon, a Shanghai-based partner at McKinsey & Co. “Beijing, Shanghai and Guangzhou are all becoming powerful hubs as well, being able to draw traffic from China to Europe and US, increasingly competing with Tokyo, Seoul and Hong Kong.”
A market that grew almost 11 per cent last year – three times the clip in the US – means China’s carriers are in a sweet spot their premium rivals in the region can only envy. Demand for seats has by and large kept pace with capacity addition.
Among rivals bearing the brunt of that expansion is Cathay Pacific Airways, the marquee airline that owns about 18 per cent of the flag carrier Air China. The Hong Kong carrier has just embarked on a three-year corporate transformation programme, which entails job cuts and management changes, after reporting its first loss in eight years.
Newer destinations out of China include Las Vegas, Brisbane, San Jose and Adelaide as the three airlines take advantage of their state-ownership to corner a majority of the air rights apportioned by regulators. Although local rivals such as Hainan Airlines, controlled by the billionaire Chen Feng’s HNA Group, are trying to secure a footing, the top three together command 80 per cent of the international market.
Hainan, whose capacity expansion has been the most aggressive among the Chinese operators, reported on Tuesday that its profit in 2016 rose 4.5 per cent to 3.14 billion yuan (Dh1.67bn), while sales jumped almost 16 per cent.
China Southern today reported profit had surged 29.9 per cent in 2016.
“If you manage to get more people on the aircraft, then it will definitely help with your earnings,” said Geoffrey Cheng, a Hong Kong-based analyst at Bocom International. “These carriers reported better load factor last year.”
The yuan’s 3.9 per cent decline against the dollar in the fourth quarter, the most since 1994, may have resulted in some currency-conversion losses, trimming the annual profits, according to Mr Cheng. For every 1 per cent rise in the greenback against the yuan, the carriers stand to lose as much as 700 million yuan, he said.
The expansion is a worthy investment as demand for outbound travel remains strong, said Mr Saxon. China has been the world’s largest source of outbound tourists, with more than 120 million Chinese venturing abroad in 2016.
* Bloomberg
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