China Flyers Keep Airlines Growing Despite Global Slump

The sustained surge in Chinese travel abroad is keeping China’s biggest carriers on a growth trajectory even as the global airline industry is struggling with losses amid weaken demand.

China Southern Airlines, a state-controlled carrier which is Asia’s largest by passenger capacity in Asia and the world’s fifth largest, is finding growth opportunities in providing convenient connections between international and domestic routes centered in its Guangzhou hub. It launched six international routes in 2011 and began offering direct flights from Guangzhou to London in June.

The route has become popular with affluent travelers flying from China’s south to various European cities. As a result, China Southern expects its international routes to become 30% of its total routes, up from 27% in 2011 though it operates 200 domestic routes, more than the other state-owned carriers Air China and China Eastern.

Its extensive domestic network has allowed China Southern to attract more passengers from the second and third-tier cities. Its success has helped turn the carrier’s home base Guangzhou Baiyun International Airport into one of China’s major transit hubs. In 2011 it served 45 million passengers, ranking it as China’s second-busiest airport and the world’s 19th busiest in terms of passenger traffic. Its passenger load factor has also soared on its international flights.

China Southern’s launch of its Australia route helped it boost passenger volume by 97% in a year, raising its passenger load factor 54% to 78% and powering a 48% year-on-year surge in international revenues.

Underpinning China’s Southern’s growth is the projected surge in the size of China’s air travel market from about 300 million passengers a year today to 450 million in three years.

Shanghai-based China Eastern Airlines is entering into a 50-50 joint venture with Australia’s Qantas to launch Jetstar Hong Kong, the SAR’s first budget airline which will begin operations next year. The carrier sees the venture as a key step in its globalization.

But not all state-owned carriers are on the upswing. Air China profits fell 38% last year on rising fuel prices and growing competition.

Globally, the airline industry is expecting profits of just $3 billion in 2012 out of total revenues of $631 billion, less than half of the $7.9 billion in profits in 2011, according to the Airline industry group IATA. European carriers are expecting losses of $1.1 billion this year. Part of that is blamed on a controversial carbon tax imposed on the carriers.