Air Transport World

War for profit.(PROFILE)

IT WAS THE BEST OF TIMES AS CHINA'S FAST-GROWING ECONOMY generated strong market demand for her airlines in recent years. It was the worst of times as the airline industry at large was hit hard by a succession of external shocks after 9/11 such as SARS, Avian flu and the dramatic run-up in fuel costs since 2004. China's air transport industry also has struggled with the rise of new entrants and domestic competition and the aftereffects of the government-mandated consolidation that saw the big three carriers absorb many of the smaller regional lines.


Even in the first quarter of this year, with the rest of the airline world in recovery, China Eastern and China Southern suffered from CNY960 million ($127.4 million) and CNY665 million net losses respectively.

Meanwhile, flag carrier Air China stands out for having been profitable in every year since 2001, with earnings over the six years totaling CNY9.41 billion including CNY3.19 billion in 2006, when it benefited from the restructuring of its cross-shareholding with Cathay Pacific Airways and the sale of its stake in Dragonair. The result made it the mainland's most profitable carrier for a third consecutive year.

CA's earnings momentum continued in the first half of 2007 as it reported a threefold surge in earnings to CNY1.57 billion from CNY458 million in the year-ago period on a 17% rise in operating revenue to CNY23.35 billion. Boardings jumped nearly 14% to 17.9 million on a schedule that offers 4,160 weekly departures to more than 100 domestic and international destinations with a fleet that comprised 206 active aircraft, according to the Ascend CASE database.

It is interesting to note that the carrier's six-year streak represents a significant momentum swing, as CA lingered in the red from 1998 to 2000 while China Southern and China Eastern were striding ahead. How did it turn things around and what's the secret to its consistent profitability? …

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