China’s aviation: Commercial airlines

Also, as exemplified by China’s high-speed trains and the speed with which skyscrapers and entire modern cities can be built, China certainly leaves other developing countries (and even some developed ones) in the dust as far as manufacturing is concerned. However, an aspect of technology that you are probably not familiar with in relation to […]

Also, as exemplified by China’s high-speed trains and the speed with which skyscrapers and entire modern cities can be built, China certainly leaves other developing countries (and even some developed ones) in the dust as far as manufacturing is concerned. However, an aspect of technology that you are probably not familiar with in relation to China’s development is aviation. For example, you may be interested in the answers to questions such as the following: What is the commercial aviation landscape in China? What is the role of the government in aviation? What is the state of home-grown aircraft, both civilian and military? How far behind the U.S. is China aviation – both commercial and military? How deep is China into drones? Where is China in space exploration? And so on. The next couple of articles in this column will try to analyze these topics starting, today, with the state-of-the-art of commercial aviation in China. A portion of today’s material has been taken from the article by Bradley Perrett in the 23 September 2013 issue of Aviation Week and Space Technology magazine.
The Big Three
As far as commercial aviation goes in China, there are basically three airlines: China Southern Airlines, which is the largest, and the almost equally-large Air China and China Eastern Airlines. Together, the three airlines control approximately 97% of the domestic market, with the fourth largest, Hainan Airlines, which is private, accounting for only 3%. The Big Three are strategically located (by the government) in the north (Beijing), east (Shanghai), and south (Guangzhou) of the country. China has one well-developed budget carrier, the Spring Airlines.
Unlike in the U.S. where all the commercial airlines are privately-owned, the Big Three in China are basically government-owned. They are capitalized by the Chinese state and its banks, and the government orders aircraft for them. In fact, because of concerns about inadequate skills and competence of the airline workforce and the associated potential danger of crashes, the government appears to discourage private airlines. Moreover, the government-owned carriers have advantages in attracting personnel and acquiring aircraft runway slots and traffic rights, a situation that obviously reduces the opportunities for private carriers. Simply put, it is far from being a level-playing field. Perrett says that for six years until this May, a new private carrier could not even begin operations in China and that during that period “the CAAC had a policy of not accepting applications for air operator certificates.” (CAAC stands for Civil Aviation Administration of China.) Moreover, only airlines with at least partial government ownership have been approved. So the policy was in effect a ban on new private airlines. The Chinese government explains its actions in terms of safety.
International standards
According to aviation experts, Chinese airlines are not up to the international standards, and are therefore not competitive in the international market. The Big Three each has between 25 and 30% of the International traffic at their home bases of Guangzhou, Beijing, and Shanghai, respectively, with foreign carriers picking up the rest (70-75%) of the international traffic. The lack of experience and skill of the aviation workforce in China (relative to the situation in more developed countries) is blamed for the weak standing of Chinese airlines. Perrett feels that “the supply of aviation resources in China, such as skilled staff, is still inadequate, so the airlines lack a motivation to pursue the international market.”
Performance
So, what you’ve got in China essentially is government airlines competing against each other; which is obviously not the kind of situation you have in profit-driven (capitalist) systems, such as the U.S. There are implications, of course, in terms of the motivation to get much better, even though the Chinese government does expect the airlines to make a profit. It’s not surprising that the productivity of the workforces is much lower for the Chinese airlines when compared with that for other countries. Perrett quotes the 2012 revenues per employee of China Southern, Air China, and China Eastern as $210,000, $270,000, and $200,000, respectively. These labour productivity figures are significantly lower than the levels for United Continental airline ($420,000) and Qantas ($440,000). Some (non-Chinese) Asian competitors are even much more productive than Qantas by this measure. One surprising fact in China’s commercial aviation is the high cost of labour in the sector, when compared to the general labour cost in the country. (A low labour cost is expected in China, since the country is still basically a developing nation.) According to Perrett, Air China‘s staff cost was $39,000 per employee in 2012, compared with $90,000 for United Continental, a U.S. airline, even though the gross domestic product (GDP) of the U.S. is eight times that of China. So, it does seem that the Chinese commercial aviation sector does not operate efficiently.
Challenges
The Big Three have a few other challenges to contend with. Because of the perception of inexperience of the workforce, the state tends to have stricter-than-normal regulations aimed at preventing accidents. Furthermore, it is believed that the Chinese Air Force does not provide enough airspace for the airlines to operate. Other concerns include poor in-cabin service and the skill set and competence of the workers. There is the omnipresent “quanxi,” which Perrett describes as the “national game of building relationships to gain favours,” which, in many cultures, will easily pass for corruption.
The second part of this article continues next week in this column.