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Overseas expansion reduces yields

Zoom  Zoom Issue Date:2016-04-08   Browse:934
 Last year, China Southern Airlines saw its ASM climb by 30 percent on the previous year, while China Eastern Airlines and Air China saw their ASM grow by 25 percent and 20 percent respectively year-on-year, according to the latest earnings reports.

Yet the companies saw declining yields, or passenger revenue per ASM, on international routes: Air China by 19 percent year-on-year; China Eastern by 4.7 percent; and China Southern by 10.3 percent.

"The supply of domestic air routes exceeds demand due to the growth of high-speed trains," says Li Xiaojin, a professor at Civil Aviation University. "Airlines can only expand their international air routes, as a result of the growing demand for overseas travel and the frequent flow of domestic and foreign personnel."

Xiong Xing, director of airline ticket business at Ctrip, an online travel agency, says Chinese airlines have a "weak branding impact the international market" compared with some well-known foreign airlines and that competition on international air routes is intense.

"Most state-owned and private domestic airlines added passenger capacities on international air routes. They also introduced low air ticket prices, especially for long routes from China to the United States and Europe, to attract more customers," Xiong says.

The three airlines reported their best performance in three years thanks to record-low oil prices. China Southern's profits more than doubled to 3.85 billion yuan ($593 million; 521 million euros) last year, China Eastern's grew 33 percent to 4.54 billion yuan, and Air China's surged 77 percent to 6.77 billion yuan.

The growth in carrying capacity has prompted a revenue increase for the airlines. Last year, the trio saw their revenues from international air routes grow more than 10 percent year-on-year.

The airlines also face growing competition from smaller rivals as they rush to launch more international flights to meet growing demand. The number of China's outbound travelers surged 12 percent last year, and the World Travel Organization expects that China will continue to be the world's largest source of outbound travel this year.

Hainan Airlines launched 12 new international routes last year, including eight intercontinental routes. Smaller companies, including Sichuan Airlines and Xiamen Airlines, have also started intercontinental routes.

"Chinese consumers have started to care more about service, branding and comfort, in addition to ticket prices," Xiong says. "Domestic airlines need to consider their marketing strategies and international branding to meet the new demand."

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