Growth engine gathers momentum

December 1st 2014

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China’s slowing economy dampened the mood of the region’s airline industry in the past year as carriers grew increasingly concerned that a primary driver of its growth might slow expansion. They needn’t have worried. Read More »

Realists recognized China’s double digit growth had to slow. Said Ivan Chu, the chief executive of Cathay Pacific Airways when he spoke to Orient Aviation earlier this year: “the economy is still vibrant. The fact that it is not growing in double digits does not worry me. It is still expanding at 7% a year. For us, the Cathay story is going forward with the China story.”

Neither were the Mainland airlines deterred in their plans for expansion. The “Big Three”, Air China, China Southern Airlines and China Eastern Airlines, now being supported by Chinese aircraft lessors and their smaller rivals, are forecast to maintain an order book of 6,020 new aircraft by 2033.

As flight services continued to expand between China and Taiwan in 2014, China’s large carriers were forging relationships with airlines across the region, of which the newest is the Air China-Air New Zealand partnership. Due to be approved early in 2015, the agreement will bring the New Zealand carrier to Beijing and increase direct traffic between the two countries rather than having the majority of visitors arrive via Australia.

'The fact that it is not growing in double digits does not worry me. It is still expanding at 7% a year. For us, the Cathay story is going forward with the China story'

Ivan Chu Chief Executive Cathay Pacific Airways

Late in 2013, Beijing announced a significant policy shift that quickly had an impact in 2014. The government announced it would encourage the establishment of more budget carriers by removing price caps on domestic fares and lowering the financial entry barriers for new LCCs. While the start-ups won’t be granted easy access to the congested Beijing, Shanghai and Guangzhou hubs, the take up under the new rules has been swift.

China Eastern quickly turned one of its domestic subsidiaries, China United Airlines, into a no-frills airline. Also in Shanghai, Juneyao Airlines launched its LCC, Jiuyan Air. A number of others are in the pipeline. In another first for Mainland airlines, successful LCC, Spring Airlines, received permission to set up a new subsidiary in Japan.

Airlines weren’t the only Chinese companies making waves in the aviation market place. The country’s leasing industry is becoming a far more serious player in world markets as Chinese banks stepped up their focus on the leasing sector. While Chinese lessors control up to 80% of the aircraft leasing market in China, until now they had little impact offshore, but that changed in 2014. ICBC Leasing, a subsidiary of the Industrial and Commercial Bank of China, has enlarged its fleet six times, to some 380 aircraft, since it went into business.

And leasing subsidiaries of the remaining Chinese “Big Four” banks – CCB Financial Leasing Co. (Agricultural Bank of China), ABC Financial Leasing Co. (Agricultural Bank of China), and BOC Aviation (Bank of China), as well as CDB Leasing Company, China Aircraft Leasing and several other smaller lessors are seeking to invest beyond Mainland China, either by investing in established international lessors or buying a lessor’s fleet outright.

Another significant development for the industry was the decision by the Civil Aviation Administration of China’s (CAAC) to grant licences to global distribution systems (GDS), which will give them greater access to China’s travel market.

Most importantly of all, whatever the prevailing economic conditions, it is abundantly clear that the Chinese government regards the aviation sector as critical to the nation’s economic expansion.