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China Eastern’s Xi Sheng: low-cost is ‘very promising’
June 28th 2019
LCC subsidiary China United to grow internationally, reach 80 aircraft. China Eastern considers equity investments. Read More »
The opening later this year of Beijing Daxing International Airport is prompting China Eastern Airlines (CEA) to plan for the next phase of growth for its wholly-owned Beijing-based LCC, China United Airlines.
CEA executive vice president, Xi Sheng, told the Malaysia Star China United would grow from 49 aircraft to 80 within three to five years, putting the 80 target at 2024 by the latest. “We see the future of low-cost travel as very promising,” Xi said. He did not remark on the future product positioning strategy for China Eastern, which is far larger than its low-cost sister.
Separately, China Southern Airlines (CSA) said it would consider transforming one base or subsidiary into a low-cost carrier, according to media attending the airline’s first A350 delivery. China Southern would likely call on Spring Airlines to help with its LCC plan.
China United and CEA have a dual-brand strategy the group calls “all-rounded service – low cost”.
In 2015 China United converted to a low-cost carrier. Direct sales account for 70% of China United’s revenue, CEA said in a regulatory filing. Ancillary revenue grew by 58% in 2018, although share of total revenue was unstated.
China United’s 2018 revenue was 40% of Shanghai Airlines, CEA’s major subsidiary, also wholly-owned. But China United had a higher net profit of RMB882 million (US$128 million) compared with an RMB600 million profit at Shanghai Airlines, according to company accounts. Those accounts give China United a 15.5% net profit margin, compared with 4% for Shanghai Airlines. The group had a 2.6% net profit margin in 2018.
China United has been based at Beijing Nanyuan airport, which will close for commercial flights when Beijing Daxing opens. It will move to the new airport, which will be home not only to CEA’s existing Beijing presence but to larger footprint as the Shanghai carrier will receive base rights that confer various benefits, most notably improved traffic rights and slot allocation.
Greater segmentation is needed now CEA and China United will be at the same airport and with CAAC base designation. CEA will keep its Beijing-Shanghai flights at Beijing Capital airport rather than move them to Beijing Daxing. It is unclear if this will create opportunity for China United on a domestic trunk route. Previously, China United’s Beijing Nanyuan network had little overlap from CEA’s Beijing Capital network.
CEA was eager to promote China United’s forthcoming international growth, telling a Belt and Road forum that the future will see China United expand more internationally. Beijing Nanyuan does not handle international services, so China United’s existing few international flights depart from other Chinese airports.
Xi did not identify specific growth areas, aside from saying China United would expand in Southeast Asia, Korea and Japan – essentially the narrow body markets from eastern China.
Although Xi was responding to a Malaysian newspaper, he singled out AirAsia for comparison. By some calculations, the Malaysian-based group is the largest foreign airline group serving mainland China, excluding those from greater China.
“AirAsia has grabbed a large low-cost travel market share in China. We cannot be a threat to AirAsia, but we will be a new player providing an alternative to existing players,” Xi said.
Xi said CEA would not invest in Malaysia Airlines as the flag carrier was not on its “equity agenda”. The Star said CEA would consider joint ventures and equity investments.
