China is one of the fastest-growing and most important airline markets in the world. However, as travel demand plummets to all-time lows, the market may lead some airlines to collapse. Now, an HSBC Global Research report from April is indicating that further consolidation may be likely.
The current situation in China
Currently, China is dominated by three major carriers. Air China, the flag carrier with its largest hub in Beijing, China Eastern, with its largest hub in Shanghai, and China Southern, with its largest hub in Guangzhou. After this, there are other carriers like Hainan and Juneyao that are not significant players but are starting to show their might.
As reported in FlightGlobal, an HSBC Global Research report highlights the potential for consolidation in the Chinese airline industry. This consolidation would likely look like a larger carrier taking over a smaller one. This is especially true for Hainan Airlines. Even at times when the industry was strong, the airline has faced financial issues. It recently sought assistance from the government.
Possible mergers
Hainan Airlines is lucrative with its 200-strong fleet consisting of Airbus A330s, A350s, Boeing 737s, and 787s. This fleet could easily absorb into any of the big three Chinese airlines, although Air China would benefit from Hainan’s hub in Beijing-Capital. If not to one carrier, Hainan could be consolidated in parts with each of the big three taking the most useful and efficient assets.
Another form of consolidation could be the end of Xiamen Airlines. A major shareholder in the airline is China Southern. While Xiamen Airlines is a niche little Skyteam carrier that often has some excellent fares to East and Southeast Asia, its expansion plans have been somewhat limited. And its fleet still clocks in at under 175 planes – fairly low compared to the likes of China Southern, China Eastern, or even Hainan. For its few long-haul services, the carrier relies on the Boeing 787. Fleet-wise and route-wise, this airline could easily mesh with China Southern.
Another interesting form of consolidation could be China Eastern taking over Sichuan Airlines. China Southern, China Eastern, and Shandong Airlines all have a stake in Sichuan Airlines alongside other companies like the Sichuan Airlines Group and Chengdu Gingko Jin’ge Investment Company. Two of Sichuan Airlines’ largest hubs include Chengdu and Kunming. These two airports are also large hubs for China Eastern. As a result, this could lead to an efficient merger that would also strengthen China Eastern’s international market out of Chengdu.
Overall
Of course, these are just only a few examples of potential mergers. However, given the large number of airlines in China, there are plenty of other options. For instance, Juneyao and China Eastern, Tianjin Airlines and Air China, or Urumqi Air with China Southern.
Mergers are common after industry shakeups. In the United States, the 2008 recession led to the creation of the big three airlines we see today, when Delta and Northwest, United and Continental, and American and US Airways merged, respectively.
Some airlines likely will merge in China. This would help shore up the financial position of Air China, China Eastern, and China Southern due to fewer competitors amid a global decline in travel and some record-low fares. All three airlines have multiple options and could easily integrate operations.
Do you think there will be a wave of airline mergers in China? Let us know in the comments!
