China Airline Industry
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Transcript of China Airline Industry
3,4 7,5 16,6 51,2 67,2 138,3 231
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39,6 116,7 230,5
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77 8092
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1980 1985 1990 1995 2000 2005 2012 2030
Num
ber O
f Airp
orts
Million Pe
rson
sPassenger Traffic - Airports
Passanger Traffic, mill. PersonsPassanger Trafic Turnover, mill. Persons-‐kmNumber of Airports
Economy and Political Environment
• Demand for air travel is characterized by very high-income elasticity.
• Increasing capacity during upturns can be very difficult – Planning required
• in China labor Unions are very weak and companies can hide their wages.
• Oil prices that takes 10-14% of an airline’s operating costs.– Hedging is an option
• Exchange Rate effect prices• China fully deregulated industry in an effort to make
more efficient• ATC Regulations negatively affect the industry
Industry Rivalry between
LFA and FSA
Barriers To Entry• Airport Slots
available• Frequent Flyer
Programs• Economies of Scale
Power of Buyers• Internet
Power of Suppliers• Airports, hubs
• Aircraft Manufacturers
Substitutes• Rail Service
StrengthsWeak unions
Fully deregulatedLFA
Low cost structureHigh demand
HUBshigh passenger-‐volume city-‐
pairs.Chinese top tourism spender
WeaknessesNo fuel efficient planesAverage Vehicle AgeQuality of service
Usage of small body jets (no economies of scale)
ThreatsDemand ElasticityBusiness Cycles
Oil pricesHard to increase capacity
FX fluctuationsDuopoliesCollusion
Other SubstitutesOther Hubs
OpportunitiesOverall Growth
2011 – 2030 will tripleGrowth In China up to 7,5%More fuel efficient planes
Low Fare Airlines Full Service Airline
Generally Lower service levels, pre-‐flight, inflight, post flight
Generally higher service levels, pre-‐flight, in-‐ flight and post-‐flight
Faster turnaround times Slower turnaround times
Homogenous Fleet Heterogeneous fleet
Point-‐to-‐point system Hub-‐and-‐spoke system
Higher seat density Lower seat density
Secondary and regional airports Primary airports
Online and direct booking and distribution of tickets
More emphasis on intermediaries such as travel agents
Consolidation after DeregulationsAssociates and/or Subsidiaries
Consolidated with:China National Aviation Corp.China Southwest AirlinesSubsidiaries:Air MacauMacau Asia ExpressCathay Pacific AirlinesShandong AirlinesShenzhen Airlines
Consolidated with:Great Wall AirlinesChina Yunnan AirlinesChina Northwest AirlinesSubsidiaries:China Cargo AirlinesChina Yunnan AirlinesJiangsuWuhan
Consolidated with:Zhoungyuan AirlinesChina Northern AirlinesChina Xingjiang AirlinesSubsidiaries:China Postal Cargo AirlinesFujian AirlinesGuangxi AirlinesGuizhou AirlinesSichuan AirlinesSouthern Airlines Group Shantou AirXiamen AirlinesZuhaii Airlines
Air China China Southern China Eastern Total Remaining
Turnover ¥100,837,682.00
¥96,100,000.00 ¥86,973,000.00
PassangersCaried
(thousands)72,415.84 86,484.99 73077.06 319,000 87,022.11
Dom. In thous.PassangersCaried
61,430.80 77,634.23
Revenue Passager KM(in millions)
¥129,773.32 ¥135,534.73 ¥109,112.68 ¥500,000.00 ¥125,579.27
Passager KM(in millions) Dom. ¥86,588.77 107,278.56
Load Factor 0.80 0.90 0.71
Fleet 461.00 491.00 377.00
Average Aircraft age 6.54 6.32 7.00
Operating Expenses ¥92,628,623.00 ¥95,887,000.00 ¥79,292,000.00
HHI 0.26 0.27 0.22 0.188465418 CR4=0.75
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Market Cap HK$bn Share Price HK$ Target Price HK$ Upside %
China Southern Air China China Eastern
MARKET PERFORMANCE
0,8930,836 0,798 0,799
0,941 0,951 0,963 0,956 0,949 0,949
00,10,20,30,40,50,60,70,80,91
2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2
SHARES OF BIG 3
SHARES OF THE BIG 3
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2010 Q12010 Q2
2010 Q32010 Q4
2011 Q12011 Q2
Cost Per Passenger per km (RMB)
China Airlines China Southern China Eastern
From To Purchase Dat
Departure Company Time Arrival Travel time Vehi
cle Price
Beijing Shanghai (pudong) 12-‐Jun 30-‐Jun
Air China 7:35:00 AM 9:40:00 AM 2:05:00 737 $210.00
China Southern 7:30:00 AM 12:10:00 PM 4:40:00 737 $287.02
China Eastern 7:35:00 AM 9:45:00 AM 2:10:00 A330 $102.71
Train 7:30:00 AM 12:23:00 PM 4:53:00 $93.00 -‐$167.00
Beijing Shanghai (QIO) 12-‐Jun 30-‐Jun
Air China 7:30:00 AM 9:40:00 AM 2:10:00 777 $210.09
China Southern 8:35:00 AM 10:50:00 AM 2:15:00 A321 $210.09
China Eastern 7:30:00 AM 9:40:00 AM 2:10:00 757 $$66.84
Train 8:00:00 AM 12:05:00 PM 4:05:00 $93.00 -‐ $167:00
Beijing Guangzhou 12-‐Jun 30-‐Jun
Air China 8:05:00 AM 11:05:00 AM 3:00:00 A321 $303.00
China Southern 8:30:00 AM 12:10:00 PM 3:40:00 A320 $303.09
China Eastern 5:45:00 PM 7:40:00 PM 1:55:00 738 $154.88
Train 1:05:00 PM 10:32:00 PM 9:27:00 $144.00
Guangzhou Shangha(puong) 12-‐Jun 30-‐Jun
Air China 9:00:00 PM 11:15:00 PM 2:15:00 A340 $235.00
China Southern 7:30:00 AM 9:45:00 AM 2:15:00 A320 $195.54
China Eastern 7:35:00 AM 9:45:00 AM 2:10:00 320 83.15-‐ $195.54
Train 6:11:00 PM 10:08+1 15:57:00 $35.00
Guangzhou Shanghai (QiO) 12-‐Jun 30-‐Jun
Air China 9:20:00 PM 12:00:00 PM 2:40:00 737 $235.09
China Southern 9:00:00 AM 11:20:00 AM 2:20:00 A320 $235.09
China Eastern 9:30:00 AM 11:45:00 AM 2:15:00 737 $83.15-‐ $195.54
Train 12:31:00 AM 8:14:00 AM 7:43:00 $16.00
From To Purchase Dat
Departure Company Time Arrival Travel time Vehi
cle Price
Beijing Shanghai (pudong) 12-‐Jun 30-‐Jun
Air China 7:35:00 AM 9:40:00 AM 2:05:00 737 $210.00
China Southern 7:30:00 AM 12:10:00 PM 4:40:00 737 $287.02
China Eastern 7:35:00 AM 9:45:00 AM 2:10:00 A330 $102.71
Train 7:30:00 AM 12:23:00 PM 4:53:00 $93.00 -‐$167.00
Beijing Shanghai (QIO) 12-‐Jun 30-‐Jun
Air China 7:30:00 AM 9:40:00 AM 2:10:00 777 $210.09
China Southern 8:35:00 AM 10:50:00 AM 2:15:00 A321 $210.09
China Eastern 7:30:00 AM 9:40:00 AM 2:10:00 757 $$66.84
Train 8:00:00 AM 12:05:00 PM 4:05:00 $93.00 -‐ $167:00
Beijing Guangzhou 12-‐Jun 30-‐Jun
Air China 8:05:00 AM 11:05:00 AM 3:00:00 A321 $303.00
China Southern 8:30:00 AM 12:10:00 PM 3:40:00 A320 $303.09
China Eastern 5:45:00 PM 7:40:00 PM 1:55:00 738 $154.88
Train 1:05:00 PM 10:32:00 PM 9:27:00 $144.00
Guangzhou Shangha(puong) 12-‐Jun 30-‐Jun
Air China 9:00:00 PM 11:15:00 PM 2:15:00 A340 $235.00
China Southern 7:30:00 AM 9:45:00 AM 2:15:00 A320 $195.54
China Eastern 7:35:00 AM 9:45:00 AM 2:10:00 320 83.15-‐ $195.54
Train 6:11:00 PM 10:08+1 15:57:00 $35.00
Guangzhou Shanghai (QiO) 12-‐Jun 30-‐Jun
Air China 9:20:00 PM 12:00:00 PM 2:40:00 737 $235.09
China Southern 9:00:00 AM 11:20:00 AM 2:20:00 A320 $235.09
China Eastern 9:30:00 AM 11:45:00 AM 2:15:00 737 $83.15-‐ $195.54
Train 12:31:00 AM 8:14:00 AM 7:43:00 $16.00