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The "Shuffle" and Reform of China's Civil Aviation

Mar 30,2021


According to the latest forecast of the International Air Transport Association (IATA), the revenue of the global air transport industry in 2021 will fall by 50% compared to 2019. For China's civil aviation transportation industry, although the domestic transportation market is gradually recovering, considering that the overseas epidemic has not been effectively controlled, China's civil aviation, which lacks the support of the international route market, is still facing difficulties. However, "danger" and "opportunity" always coexist. In 2020, China's civil aviation transportation companies have started to conduct a self-change. For Chinese civil aviation transportation industry, experiencing a golden decade, this unexpected crisis may give the industry an opportunity of "shuffle" and reform.


An unexpected "accident"

In 2019, the growth rate of China's civil aviation dropped to the lowest point in a decade. In early 2020, the outbreak of the COVID-19 caused the civil aviation industry to be decimated. The industry was caught in short-term Shortages of passenger volume and widespread severe losses. After the epidemic, Chinese civil aviation transportation industry is facing unprecedented challenges:

(1) Changes in travel habits

Changes in travel habits may cause a decline in the total number of trips. Nowadays, many companies have gradually adopted and adapted to remote office systems, replacing business trips with video and teleconferences. In the future, this trend is likely to become a new normal, which may directly cause a phased decline in the domestic aviation travel demand.

(2) Reshaping the passenger structure

In the post-epidemic era, due to the reduction in official/business travel, airline passenger structure will change, and the proportion of leisure travelers will have a corresponding increase   in the future. This type of passengers are more price-conscious, and the competition between aviation and high-speed rail is long-standing and fierce, In view of the above reasons, the air fare may go down in the short term.

(3) Increase in operation costs

The high operating costs associated with the epidemic prevention will squeeze the profits of airlines. The industry predicts that even after the launch of the vaccine, even regardless of other factors such as the exchange rate and oil price, it will be still difficult for Chinese air transport industry to return to the level of 2019 in the next 2-3 years. Facing the severe situation, "change" is the only way out.


Who will become the super carrier?

In the post-epidemic era, as the dividends caused by the rapid development of civil aviation gradually disappeared, reforms have turned into new bonus for Enterprise development. As a result, the mixed ownership reform has become the biggest action of the three major airlines in this round of civil aviation changes.

(1) China Eastern Airlines Corporation Limited:

1. Initiated the mixed reform, and successfully invested 31 billion yuan by China Life, Shanghai Jiushi, China Tourism, and China Reform.

2. The China Securities Regulatory Commission issued the "Prospectus for the Initial Public Offering of China Eastern Airlines Logistics Co., Ltd.", marking substantial progress in the reform of equity diversification.

3. Actively cooperate with major national strategic plans, sign strategic cooperation agreements with the governments of Hainan, Xiamen and other places to attract the government to buy shares and obtain the leading strategic position in the civil aviation industry.

(2) China Southern Airlines Company Limited

1. Promoting cooperation and coordination with Spring Airlines, American Airlines and British Airways to follow up the mixed logistics reform, and officially landed at the end of 2020, transforming from a wholly state-owned enterprise to a mixed-ownership company.

2. Complete the mixed reform of general aviation business and open up new areas of mixed reform.

(3) Air China Limited

1. The mixed logistics reform has been settled, and the method of "introducing new shares and employee shareholding" will be adopted.

2. Introduce Cainiao Network as a strategic investor to build a "National Team-level Cainiao Network".

Due to the short period of time, the outcome of the mixed reform of the three major airlines remains to be seen. But it is undeniable that for the three major airlines, In the future, whoever takes the lead in achieving breakthroughs in reform and development will be the first to seize new development opportunities and become a true super carrier.


Make up for shortcomings in changes

Although Chinese air transport companies are suffering hardship generally due to the epidemic, the performance of low-cost airlines in 2020 is very eye-catching. In the future, the passenger structure of airlines will change, and the proportion of leisure travel passengers will increase as well. With the continuous improvement of residents' income and the understand towards low-cost airlines, the development of low-cost airlines has the obvious potential. In the short -medium-range market, it is inevitable that low-cost airlines will replace full-service airlines in the future.

In the post-epidemic era, the Civil Aviation Administration will promote the implementation of the "Public Air Transport Passenger Service Management Regulations (Draft for Comment)", and encourage relevant Ministries and Commissions to give more support to low-cost airlines in terms of revenue. Therefore, in the post-epidemic era, Chinese transportation companies should seize the opportunity to actively arrange the low-cost aviation market.

In addition, the shortcomings of air cargo in Chinese civil aviation industry are also supplementing quickly. Besides, the three major air cargo reforms, Zhongzhou Airlines and Northwest Cargo Airlines have been established in 2020 successively. SF Express's Ezhou Airport is accelerating construction. Ali and JD.com are also eyeing the air cargo business and waiting for opportunities. It can be said that the future air cargo market will usher in a new round of development, but at the same time more intense competition will follow.

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