Chinese airlines are delivering a hammer blow to foreign carriers trying to keep up by flooding the world with some of the lowest long-haul fares ever seen. Many operators are feeling the squeeze from the extended reach of mainland Chinese carriers – from Delta Air Lines Inc. and American Airlines Group Inc. in the U.S., to Cathay Pacific Airways Ltd. and Korean Air.

They’re also adding hundreds of overseas flights from little-known Chinese cities to airports all over the world and not just offer cheap fares on routes long-dominated by national airlines like Korean Air.

“Chinese airlines are still hardly scratching the surface of their potential, not just in China, but globally,” said Will Horton, a Hong Kong-based analyst at the CAPA Centre for Aviation. “If an airline today cannot compete with or grow alongside a Chinese airline, the future will be bleak.”

led by Air China Ltd. and Hainan Airlines Co, mainland Chinese airlines have opened 75 long-haul markets since 2006, according to CAPA.

And only in the past two years, more than two-thirds of those routes were opened. State-controlled and listed in Hong Kong and Shanghai are China’s three biggest carriers — Air China, China Eastern Airlines Corp. and China Southern.

Cathay is now conducting what it calls a “critical review” of its business and it’s first-half profit sank 82 percent as Chinese travelers bypassed its Hong Kong base.

China “continues to be challenged” as capacity growth outpaces demand, Delta President Glen Hauenstein told analysts in October. There’s “continued weakness in China” as excess capacity seeps into the airline’s new services from Los Angeles to Hong Kong, Haneda, Sydney and Auckland, American Airlines President Robert D. Isom said the same month.

According to Webject.com it costs $570.06 for a round trip with China Eastern between New York and Bangkok, via Shanghai. The same trip costs $714.80 with United Airlines through Hong Kong. Compared to American Airlines, flying from Los Angeles to Hong Kong with China Airlines is one third cheaper.

“U.S. airlines dominated the China-U.S. route in the past, but now it’s the Chinese airlines,” said Chen Suming, an analyst at Shanghai Chongyang Investment Management Co. “Most of the new air travelers are from China, not the U.S.”

But price isn’t everything. Obtained from airline rating system Sjytrax, Cathay and Singapore Airlines Ltd. both have a five-star rating for product and service. While China’s national carrier Air China has three stars, Hainan Airlines Co. is the only mainland Chinese carrier among the world’s nine top-rated airlines.

Despite this there’s little sign the inundation will end. The Civil Aviation Administration of China said that international air routes in China jumped 35 percent to 660 last year. According to the U.S. government, Chinese will be the top overseas visitors to the U.S. by 2021.

Flying to long-established transit centers such as Hong Kong, Shanghai or Beijing and then take a local connection was the easiest way to get to a second- or third-tier city on the Chinese mainland for years. Now a new world order is emerging. Hubs such as Singapore and Hong Kong are being sidestepped and flights are flying straight to destinations abroad by Chinese carriers in these cities. That poses the biggest threat to airlines such as Cathay and Singapore Air.

(Adapted from Bloomberg)

Categories: Economy & Finance