Development Trends Of China's
Air Cargo Business

(Shanghai Exclusive—Interview with Mr. Li Jiaxiang, Chairman of Air China Limited)

     In this golden autumn, during an interview at Air China Limited headquarters in Beijing, Mr. Li said that separating passenger and cargo businesses is the main trend of China’s air cargo business.
     “Besides the foreign airlines, such as Lufthansa, Air France and Japan Airlines, several domestic airlines also have finished breaking up their passenger and cargo business into separate units.”
     Statistic data provided by Sinotrans Air, a listed company in Shanghai Stock Exchange, indicate that China’s air cargo business is experiencing a phenomenal pace of development.
     After China entered WTO, the volume of air cargo has consistently maintained a double-digit growth rate.
     “But what is more important is the establishment of the “Cargo First” principle, which directs steps to open China’s aviation industry to the world.”
     To develop China’s air cargo business, Civil Aviation Administration of China (CAAC) has changed the aviation landscape of the world’s most populous country.
     As officials of CAAC introduced new policies in Istanbul, Turkey liberalizing the civil aviation sector of China, they said that, under the “Cargo First” principle, China would continue to support joint ventures to form air cargo companies.
     In April 2004, CAAC announced the policy to enhance China’s air cargo business, which explicitly loosened the entry barrier to China’s domestic air cargo market.
     “This policy symbolizes CAAC’s emphasis, shifting the pricing system of domestic air cargo market, increasing the turnover speed and the service and establishing the supervision system of this market.”
     It is estimated that by 2010, annual volume of air cargo transportation of China will reach 1.04 million tons with revenue at or about RMB9.4 billion.
     “To grasp the opportunity of development and also to face the challenges, Air China Cargo has taken several major steps.
     “First is to enhance cooperation with major agents of air cargo in the world.
     “We have also established a global purchasing net with international agents.
     “Our agreement with Sinotrans Air makes it possible to simultaneously process businesses in different areas of China.
     (It should be noted here for our readers worldwide that Sinotrans Air Transportation’s principal activity is the provision of international air transport agency services for transit, import and export goods. Major services include international express delivery cargo transport.)
     “Second is to provide more express and reliable services to customers.
     “Enhanced world class air cargo services are Air China’s goal, that we will endeavor to achieve for the long term.
     “However, in the air cargo business, the performance of domestic airlines is not satisfying.
     “Currently, the total number of China’s freight aircraft is only 29, and the overall transportation capacity, added by that of the belly holds of all airliners is extremely limited as compared to other service providers.
     "Only three companies can be called real air cargo carriers, including Air China Cargo, China Cargo Airlines Ltd., and Yangtze River Express.
     “Compared with the $60 billion exports and $61 billion imports through air-express, the capacity of domestic air cargo companies is far less than enough. “That is why many commodities are exported through Hong Kong, Singapore and other airports.”
     In past decades, China’s aviation industry put much more emphasis on passenger business than on cargo business.
     “Now, less than 20 freight aircraft can provide international cargo services, while in America, UPS and FedEx alone already have more than one thousand freighter aircraft.”
     It is estimated that about three fourths airlifted exports of China’s mainland are transferred in Hong Kong to freight aircraft of other companies.
     “Generally speaking, the air cargo business is highly profitable.
     “International business is about 25 percent of the total market.
     “But the domestic air cargo market, is somewhat disappointing.” Mr. Li sighed a bit as he spoke those words.
     “Airlines use belly holds to conduct their cargo businesses.
     “All are great competitors in the business and “price wars” are intense and unending.
     “The upshot of course is predictable as low profits in the domestic China air cargo business that are increasingly being viewed as unsustainable.
     “China’s air cargo companies face challenges from other transportation industries.
     “Continuous increase of railway efficiencies including speed in recent years, has also forced a downward pressure on the price of air cargo under 500 kilometers to be lower than RMB1.5 Yuan, which also means few profits to air cargo companies.
     “When domestic air cargo business cannot bring significant profits to our company, we will develop international air cargo business to be a new profit engine.
     “However, this is only a short term strategy.
     “ In the long term, we still should rely on domestic air cargo market.
     “In coming years as the domestic market becomes more mature, air cargo companies and their fleet will be considerably expanded, and more flight courses will be available.
     “With all these promising factors, I have a favorable outlook of China’s domestic air cargo business and our company.”
(Han Bing)

Air China On The Move

   China National Aviation Holding Company was created on October 11, 2002.
   The corporation folded in the old Air China as principal part while combining China National Aviation Company and China Southwest Airlines.
   The old China Southwest Airlines was renamed Air China Southwest Company, while the old China Zhejiang Airlines was rebranded Air China Zhejiang Company.
   Still the Mainland’s premier air service provider, Air China is the only airline that flies China's national flag on every aircraft and the only carrier entrusted to provide special aircraft for China state leaders.
   The new Air China's guidelines set in 2003 included mandate to create a new situation of sustained development as a state-owned air transport enterprise, that were transformed into "diversified share-holding" limited company or joint-stock company when the company initiated an IPO in 2004.
   So far the new Air China has made solid moves as a company with top-quality air route network and advanced aviation products.
   Next step in the works for 2010 is company-wide desire for Air China to bring itself up to a level that compares favorably with other global airlines.
   But in reality as the Beijing Olympics are held in 2008, the eyes of the world will be upon the carrier big time, as the distinctive logo of the world’s biggest sporting event joins the flag of the nation on every Air China aircraft flight.
   Air China, it appears is also raising itself into a highly competitive aviation enterprise with efficient safety and security, innovative service, professional management and solid finance.
   The carrier is also on the lookout for new opportunities as well.

September 2005 Monthly Operating Data

Agreement with Cathay Pacific to code-share some flights saw a memorandum signed in Beijing by Air China Executive Vice President Cai Jianjiang and Cathay Pacific Chief Executive Philip Chen earlier this year.
   
    Cathay Pacific was permitted to acquire 10 percent strategic shareholding in Air China at its initial public offering last year in Hong Kong.
   What followed were regular meetings between teams from both sides to explore expanding cooperation in various business areas.
   Currently Air China code-shares on two Cathay Pacific services from Beijing to Hong Kong—one of which operates daily and the other three times a week.
   Cathay Pacific has attached its code to three of the daily Air China services to and from Beijing. Both Air China and Cathay Pacific believe that by working together, the two airlines will offer an even more attractive proposition to customers, with more services between Hong Kong and Beijing and more timely connections through the Hong Kong hub to and from other destinations.
   As Chairman Jiaxiang puts it:
   “Air China will keep the spirit of “safety first and customers highest," concentrating on satisfying the customers and making them feel relieved, satisfactory, comfortable and moved."
   That about says it all.