I assumed Chinese airlines were mostly losing money on international flying, though I think I didn't fully appreciate just how much money they've been losing. Finally we have some insights about that, and the numbers are shocking. If you've looked at booking a ticket to or from Asia anytime in the past few years, you've…
Continue reading: Chinese Airlines Losing Billions On International Flights
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Very interesting post. I was wondering about this. I fly from NY to Singapore once a year and I've found that the business class air fares on the Chinese carriers are unbeatable. For the past few years, you could get a paid business class ticket via one of their hubs (Beijing, Shanghai, or Guangzhou) for around USD3,000. The closest priced competitor might be a sale fare on Emirates or Qatar for around USD4,000. Mainline European, US or Asian carriers would be around USD5,000. China Eastern wasn't great but it did the job and even included a car service transfer to JFK included in the USD3,000 airfare. That's a $150 value from where we live.
This is not surprising at all. I have so noticed how low Chinese airline prices are.
Not to get to political here, but this is how the Chinese have taken over most other industries. Produce below cost until you put competitors out of business and gain market share, then raise prices and enforce its will on others. This is just an example that’s easier to see in action due to the publishing of fares.
I just came back from Beijing for $305 roundtrip on American, I am not complaining.
Most of the times the flights are cheap, and planes are full, so I think it is just the unhealthy competition amongst Chinese airlines that is causing this. But look at UAE, they are starting a third global hub and it has a fraction of Chinese population, isn't that a baffling situation as well?
personally, I do not mind all those good business fares shuttling me across the Pacific! A transit in CKG? No problem, increased my mileage earnings and a free stopover in one of the best gastronomic cities in the world!
I flew into Chengdu from LAX last month on Sichuan Airlines. Going over the plane was a little over 1/3 full. The return trip had more passengers but I still had three seats to myself.
The Chinese middle class continues to grow, and Chinese tourists are in the top 5 nationalities of visitors to most Western countries. In places like the US, they spend more per visitor than any other tourists. If the demand for flights isn't fully there now, it will be soon.
This is really an issue of big picture as a planned economy Vs market economy. China is an interesting market, as it is a combination and balance between the two kinds of markets. I actually feel happier as a customer that China has part of the economy as planned Vs solely profit driven as the Chinese airline will operate certain route that is even losing money, but good for the local people. For this route, not only about competition, it is also good for people living in that region to travel easily to the US or going back home. Like the massive high speed train network in my hometown which pretty much like some place in northern Canada, we still have high speed railway system, I am sure they are losing a lot of money and not profitable, but it is good for me as a person there, which Money driven organization will hardly understand.
Simple. Chines state owned companies are not run for short term profits but for long term geo-political positioning. You see the same in eg manufacturing.
China is strengthening its position by providing loans, build infrastructure and provide transport. This will create dependencies and there are moments that the dependencies are leveraged on and a step can be made to expand the sphere of influence. Look at what has been going in Africa, or Sri Lanka, or Myanmar to mention a few examples.
Likewise the airlines will continue this for a long time to come.
Extremely low fares are not exactly a bad thing for a population who earn a fraction of what Americans earn.
Not surprised. I have been involved in China business since 1987 and have seen this behavior in all industries. As someone said earlier not to get political but this is something that Trump is 100% correct on his statements about China.
Maybe it's just me, but I think the blog's credibility has fallen with the shift to aviation business and general travel news - because when you say that the scope of this news is shocking, I wonder if you mean a version of shocking similar to Claude Rains' character from the film 'Casablanca.'
These airlines will continue to utilize capacity dumping as a market share lever until COMAC becomes a major industrial player in global aviation.
This is the same country that rips up perfectly good roads and rebuilds them because they are trying to keep people employed. The truth is, it's probably way worse than what they are reporting. No body truly knows how bad Chinese state owned debt is due to shadow banking, corruption, and desperately trying to keep GDP numbers up.
I suppose you’ve Heard the quote attributed to Milton Friedman. Supposedly he was watching a Chinese canal being dug with shovels and asked why they didn’t use machines. When told it was because they could employ more with shovels.
“Then why not give them spoons?”
Could be worse, instead of shovels and work, they could have guns and no work!
Comparing numbers is pretty pointless as we all know the figures are off by a mile at best.
I decided to go to China on Thanksgiving because of the $300 round trip fare with American Airlines. Using Hyatt points for hotels. So I'll have a week in China for less than $1,000. I love the low international fares as they are popping up everywhere!
Has somebody above alluded to, China state enterprises operate primarily for political purposes. By maintaining a high frequency of Lights, it is increasing jobs and influence. It is there to maintain employment regardless whether such jobs are needed. If a China citizen works under a State Enterprise, it's a guarantee he won't dare to object or criticize the government or else he'd lose a job.
The Chinese regional subsidy is just crazy. Melbourne Airport in Australia for example, now flies to whopping 14 cities in China (however, two routes are ending this year.)
However some flights do make money, such as CZ to CAN or MU to PVG, which is no surprise, given both destinations are big cities, as well as connecting to their massive domestic Chinese network. (sometimes even one-stop to via Guangzhou to Heathrow only costs $2K in J)
The Chinese domestic market is actually pretty robust and very profitable. It is possible they are using part of domestic profit to subsidize the international loss.
very difficult for west to understand, Like the guy says, years ago, one gang(workers) would move say bricks from one area to another all day, work done, then next day another Gang, would take them back . then as time went on it was one way, then houses built, Now if you have weekly wage $500 in USA, and $75 in china, the cost of asay a DVD, Book in USA $8, in china $1, so when east meets West, you can,t charge $50 fare out and $500 back,, The difficulty is fuel in USA , Planes, in USA, wages, for Airports , Local, USA , Dollars, so they have to compromise, otherwise, the working class, would never have a holiday abroad, This means over time, they will catch up, Rubbish may be so? not putting my name to it, Ha Ha
Considering how many airlines there are and the time period, your headline is a bit overstating things. If it were one airline that would be a huge number. I believe United alone lost about $1.3 billion in one quarter in 2009. Of course the world economy is generally good these days, so most airlines should be making money, but the number needs some perspective.
I somehow feel funny that apparently most of the comments below show very little knowledge on China, its economy and how airlines there operate. The same thing happens when watching the comments from Chinese forums discussing about U.S. They don’t understand why airlines here are still operating such an old fleet, why they can’t get rid of the union, and how hard it is to build a new airport here.
A lot of misunderstandings between the two sides.
16.000 mile journey? Do you think Chinese Airlines fly over Europe when doing a lax-Beijing route?
First of all, don't believe the state run enterprise. There's no one-state in China. Each regional/state/province compete each other badly coz it's about their president/chairman/minister political career as well as finance purpose.
What I heard is airline gets 2 billion Chinese Yuan (≈0.3 billion USD) if the airline opens a new international route and sustains for more than a year from local government. Thats why you see ckg or ctu there which doesn't make any sense
Wow sorry Ben, but this is a very shady article. Headline says "Chinese Airlines Losing Billions On International Flights". Article presents exactly ZERO evidence to support that claim. After going on and on about a whole bunch of irrelevant facts, you finally present 1 single data point that is VAGUELY related to the topic: you say that one single Chinese airline (NOT all Chinese airlines) has revenue (NOT profit) on Intercontinental (NOT International) flights of 0.09USD/mile compared to Delta's 0.16USD/mile. Given those 3 NOTs, this datapoint isn't even relevant. But if we PRETEND it is, we know that Delta is the most profitable airline in the US, and we know that China's salaries and expenses are dramatically lower than the US, it is entirely possible that 0.09USD/mile is actually profitable or break even.
Second-tier cities’ government(Changsha, wuhan, chengdu, etc)compensates insane amounts of money so that they can have some intercontinental routes...
Ironically the domestic fare is sometimes more expensive than intercontinental fare...
Is UBER much different, other than the fact that the losses are funded by shareholders rather than the govt ? It has never made a profit, won’t make one in a 5 year horizon...and yet regulators permit it to trade even though it has caused enormous financial damage to others. As a consumer you might welcome it, just as cheap airfares are great for customers.
Inflight service on any Chinese carrier in first, biz or premium economy is horrendous!!!! No wonder their fares are cheap.
How is this news? China hasn't achieved anything on it's own since Deng Xiaoping started modernizing. Everything they have is the result of cheating or stealing. Their culture of authoritarianism and rote learning is kryptonite to creativity and innovation.
It's not the airline but the impolite and rude people I have ever experienced in getting a stop over or landing in any airport in China. The Chinese people too on board the airline are just the same. OMG but anything but name China attached to an airline... Sorry China.I know you're one of the best in many things in the world but some of the people need to learn manners too.
@Grumpy Texan Travel : Are you blind or deaf?? Who does China steal the 5G technology from when the US doesn't even have it. Sadly, people like you, the lazy and ignorant type, prefer to listen to your fake news group & propaganda and follow them without doing further research and using your brain. That is laziness & stupidity compared to the hardworking Chinese.
Back to this topic: What Chinese airlines do now is simple: to gain market share so that they can maintain a competitive edge in the long run. China looks at the big picture strategically and embrace ST losses for LT gains when it has a hybrid economy in place.
@Grumpy Texan Travel
And yet China has gotten so much interest from the Trump administration that he has to launch all sorts of retaliation against them. Not too bad for a country who has achieved nothing.
@ Kirk -- Did you read the actual story? Maybe you missed the key statistic that supports the headline:
"China’s international aviation industry has been losing money for three years, with a loss of 21.9 billion CNY (~3.1 billion USD) in 2018"
That's not "one single data point that is vaguely related to the topic." That is a fact that directly supports the title.
@JW. The administration is paying a lot of attention to China precisely because they cheat and steal. They have no regard for intellectual property because they create so little of it. The Soviets were the same way. They stole our nukes and other technology because their culture and government suppressed innovation and creativity. The only thing China and the Soviets ever excelled at was devising new techniques of mass starvation.
The other posters who pointed out that China doesnt view business the same way that the West does are correct. If the Chinese can make money, great. But their primary business concerns are acquiring domestic and foreign political power. If they can gain power by operating a bunch of unprofitable and inefficient airlines, then they will. They will extract wealth some other way, or simply steal it.
It seems every time Ben raises something in relations to China, topics always ended it up political...with heated debates and abusing comments. Ben, do you enjoy this?
@ Grumpy Texan Travel :
China was in a stage of learning curve when they first joined WTO. Yanks copied from Europeans to expedite your growth for a good 70 years in your initial years of industriallization. If you're well-versed and stay objective, you should have know that that Chinese government has invested heavily in R&D on AI and technology advancement. That's not stealing or cheating!! Your prejudice is showing, which is quite shameful!
In fact, Reuters reported that "China accounted for nearly half of global patent filings in 2018, with a record 1.54 million applications, led by telecoms and computer technology, the U.N.’s World Intellectual Property Organization (WIPO) said".
https://www.reuters.com/article/us-global-economy-innovations/driving-force-china-accounts-for-nearly-half-global-patent-filings-u-n-idUSKBN1WU2XR
To make it clear here, their main goal is: political achievement.
IDK why but China's governmental KPI is a weird one. Local officials have to make something to write in their report. They have to write something new to avoid condemnation (Like "we maintained everything at a good level" is not good). During last 3 years following Xi's B&R initiative looks like using governmental financial aid to open some international routes became a new trend for some local govt. This excepts Hainan since CAAC has a "one Chinese company per route" on intercon routes. But for CTU, CKG, CSX and WUH, this makes some since.
Tempting as their fares might be, I suggest flying Taiwanese EVA or China if you have a conscience. Money and power are the only things the authoritarian Chinese government understands. It's the only thing keeping them from massacring the Hong Kong protestors. Remember Tienanmen Square in Peking.
I worked in Hong Kong and first went to China ( Shenzhen ) in 1979, it was a village with 100,000 people , now 10 million population with a underground metro railway .
In 1983 I flew Guangzhou (Canton ) to Xian in a 2 engined propellor Russian aircraft , God knows what it was. It had no seat belts in some seats and an old GEC stand up fridge full of bottles of coke . We stopped somewhere en route and got off for lunch at an airport restaurant ,. No in flight catering then, we used to take a packet of biscuits and cans of coke in our hand luggage . Amazing times .
The airlines in China have come a long way in 35 years .
You'd shudder thinking about all the data harvesting going on. Huawei, face recognition, spies etc. Then again, nothing too different from what the big players are already doing
China Eastern and China Southern are terrific products, brand new planes, excellent seating comfort (decent staff) and a nice meal. Yes will fly them again.
If Walmart destroyed retail ,I hope the Chinese carriers do the same with aviation and liberate us from the crutches of robbery at the behest of certain carriers, hell bent on dominating us by charging us for everything and then treat us like cattle onboard ( even in business class)
Losing billions to me equals no money for aircraft maintenance. I won't go near any of these airlines, even if the flights were free.
That’s the way Chinese do things. They invade a market with multiple options, all mediocre with not much sense of quality, service, efficiency and profitability.
It is really interesting to read the comments sitting here in China. I just flew with Shanghai Airlines with a 3 year old A330 in J from SZX to SHA. The service was immaculate, crew spoke English the menu in English though was a photocopy Page in the Chinese menu. And the fares compared to us carriers are more then competitive. Also I prefer the tsa here in China which uses modern Biometrics instead of the unfriendly personnel in the US (especially NRJ) . Regarding mile cost. They are cheaper to produce in China as the national flights are always pretty well booked, at least from first and second tier cities which I normally frequent and as the commenters above mentioned the local subsidies which the airlines can acquire. So in the long run I think they are more or less breaking even and want to acquire market share and preferable landing times/slots.
I live here and appreciate the guarantee of a cheap fare if I need to get home for some reason. but..... I am missing out on a $200 RT flight LAS-CDG by being here.
Living in HK I've done my fair share of flights to Europe, and quite a few times tempted by the unbeatably low prices - sometimes even half of any other airline.
However I've learnt my lesson. It is not worth it. Chinese airlines are horrible. Stopover in any Chinese city is a nightmare, the flights, especially the connecting ones, are always delayed and the passangers are rude, rowdy and downright unpleasant. To top it off the food is so gross that I have resorted to bringing my own , and I usually eat anything and love Asian cuisine.
For the past few years I've refused to use them - hell, even Aeroflot is preferable even though SVO is a shithole - and would rather pay more.
I seriously wonder about their safety and maintenance measures. Nope, not worth it.
No optimism for Chinese airlines as they piling up debts after debts and they are due payments. They will collapse eventually.