HONG KONG—China's biggest airline will launch direct flights from its Guangzhou base to New York this summer, forming a cornerstone service to its fledgling southern China hub as it targets growing international transit traffic.
China Southern Airlines Co.'s decision to add the high-profile route reflects rising domestic competition, but the plan pits the company against some of Asia's biggest airlines also serving the Greater New York area.
Chinese carriers are racing to boost their international reach as an increasingly congested home market puts intense pressure on ticket prices and weighs on earnings. With demand for outbound travel growing, China's three state-owned airlines, which together account for nearly 80% of China's commercial airline traffic, have been adding international flights over the last two years, with a focus on long-haul services.
The state carriers are facing a tougher new reality as the Chinese government moves to liberalize the domestic airline market and promote the development of low-cost carriers. Beijing last May lifted a six-year ban on setting up new independent airlines, signaling a looser grip on the industry.
China Southern said it plans to operate four weekly flights into New York's John F. Kennedy International Airport from Guangzhou starting in August, extending its North American reach to the East Coast beyond existing gateways of Los Angeles and Vancouver. The plan is to attract travelers not just from China, but from other countries, who would fly to Guangzhou to catch China Southern's service—so-called transit customers.
"We are taking advantage of an expanding Guangzhou airport to build…an integrated international hub for the Asia-Pacific," said Tan Wangeng, China Southern president.
The airline will deploy its Boeing 777-300 extended-range aircraft for the 15-hour flight, said Mr. Tan, with the first of 10 such jets it has on order entering the fleet next week.
China Southern is the world's fifth biggest by passenger numbers, having carried 91.8 million people in 2013, but its international profile is lower and its global footprint smaller than flag carrier Air China Ltd., which operates out of Beijing.
China Southern is building its international hub in the southern city of Guangzhou, and last year launched direct flights to Moscow, while increasing frequencies to cities in Australia, New Zealand, the U.K. and Canada.
New, more-efficient long-range jets are helping make a larger number of routes commercially viable for the airline, which was the launch customer in China for the Boeing787 Dreamliner and the Airbus A380 superjumbo.
Yet like its state-owned rivals, China Southern's passenger service standards and schedule reliability still fall short of its key premium Asian rivals, say analysts, hurting its competitiveness.
Guangzhou is just a two-hour train ride away from Hong Kong, home to Cathay Pacific Airways Ltd., which offers a larger international network and more flight frequencies. In March, Cathay Pacific will add its fifth daily flight into the New York area. Meanwhile, airlines in South Korea and Japan are also vying for more transit traffic from Chinese and Southeast Asian travelers.
All this competition means that China Southern will have to continue to deeply discount its seats to lure new transit customers, at the expense of profits. The airline already offers some of the cheapest fares on tickets between Australia and Europe, even while giving more generous baggage allowances for coach passengers.
"An airline must offer attractive fares to gain transit traffic," said Eric Lin, a transportation analyst at UBS Securities. He says he doesn't see any compelling reason, apart from price, for Asian travelers to go through Guangzhou, given the hub's relatively limited connectivity and inadequate transfer infrastructure.
China Southern on Wednesday inaugurated its Boeing 787 jets on daily flights to Vancouver, providing better seats and passenger amenities to attract traffic. The airline said it filled roughly half of the first 787 trans-Pacific flight, or 100 seats, with transit passengers from India and parts of Southeast Asia.
The carrier in October posted a 3% decline in third-quarter net profit to 2.16 billion yuan (US$355 million), hurt in part by China's slowing economic growth. The carrier is scheduled to release full-year earnings in late March.
Source: Wall Street Journal by Joanne Chiu
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