Airlines launch new flights to profit from China-US routes

Flights between China and the United States have become increasingly profitable, with Chinese airlines continuing to add flights or open new flight routes to American cities, reports Beijing's Economic Observer.

US carriers have also reaped considerable profits from flying on the China-US routes, but the rapid growth in market share of Chinese airlines during recent years has been a cause for concern for their American counterparts.

A survey conducted by PricewaterhouseCoopers indicated that American companies accounted for 53% of the flights between China and the United States this year, down 59% from a year ago, with Chinese airlines taking the remaining 47%.

Citing figures from the International Air Transport Association, Liu Jichun, vice manager of Hainan Airlines, one of China's four major airline companies, told the paper that Chinese airlines' capacity had posted an annualized growth of 4.7% to 41.5% this year alone.

The number of Hainan Airlines flights between Beijing and Chicago has increased from two per week to four flights per week since Dec. 10, while Xiamen Airlines has nearly doubled the number of its China-US flights from 15 in 2008 to 26 this year.

On April 20, China Eastern Airlines launched a daily direct flight between Shanghai and San Francisco, which is the company's fourth China-US route after New York, Los Angeles and Hawaii. United Airlines and Air China also operate on the Shanghai-San Francisco route.

A China Eastern official told the paper that many ethnic Chinese living in San Francisco and many inbound and outbound visitors from mainland China, Hong Kong and Taiwan going to American cities were flying on the route.

In addition, China Southern Airlines opened a direct flight from Guangzhou in southern China's Guangdong province to Los Angeles in October last year, while Air China has continued to add flights to American cites over recent years with its over three decades of experience in operating on China-US routes.

The intensifying competition is a result of declining revenue from operating domestic flights in China, Lin Zhijie, an official at Xiamen Air, revealed. Additionally, the US government relaxed its policy of granting visas to Chinese travelers last year in order to boost consumption by Chinese tourists visiting the United States. Official US figures estimated that 1.7 million Chinese nationals visited the country in 2013, up by nearly 40%.

Liu said he believes American airlines will soon expand capacity in response to the growing competition posed by its Chinese rivals.

The recent merger of American Airlines and US Airways on Dec. 10 has transformed the carrier into an industry leader and the company is now operating directs flights on the Beijing-Chicago, Beijing-Los Angeles and Shanghai-Los Angeles routes.

The company is also in the process of applying for permission to fly a new route between the Shanghai Pudong International Airport and the Dallas Fort Worth International Airport. If it is granted approval, it is expected to begin operating the route as soon as next summer, the paper said.

Source: Want China Times

Boeing $7.5 Billion Cathay Order Is Asia’s First for 777X

Boeing Co. (BA) landed the first buyer in Asia for the new 777X jet with a $7.5 billion sale to Cathay Pacific Airways Ltd. (293), widening the customer base for a plane pivotal to staying ahead of Airbus SAS in the long-haul market.

“Cathay’s order is a vote of confidence in the model,” Patrick Xu, a Hong Kong-based analyst at Barclays Plc, said yesterday in a telephone interview.

The airline, Asia’s largest on international routes, will acquire 21 of the larger -9 version of the 777X and fly them to North America and Europe. The 777X will be Boeing’s first passenger jet of the next decade, and Hong Kong-based Cathay said yesterday that deliveries will run from 2021 through 2024.

Cathay’s purchase pushed the value of 777X deals past $100 billion at list prices with commitments since September from Germany’s Deutsche Lufthansa AG and Persian Gulf carriers Emirates, Etihad Airways PJSC and Qatar Airways Ltd. Buyers typically get a discount.

Boeing rose 1.1 percent to $136.67 at the close in New York, extending this year’s rally to 81 percent. 

Cathay gained 1.5 percent to HK$15.98 in Hong Kong, pushing its advance in 2013 to 12 percent.

The twin-engine 777X, which seats 400 people and aims to match payload capabilities of a four-engine 747 jumbo, boasts new General Electric Co. GE9X turbines and the largest-ever wing for Chicago-based Boeing, with a fold to conserve airport space. GE, which has exclusivity on the model, said that the booked engine orders are valued at more than $21 billion.

Dubai Unveiling

Boeing formally introduced the upgraded plane in two variants at the Dubai Air Show last month, with the larger -9X due in 2020 and costing $377.2 million. The smaller -8X will debut 18 months later and is priced at $349.8 million.

Boeing has long dominated the wide-body aircraft market and accounts for 55 percent of the 2,352 global sales backlog, according to data compiled by Bloomberg. Airbus has made inroads with its new A350, which tallied 814 orders through November and is targeted at the 300-seat segment once monopolized by the 777.

The original 777, which debuted in 1995, took six years to accumulate as many orders as the -X, Randy Tinseth, Boeing vice president for marketing, said Nov. 26 in a blog. The new version’s debut has been a boost for the company after setbacks earlier this year with the global grounding of the 787 Dreamliner fleet following a pair of battery meltdowns.

Factory Site

Boeing is narrowing the list of sites where it’s considering building the 777X, and a spokesman, Doug Alder, said yesterday that states that bid to play host to an assembly plant were being notified about whether they’re still in the running.

The company touched off a nationwide competition to land the factory, lured by the prospect of thousands of jobs, after Machinists in its Seattle-area commercial hub rejected a contract extension with labor concessions that would have kept assembly of the jet in Washington state. Boeing expects to make a final decision in early 2014 on a factory site.

Cathay said the order will replenish and expand capacity. Chief Executive John Slosar has been seeking to replace a fleet of 747-400 jumbos with more fuel-efficient jets amid increased competition for business travelers with Dubai-based Emirates.

Emirates, the largest international carrier, last month ordered 150 777X planes worth $76 billion, with an option to buy 50 more. It’s also the No. 1 operator of the original 777.

Cathay’s Fleet

At the end of June, Cathay had a fleet of 134 planes, excluding its Hong Kong Dragon Airlines Ltd. and Air Hong Kong Ltd. units, with 32 original 777-300ERs among them, according to an earnings report. It also had 81 aircraft on firm order.

The Asian carrier last year agreed to convert 16 orders for the Airbus A350-900 wide-body into A350-1000s, while also agreeing to add 10 more of the larger planes.

Cathay was assessing the 747-8 and A380 superjumbo, which also has four engines, Slosar said in June.

The decision signals that the models don’t have a home there, said Will Horton, a Hong Kong-based analyst at CAPA Centre for Aviation.

“The order shows Cathay does not want to fall behind on refleeting the way it did with 747s and A340s,” Horton said, referring to the jumbo and a four-engine Airbus model. “The cost inefficiency of those aircraft has really pinched Cathay.”

Source: Bloomberg News by By Jasmine Wang and Julie Johnsson 

Budget Airlines Look to Taiwan, Hong Kong

Asia's skies are about to become more crowded. At least 10 new budget carriers are expected in the region by the end of next year, expanding fare choices for consumers but squeezing airline profit margins even more.

The growth in new routes is shifting east to highly congested and expensive centers such as Taiwan and Hong Kong, though Southeast Asia remains a lucrative market as more people turn to budget travel.

On Monday, Taiwan's China Airlines Ltd. said it would team up with Singapore's Tiger Airways Holdings Ltd. to launch Taiwan's first budget carrier, hoping to link neighboring tourist and business hot spots when it starts service in the fourth quarter of 2014.

TransAsia Airways Corp. in Taiwan is also planning its own low-cost airline, while two other budget operations are being launched in neighboring Hong Kong, a first for the Chinese city.

"Taiwan is in an ideal location for low-cost carriers because the flight time to most destinations in Southeast and Northeast Asia is within four hours," said Huang-Hsiang Sun, chairman at China Airlines. The carrier will own 90% of Tigerair Taiwan, with the rest to be held by Tiger.

Taiwan has been slow to embrace budget-airline travel because of a small domestic market, while earlier restrictions on air rights made it difficult for airlines to develop regional and international services.

The popularity of budget flights has forced many national carriers to slash fares to better compete against low-cost carriers.

In Southeast Asia, where bustling economies and thrifty passengers have kept budget airlines profitable, low-cost carriers account for more than 52% of air capacity, according to consultancy CAPA-Centre for Aviation.

That is more than double their share for all of the Asian-Pacific region. Fares between routes such as Singapore to Kuala Lumpur in Malaysia go for as low as US$20 on budget airlines, making the rates comparable with those of road-based transportation.

Faced with increased competition at home, established budget-airline brands in Southeast Asia have expanded business into more costly locations in East Asia such as Japan, while South Korean airlines have started their own budget ventures. The new low-cost airlines in Hong Kong and Taiwan reflect an extension of their eastward push.

But analysts and industry executives say that market still remains largely unproven, given the challenges of achieving scale alongside high airport fees and traffic bottlenecks. An executive at low-cost carrier Jetstar Japan Co. said earlier that ground-handling fees at the nation's airports are "several times higher" than those in Singapore, adding to the airline's cost burdens.

"Profit margins are very thin in East Asia because of high operating costs. Unless there's strong government support, it will be very difficult for budget airlines here to achieve high utilization rates and turnaround times for their planes in order to turn profitable," said Kelvin Lau, an airline analyst at Daiwa Securities. Adding to the constraints are the limited takeoff and landing slots at airports such as Hong Kong during daytime and evening peak hours.

But there is significant room for growth. In Hong Kong and Taiwan, budget airlines account for only 5% of available seat capacity, according to some market estimates, compared with about 30% to 35% in Singapore.

Budget carrier Hong Kong Express Airways Ltd. sold more than 200,000 seats in just two-and-a-half months since its launch, after the former full-service airline converted into the city's first short-haul budget airline.

"We've sold nearly 50% of our entire seat inventory for the winter season from November through March. That really shows that Hong Kong people are hungry for low-fare opportunities," said Andrew Cowen, deputy chief executive at Hong Kong Express. Fares between Hong Kong and Tokyo are selling for as low as 736 Hong Kong dollars (US$95) round trip, about one-fourth of what is being charged by premium carriers on the route.

Mr. Cowen said the difficulty of securing slots in Hong Kong and other airports because of congestion is a stumbling block. "One of the biggest constraints to us is the airports. We've obviously got congested terminals. We're having difficulties getting the slots that we need."

By contrast, many Southeast Asian airports have the capacity to handle much more budget-related traffic. At Kuala Lumpur's airport—home to AirAsia Bhd.—budget-airline flights often exceed those of full-service airlines. AirAsia has kept its costs low and stayed profitable despite rapid expansion and intense competition.

The eastward expansion among budget airlines is taking place even as they continue to ratchet up their presence in Southeast Asia. In Thailand, four new low-cost airlines are being launched, fueling more rivalry between the region's two biggest no-frills operators, Lion Air and AirAsia.

The Thai unit of Indonesian discount carrier Lion Air started operations last week, taking on the local operations of AirAsia. Scoot, the low-cost long-haul unit of Singapore Airlines Ltd., said Monday it will start a Bangkok-based carrier with local budget airline Nok Air, to be called NokScoot.

Two other Thai low-cost carriers are waiting in the wings, likely adding to the competition, analysts say.

"Competition will be intense. Consolidation is inevitable," said Brendan Sobie, an analyst at CAPA.

"The [low-cost carrier] groups in Southeast Asia have a lot of aircraft coming in and have a need to find new markets. Thailand is in some respects the easiest solution," he said.

Source: Wall Street Journal by Joanne Chiu and Gaurav Raghuvanshi

Scoot to Tiger Air Forge Ventures on Asia Travel Growth

Singapore Airlines Ltd. (SIA)’s budget carrier Scoot and Tiger Airways Holdings Ltd. (TGR) formed partnerships in Taiwan, Thailand and India as demand for budget travel grows across Asia.

Scoot will own 49 percent of its venture with Thailand’s Nok Airlines PCL (NOK), the carrier said in a statement today. Tiger Air, 33 percent-owned by Singapore Air, separately said it will form Tigerair Taiwan with Taoyuan-based China Airlines Ltd. (2610)

The carriers are expanding through tie-ups as they seek to attract more cost-conscious travelers amid rising competition from AirAsia Bhd. and other budget airlines in the region. Overcapacity among Asian low-cost carriers is driving down ticket prices and airlines need strong revenue growth, according to Bloomberg Industries research.

“Competition in north Asia is intensifying,” K Ajith, an analyst at UOB-Kay Hian Pte. in Singapore, said by phone. The agreement “gives Tiger a foothold into north Asia so it could feed air traffic into Singapore. It’s a way of taking on competition.”

Tiger Air separately announced a three-year pact with Indian discount carrier SpiceJet Ltd. (SJET) that would allow flight connectivity between the airlines. It also signed an alliance with Scoot to expand their cooperation.

Market Share

China Airlines, Taiwan’s largest carrier, was unchanged at NT$10.65 at the close in Taipei trading. Tiger rose 3 percent in Singapore while SpiceJet jumped as much as 12 percent, poised for the biggest gain since April 25, in Mumbai trading.

Tigerair Taiwan could be profitable in three years, China Airlines Chairman Sun Huang-Hsiang told reporters in Taoyuan, Taiwan, today. The new carrier will operate 12 planes by 2017, Tiger Air Managing Director Ho Yuen Sang said.

Low-cost carriers are increasing market share in Asia faster than anywhere else in the world, with capacity in the region rising 29 percent in the six months to June compared with 0.8 percent in Europe and 1.5 percent in north America, Amadeus IT Holding SA (AMS) said in a blog post Oct. 28.

Traffic on Asian discount airlines has tripled since 2008, according to data compiled by Bloomberg, with passengers traveling 114 billion kilometers in 2012, compared with 37 billion kilometers in 2008.

Untapped Markets

Tiger Air has fallen behind AirAsia and Qantas Airways Ltd. as the two carriers have expanded their operations over the past two years, according to Bloomberg Industries data. AirAsia flew passengers 38 billion kilometers during 2012 and Qantas unit Jetstar’s total was 35 billion kilometers, compared with 11 billion kilometers by Tiger. Scoot doesn’t release operating statistics.

AirAsia is establishing an affiliate in India and expanding in the Philippines. Qantas and Japan Airlines Co. in October injected 11 billion yen ($107 million) into their Jetstar Japan joint venture, and the Australian carrier is aiming to set up a Hong Kong unit with China Eastern Airlines (670) Corp. and gambling tycoon Stanley Ho.

Taiwan’s TransAsia Airways Corp. (6702) is also planning to start a low-cost carrier serving destinations in Japan, Thailand, and Singapore, the company said Nov. 20.

“The new JV will allow us to extend our presence into the new, untapped markets of Taiwan, Japan, and Korea,” Koay Peng Yen, Tiger Air chief executive officer, said in a statement today. “There is vast potential for growth in these markets and also areas of synergy to be explored between the two airlines.” The airline plans to operate 70 planes by the end of 2015, Koay said.

Small Capital

Scoot’s Thai venture will require an initial investment of 2 billion baht ($62 million). Tiger will have 10 percent of its NT$2 billion ($67 million) venture in Taiwan.

Closely-held Oasis Hong Kong Airlines Ltd., a budget carrier that challenged Cathay Pacific Airways Ltd., entered liquidation in 2008 after collapsing with about HK$1 billion ($129 million) in debt. Indonesia’s Batavia Air PT said in January it was stopping operations after going bankrupt.

The relatively small amount of capital committed to the deals is a positive aspect of the announcements, Ajith said.

“This shows an alignment between Scoot, China Airlines (2601), Nok and Tiger,” said Ajith. Tiger’s partnership with China Air “is going to be worth more to Tiger than the cumulative partnerships over the last three to five years.”

Source: Bloomberg News By David Fickling 

Seoul to Allow South Korean Airlines to Recognize New China Defense Zone

SEOUL—South Korea has scrapped an order to its commercial airlines to ignore the air-defense zone China declared late last month—Seoul's first acquiescence to a Chinese act that has soured diplomatic relations in the region.

South Korean Transport Minister Suh Seoung-hwan said late Wednesday that carriers would be allowed to decide for themselves whether to submit flight plans to Chinese authorities, according to a ministry spokesman. Soon after China declared the zone over the East China Sea, South Korea told its carriers not to recognize it—part of Seoul's protest against an air-defense zone that overlaps its own and covers an area of ocean claimed by both countries.

Separately, the ministry's head spokesman, Song Seog-jun, said Thursday that the change was made for safety reasons.

The U.S. and Japan also protested China's move, which they see as an attempt to bolster Chinese claims to islands controlled by Japan. But while South Korea and Japan told their airlines not to recognize the zone, the U.S. said it would allow its private airlines to obey Chinese rules, likewise for the sake of safety.

An air-defense identification zone, or ADIZ, is an extra buffer beyond a country's airspace, where foreign aircraft may be asked to identify themselves or their flight plans.

South Korea's reversal leaves Japan as the only country still instructing its airlines not to notify Chinese authorities when entering the new ADIZ. Japan's civil-aviation regulator, transport ministry and airline association said Thursday they will continue to ignore the Chinese rules and won't file flight plans to China.

Seoul's reversal could frustrate Tokyo, which accepted South Korea's decision Sunday to expand its own ADIZ into areas that overlap with the Japanese zone as well as the new Chinese zone.

Korean Air Lines Co. and Asiana Airlines Co., South Korea's two main carriers, said Thursday they have begun submitting information to the Chinese authorities about flights that enter the zone. Flights between South Korea and Southeast Asia are most affected by Seoul's decision.

Chinese officials said last week the 55 airlines, including U.S. carriers, are obeying the new rules. When China announced the zone on Nov. 23 it said any unidentified aircraft entering it could face a military response, but it has since toned down its rhetoric.

Source: Wall Street Journal by Jeyup S. Kwaak | Photo: Wikipedia

China Defense Zone Worries Airlines

A week and a half after China suddenly asserted authority over a busy patch of airspace in the East China Sea, concerns are rising that Asia's territorial disputes could end up weighing on commercial air travel.

More than 1,000 flights a day, some 6% of air traffic in east Asia, likely pass through the area, according to data from OAG, a U.K.-based flight-information provider. On Nov. 23, China declared the area to be an air-defense identification zone, or ADIZ—an extra buffer beyond a country's official air space, in which foreign planes may be asked to identify themselves and their flight plans.

China's declaration has already caused a split among the world's carriers over how to respond, since the new ADIZ—which was created over a set of disputed islands—overlaps ADIZ that already exist from Japan and Taiwan, which also claim the territory, as well as South Korea.

Chinese officials say that 55 airlines including those from the U.S. are obeying the new zone rules, which among other things require airlines passing through to file flight plans with China—and face possible military action if they're recalcitrant. But Japanese and South Korean airlines, which operate a major portion of the traffic through the zone—around 500 flights a day—are ignoring the rules.

"Politics is politics. But safety should be placed at the forefront," said Yi Shin-Juang, deputy director of air-traffic services at Taiwan's Civil Aeronautics Administration, explaining its decision to have its airlines obey China's newly imposed rules even as the Taiwanese government raises concerns over the ADIZ.

Adding to the uncertainties, South Korea is considering responding to China's move by extending its own ADIZ to cover a submerged rock both countries claim. Some analysts are asking whether China might extend its ADIZ next into the South China Sea, where it is trying to assert sovereignty over islands that are also claimed by other nations like the Philippines, Vietnam and Malaysia.

"If China opts to repeat the (air-defense zone) fiasco in the South China Sea, this will risk destabilizing the region further," said Daniel Tsang, founder and chief analyst at Aspire Aviation, a Hong Kong-based consultancy. "The last thing airlines want to see at this stage, with the weak and anemic global economic recovery, would be a fray in bilateral ties that would harm business travel and leisure traffic," he added.

Measuring the potential impact is tough. Air travel demand between China and Japan has fallen significantly during the past year and a half, amid territorial friction between the two nations, hurting profits of their key airlines. Japan's big airlines say they haven't yet seen a significant impact from their decision to defy China's new zone rules, although privately, an official from one carrier said the airline is concerned customers may become worried about safety.

The region's airlines have had awkward run-ins with defense zones before. When Taiwan's airlines began flying regularly into mainland China four years ago, routes to the northeastern cities of Qingdao and Dalian took jetliners briefly over Japan's ADIZ, and more than a dozen of those initial flights received emergency radio commands by Japanese authorities to divert, or face the threat of military interception, according to the Taiwan Civil Aeronautics Administration.

Taiwan's aviation regulator said the problem was that its airlines hadn't filed flight plans with Japan, since the routes passed only through Japan's defense zone and not official airspace. Japan asked Taiwan to file the plans, and it has complied ever since—similar to what's happening now with China's ADIZ—the regulator said.

Japan's defense ministry said its air force had scrambled jets eight times during that period to respond to Taiwanese planes, but declined to elaborate. Japan's foreign ministry said the country doesn't scramble for planes that aren't approaching Japan's territorial airspace, and doesn't ask for flight plans when the planes are only flying over Japan's ADIZ, but declined to comment further.

Airlines and analysts say that despite the proliferation of defense zones there is little risk to safety of commercial craft because jetliners are clearly identified and their flight paths easily accessed. The International Air Transport Association, which represents the bulk of the world's carriers, said flight operations have been unaffected, and it hasn't received any reports of problems from member airlines.

Still, some industry watchers warned that tensions could rise, especially if Japan and China drastically increase military activity over the zone. Old-timers point to the 1983 downing of Korean Air Flight 007, which drifted off course into Soviet airspace at the height of the Cold War, and was shot down by a Soviet jet fighter that mistook it for a hostile military craft, killing all 269 people aboard.

Experts say such mistakes are unlikely, given advances in technology, but can't be ruled out.

"It's hard to predict the outcome if confrontations of military jets from both sides take place," said Humphrey Sun, a commercial pilot for China Eastern Airlines Corp. who regularly flies between mainland China and Taiwan. He added that he believes the governments would make flight safety a top priority.

Japan last week raised concerns about ADIZ to the United Nation's International Civil Aviation Organization, saying that if countries unilaterally imposed rules on commercial planes flying through such zones, that could cause confusion and extra paperwork--not to mention worries over possible military enforcement. Japan called for more discussion on ADIZ at the organization's next meetings starting late February.

Source: Wall Street Journal by Jeffrey Ng

China Southern Airlines says four executives under anti-graft probe

(Reuters) - China Southern Airlines (600029.SS)(1055.HK) said it reported four middle-ranking executives to authorities after an internal audit uncovered irregularities as China steps up its anti-corruption campaign.

A spokesman for China's biggest airline by fleet size declined to identify the executives, now under investigation by the police. The spokesman told Reuters on Monday he couldn't comment on the nature of the irregularities.

The airline's comments came after China's official Xinhua news agency reported on November 30 that as many as 10 executives at China Southern were taken away by police last week as part of the anti-graft drive. China Southern's spokesman told Reuters on Monday only four company executives are currently under investigation.

China's new leadership has made fighting corruption a top theme and has vowed to pursue what it called high-flying "tigers" as well as "flies" to assuage rising public anger over the scale of graft in the world's second-biggest economy.

The Xinhua report on China Southern identified executives involved in sales and marketing positions as being the subject of the probe. China Southern's spokesman declined to name any of those involved nor comment on their positions.

The anti-corruption campaign has led to the detention of some senior government officials as well as senior executives in major state firms, including PetroChina Co Ltd (0857.HK)(601857.SS).

Last month COSCO Holdings, China's largest bulk shipping firm, said that company vice president Xu Minjie was placed "under investigation by the relevant authorities", phrasing used in China to describe corruption investigations.

Source: Reuters 

U.S. airlines give China flight plans for defense zone

(Reuters) - U.S. airlines United, American and Delta, have notified Chinese authorities of flight plans when traveling through an air defense zone Beijing has declared over the East China Sea, following U.S. government advice.

The zone has raised tensions, particularly with Japan and South Korea, and is likely to dominate the agenda of a visit to Asia this week of U.S. Vice President Joe Biden. He will travel to Japan, China, and South Korea and try to ease tensions, senior American officials said.

However, China's declaration of the zone also represents a historic challenge by the emerging world power
to the United States, which has dominated the region for decades.

China published co-ordinates for the zone last weekend. The area, about two-thirds the size of the United Kingdom, covers most of the East China Sea and the skies over a group of uninhabited islands at the center of a bitter territorial dispute between Beijing and Tokyo.

Beijing wants all foreign aircraft passing through the zone, including passenger planes, to identify themselves to Chinese authorities.

On Friday, the United States said it expected U.S. carriers to operate in line with so-called notices to airmen issued by foreign countries, although it added that the decision did "not indicate U.S. government acceptance of China's requirements.

A spokesman for Delta Airlines said it had been complying with the Chinese requests for flight plans for the past week. American and United said separately that they were complying, but did not say for how long they had been doing so.

Airline industry officials said the U.S. government generally expected U.S. carriers operating internationally to comply with notices issued by foreign countries.

In contrast, Japanese carriers ANA Holdings and Japan Airlines have flown through the zone without informing China, under an agreement with the Tokyo government. Neither airline has experienced problems.

The airlines said they were sticking with the policy even after Washington's advice to its carriers.

Any sign that the United States was even tacitly giving a nod to China's air defense zone would disturb Tokyo, which is hoping for a display of solidarity when Biden visits Japan starting on Monday.

"We will have in-depth talks about it," Japanese Prime Minister Shinzo Abe was quoted as saying by Japan's Kyodo news agency. "Japan and the United States will address it in close co-ordination with each other."

However, he also insisted that the United States had not advised its airlines to comply with Chinese demands for prior notice before their planes enter the new air defense zone.

"We have confirmed through diplomatic channels that the U.S. government didn't request commercial carriers to submit flight plans," he was quoted as saying in the Kyodo report.

And Defense Minister Itsunori Onodera insisted the allies were working in lockstep.

"I believe the U.S. government is taking the same stance as the Japanese government," he said in an interview with public broadcaster NHK.

Separately, Japan's foreign affairs ministry said it had raised China's declaration of the air defense zone with the International Civil Aviation Organization, the international aviation regulatory body and an agency of the United Nations.

It wasn't immediately clear what Japan wanted the agency to do, since it can make no more than non-binding recommendations. But Japan's action puts the issue before a global and multi-lateral body.

Since the zone came into force there has been no impact on the safe operation of international civilian flights, China's Foreign Ministry said on Thursday. Still, China "hoped" airlines would co-operate, the ministry said.

The United States, Japan and South Korea have defied the Chinese move by flying military aircraft, including giant U.S. B-52 bombers, through the zone without informing Beijing.

A U.S. official said China's action appeared to be a unilateral attempt to change the status quo in the East China Sea, which could "increase the risk of miscalculation, confrontation and accidents".

"We urge the Chinese to exercise caution and restraint, and we are consulting with Japan and other affected parties throughout the region," the official said.

China scrambled jets on Friday after two U.S. spy planes and 10 Japanese aircraft, including F-15 fighters, entered the zone, China's state news agency Xinhua said. The jets were scrambled for effective monitoring, it quoted air force spokesman Shen Jinke as saying.

The Chinese patrol mission, conducted on Thursday, was "a defensive measure and in line with international common practices," Shen said, according to Xinhua.

"China's air force is on high alert and will take measures to deal with diverse air threats to firmly protect the security of the country's airspace," he said.

However, Defense Ministry spokesman Yang Yujun said it was "incorrect" to suggest China would shoot down aircraft which entered the zone without first identifying themselves.

U.S. flights were "routinely" transiting the zone, U.S. officials said on Friday.

"These flights are consistent with long standing and well known U.S. freedom of navigation policies," Pentagon spokesman Colonel Steve Warren said. "I can confirm that the U.S. has and will continue to operate in the area as normal."

A U.S. defense official said routine operations included reconnaissance and surveillance flights.

STRAINED TIES

Underlining concern in Seoul over China's move, a defense spokesman said officials were reviewing the country's existing air defense zone, but there was no set plan on whether or not to expand it. It already overlaps with China's new zone in a block 20 km by 115 km, the spokesman said.

Ties between China and Japan have been strained for months by the dispute over the islands, called the Diaoyu by China and the Senkaku by Japan.

Mutual mistrust over military intentions and what China feels is Japan's lack of contrition over its brutal occupation of parts of China before and during World War Two have added to tension.

Although Washington takes no position on the sovereignty of the islands, it recognizes Tokyo's administrative control and says the U.S.-Japan security pact applies to them.

Source: Reuters By Marina Lopes and Antoni Slodkowski

US advises carriers to comply with China air zone

BEIJING (AP) — The United States advised U.S. carriers to comply with China's demand that it be told of any flights passing through its new maritime air defense zone over the East China Sea, an area where Beijing said it launched two fighter planes to investigate a dozen American and Japanese reconnaissance and military flights.

It was the first time since proclaiming the zone on Nov. 23 that China said it sent planes there on the same day as foreign military flights, although it said it merely identified the foreign planes and took no further action.

China announced last week that all aircraft entering the zone — a maritime area between China, Taiwan, 

South Korea and Japan — must notify Chinese authorities beforehand and that it would take unspecified defensive measures against those that don't comply. Neighboring countries and the U.S. have said they will not honor the new zone — believed aimed at claiming disputed territory — and have said it unnecessarily raises tensions.

State Department spokeswoman Jen Psaki said in a statement Friday that the U.S. remained deeply concerned about China's declared air identification zone. But she said that it is advising U.S. air carriers abroad to comply with notification requirements issued by China.

On Wednesday, Psaki had said the U.S. government was working to determine if the new rules applied to civil aviation. But she said that in the meantime, U.S. air carriers were being advised to take all steps they consider necessary to operate safely in the East China Sea region.

In Beijing, the Ministry of Defense said the Chinese fighter jets identified and monitored the two U.S. reconnaissance aircraft and a mix of 10 Japanese early warning, reconnaissance and fighter planes during their flights through the zone early Friday.

"China's air force has faithfully carried out its mission and tasks, with China's navy, since it was tasked with patrolling the East China Sea air defense identification zone. It monitored throughout the entire flights, made timely identification and ascertained the types," ministry spokesman Col. Shen Jinke said in a statement on its website.

In Washington, a Pentagon spokesman, Army Col. Steve Warren, said when asked about China's statement, "The U.S. will continue to partner with our allies and will operate in the area as normal."

Japanese officials declined to confirm details of any flights, but said routine missions in the area were continuing.

"We are simply conducting our ordinary warning and surveillance activity like before. We have not encountered any abnormal instances so far, therefore we have not made any announcement," Japanese Defense Minister Itsunori Onodera told reporters in Tokyo.

The United States and other countries have warned that the new zone could boost chances for miscalculations, accidents and conflicts, though analysts believe Beijing's move is not intended to spark any aerial confrontations but rather is a long-term strategy to solidify claims to disputed territory by simply marking the area as its own.

June Teufel Dreyer, who specializes in security issues at the University of Miami, said the Chinese government — while backing down from strictly enforcing the zone to keep a lid on tensions — is walking a delicate line because it is faced with strong public opinion from nationalists at home. Sending up the fighter planes Friday was aimed at the domestic audience, and China is likely to send planes regularly when foreign aircraft enter the zone without notifying Chinese authorities, she said.

"They will be 'escorting' the intruding planes, but they are not going to shoot them," she said.

The zone is seen primarily as China's latest bid to bolster its claim over a string of uninhabited Japanese-controlled islands in the East China Sea known as Senkaku in Japan and Diaoyu in China. Beijing has been ratcheting up its sovereignty claims since Tokyo's nationalization of the islands last year. However, there are questions whether China has the technical ability to fully enforce the zone due to a shortage of early warning radar aircraft and in-flight refueling capability.

The United States, Japan and South Korea all have said they sent military flights into the zone over the past week without notifying China. Japanese commercial flights have continued unhindered — although China has said its zone is not intended to have any effect on commercial flights not heading to China.

Dreyer said the U.S. and Japan have kept sending planes into the zone to make good on the message that they are ignoring it. "They have to do it more than once to show they are serious," she said.

Dreyer said the Chinese government may have miscalculated the strength of the international response to the establishment of the zone, but that China will hold its line in the long run.

"The Chinese government is not going to concede the substance," she said. "When circumstances are more conducive, they will try to enforce it more strictly in the future. This is a pattern we have noticed for decades."

Source: Associated Press by Ian Mader

SKorea, Japan defy Chinese air defense zone

BEIJING (AP) — South Korean and Japanese flights through China's new maritime air defense zone added to the international defiance Thursday of rules Beijing says it has imposed in East China Sea but that neighbors and the U.S. have vowed to ignore.

While China's surprise announcement last week to create the zone initially raised some tensions in the region, analysts say Beijing's motive is not to trigger an aerial confrontation but is a more long-term strategy to solidify claims to disputed territory by simply marking the area as its own.

China's lack of a response so far to the flights — including two U.S. B-52s that flew through the zone on Tuesday — has been an embarrassment for Beijing. Even some Chinese state media outlets suggested Thursday that Beijing may have mishandled the episodes.

"Beijing needs to reform its information release mechanism to win the psychological battles waged by Washington and Tokyo," the Global Times, a nationalist tabloid published by the Communist Party's flagship People's Daily, said in an editorial.

Without prior notice, Beijing began demanding Saturday that passing aircraft identify themselves and accept Chinese instructions or face consequences in an East China Sea zone that overlaps a similar air defense identification zone overseen by Japan since 1969 and initially part of one set up by the U.S. military.

But when tested just days later by U.S. B-52 flights — with Washington saying it made no effort to comply with China's rules, and would not do so in the future — Beijing merely noted, belatedly, that it had seen the flights and taken no further action.

South Korea's military said Thursday its planes flew through the zone this week without informing China and with no apparent interference. Japan also said its planes have continuing to fly through it after the Chinese announcement, while the Philippines, locked in an increasingly bitter dispute with Beijing over South China Sea islands, said it also was rejecting China's declaration.

Analysts question China's technical ability to enforce the zone due to a shortage of early warning radar aircraft and in-flight refueling capability. However, many believe that China has a long-term plan to win recognition for the zone with a gradual ratcheting-up of warnings and possibly also eventual enforcement action.

"With regard to activity within the zone, nothing will happen — for a while," said June Teufel Dreyer, a China expert at the University of Miami. "Then the zone will become gradually enforced more strictly. The Japanese will continue to protest, but not much more, to challenge it."

That may wear down Japan and effectively change the status quo, she said.

The zone is seen primarily as China's latest bid to bolster its claim over a string of uninhabited Japanese-controlled islands in the East China Sea — known as Senkaku in Japan and Diaoyu in China. Beijing has been ratcheting up its sovereignty claims since Tokyo's privatization of the islands last year.

But the most immediate spark for the zone likely was Japan's threat last month to shoot down drones that China says it will send to the islands for mapping expeditions, said Dennis Blasko, an Asia analyst at think tank CNA's China Security Affairs Group and a former Army attache in Beijing.

The zone comes an awkward time. Although Beijing's ties with Tokyo are at rock bottom, it was building good will and mutual trust with Washington following a pair of successful meetings between President Barack Obama and Chinese President Xi Jinping. However, the zone feud now threatens to overshadow both the visit by Vice President Joe Biden to Beijing next week and one by Australian Foreign Minister Julie Bishop expected before the end of the year.

China's defense and foreign ministries offered no additional clarification Thursday as to why Beijing failed to respond to the U.S. Air Force flights. Alliance partners the U.S. and Japan together have hundreds of military aircraft in the immediate vicinity.

China on Saturday issued a list of requirements for all foreign aircraft passing through the area, regardless of whether they were headed into Chinese airspace, and said its armed forces would adopt "defensive emergency measures" against aircraft that don't comply.

Beijing said the notifications are needed to help maintain air safety in the zone. However, the fact that China said it had identified and monitored the two U.S. bombers during their Tuesday flight seems to discredit that justification for the zone, said Rory Medcalf, director of the international security program at Australia's Lowy Institute

"This suggests the zone is principally a political move," Medcalf said. "It signals a kind of creeping extension of authority."

Along with concerns about confrontations or accidents involving Chinese fighters and foreign aircraft, the zone's establishment fuels fears of further aggressive moves to assert China's territorial claims — especially in the hotly disputed South China Sea, which Beijing says belongs entirely to it.

Defense Ministry spokesman Yang Yujun confirmed those concerns on Saturday by saying China would establish additional air defense identification zones "at an appropriate time."

For now, however, China's regional strategy is focused mostly on Japan and the island dispute, according to government-backed Chinese scholars.

China will continue piling the pressure on Tokyo until it reverses the decision to nationalize the islands, concedes they are in dispute, and opens up negotiations with Beijing, said Shen Dingli, a regional security expert and director of the Center for American Studies at Shanghai's Fudan University.

"China has no choice but to take counter measures," Shen said. "If Japan continues to reject admitting the disputes, it's most likely that China will take further measures."

Source: Associated Press by Christopher Bodeen

Japanese Airlines Defy China Demand for Data in Air Zone

ANA Holdings Inc. (9202) and Japan Airlines Co. (9201), the nation’s largest carriers, flew through a new Chinese air-defense zone without notifying the country after Japan asked airlines to stop giving flight information to China.

ANA’s flight from Tokyo touched down in Taipei at 1:11 p.m. Japan time, Yoichi Uchida, a spokesman for the company, said by telephone. JAL’s flight from Osaka touched down in Taipei at 12:24 p.m., Kazunori Kidosaki, an airline spokesman, said. 

Japan’s government yesterday told its domestic airlines to stop providing flight information to China, which has mandated planes to give details when flying through the new zone it created. Japan has denounced the creation of the area and the U.S. military flew two unarmed B-52 bombers into the area, which includes a chain of islands in the East China Sea that Japan purchased in September 2012, leading to a flare-up in tensions and slump in tourism.

“The Chinese and Japanese governments are playing a game of chicken,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo. “The government said no to reporting and the airlines had a choice of ignoring it or going around and they took the decision to comply.”

Peach Flight

China has the ability to effectively manage and control the air-defense zone, Defense Ministry spokesman Geng Yansheng said, according to a statement posted on the ministry website. The U.S. planes’ flight along the zone was under Chinese military surveillance, according to the statement.

Peach Aviation Ltd., a low-fare affiliate of ANA, also flew through the area from Osaka and reached the gate in Taipei at 11:16 a.m. Japan time, Naoto Domeki, a spokesman for the carrier, said today.

ANA and JAL yesterday said separately they are reversing an earlier decision and would stop reporting flight plans for planes traveling through the new Chinese zone from today.

Shares of JAL fell 0.8 percent to 5,150 yen at the close of Tokyo trading, declining for a ninth consecutive day. ANA was unchanged at 208 yen.

The carriers shifted their stance on instructions from The Scheduled Airlines Association of Japan, the airlines’ trade group that acted as an intermediary between the airlines and Japan’s Civil Aviation Bureau, Maho Ito, an ANA spokeswoman, said by telephone.

The U.S. military flew two unarmed B-52 bombers into the zone without any incident, according to a U.S. defense official. China announced the air-defense identification zone effective Nov. 23 and said its military will take “defensive emergency measures” if aircraft enter the area without reporting flight plans or identifying themselves.

Disputed Islands

“Japan is our most important ally in the region,” Caroline Kennedy, the U.S. Ambassador to Japan, said in a speech in Tokyo today. “This relationship has underwritten the peace, security and prosperity of the Asia Pacific region for more than six decades. Disputes should be resolved through diplomacy and dialogue and we are ready to assist in this process anyway we can.”

The disputed islands, known as Diaoyu in Chinese and Senkaku in Japanese, lie inside the new air defense zone. Both nations claim sovereignty over the area, whose waters are rich in oil, natural gas and fish. The dispute comes as China and Japan seek a greater role in the region, courting nations in Southeast Asia.

The information that ANA had been supplying to China was the same shared with other countries, according to Ryosei Nomura, a spokesman for the Tokyo-based carrier. The data included planes’ route, and cruising altitude and flight time, Nomura said.

Other countries’ carriers are awaiting government guidance.

‘No Guideline’

“There has been no change to our operations,” Lee Hyo Min, a spokeswoman for Seoul-based Asiana Airlines Inc. (020560), said yesterday. “We have not yet provided any flight plans to China on services that pass through the zone because there has been no guideline from the government. We will make change if and when the government revises this guidelines.”

Cathay Pacific Airways Ltd. (293), the Hong Kong-based carrier, said its flight operations are normal. The creation of the zone hasn’t affected operations of commercial flights so far, the International Air Transport Association said in an e-mailed response to Bloomberg News.

“Some airlines have had to take some extra steps at the moment, such as filing flight plans manually,” IATA said. “We are trying to get more details from the Chinese authorities to clarify ongoing operational requirements.”

The announcement of the zone follows a decision by Communist Party leaders this month, after a meeting led by President Xi Jinping, to form a state committee to coordinate security issues as China broadens its military reach.

Source: Bloomberg News By Chris Cooper & Kiyotaka Matsuda 

Cathay's Bump to Upper Class

The global jet-set crowd is stirring. For a leveraged bet on a travel rebound, investors should book into Cathay Pacific  Airways.

After a tepid first half of the year, long-haul business travel from continent to continent appears to be getting back up to speed. The global airline industry's profits could grow 40% next year, according to the International Air Transport Association. That's welcome news for big international carriers, who are also celebrating less-menacing fuel prices.

Cathay Pacific, Hong Kong's hometown airline, is in the captain's seat for a travel rebound. Like other Asian airlines, Cathay is seeing its traffic to and from Europe starting to edge up after a year and a half of decline, as Europe seems to put the worst of its recession behind it. Traffic rose 7% on average the past four months.

And Cathay's North American business, which generates roughly a quarter of its revenue, remains solid with room for growth. Cathay is adding a flight to Newark, expanding its reach in the New York area. It will add a fourth daily nonstop flight to Los Angeles, a monopoly route for Cathay. Meanwhile chief rival Singapore Airlines is grounding its nonstop Singapore-Los Angeles and Singapore-Newark flights.

Singapore Airlines faces a more competitive landscape than Cathay. Middle Eastern rivals such as Emirates are encroaching on lucrative routes connecting Australia to Europe, and closer to home it contends with a flock of low-cost carriers branching out across Southeast Asia. Cathay has stayed relatively insulated from the low-cost threat, and has recently pushed Hong Kong's government to prevent a low-cost carrier from encroaching on its turf.

An increase in passenger traffic should fall quickly to Cathay's bottom line thanks to cuts it made in capacity when demand suffered in recent years. Operating and net-profit margins will have doubled between 2012 and 2014, says Citi's Michael Beer.

Higher debt lets it lever sales better, too—Cathay's net debt as of June 30 was equivalent to 60% of its equity. State-owned Singapore Airlines holds more cash than debt, making it safer in a downturn, but less of a leveraged play when business take off.

Cathay's stock has rallied 18% in the last three months, so some of the optimism is baked in. But shares trade at an inviting 15 times forward earnings, compared with Singapore's 19. Cathay is valued a third cheaper than its five-year average, though a spike in valuations during the financial crisis affects the comparison.

If the global economy speeds up, both Cathay and Singapore Airlines will get into the slipstream. The Hong Kong carrier is the more aerodynamic one.

Source: Wall Street Journal by Abheek Bhattacharya

Asian airlines to give flight plans to China after airspace zone created

(Reuters) - Asian airlines will inform China of their flight plans before entering airspace over waters disputed with Japan, regional aviation officials said on Monday, effectively acknowledging Beijing's authority over a newly declared "Air Defense Identification Zone".

China published coordinates for the zone on the weekend. The area, about two-thirds the size of the United Kingdom, covers most of the East China Sea and the skies over a group of uninhabited islands at the centre of a bitter row between Beijing and Tokyo.

Japan and its close ally, the United States, sharply criticized the move, which experts said was aimed at chipping away at Tokyo's claim to administrative control over the area, including the tiny uninhabited islands known as the Senkaku in Japan and the Diaoyu in China.

While China said the new rules would not affect "normal operations" for international flights, it added that it would take "defensive emergency measures" against aircraft that failed to identify themselves properly.

China's latest move could help spread the view that Japan was losing administrative control of the area, said Hiroko Maeda, research fellow at Japanese think-tank the PHP Institute.

"China has already been sending its ships (there). It is clear China is trying to undermine Japan's administrative control. Now they are stepping up their effort in the sky as well," Maeda said.

Civil aviation officials from Hong Kong and Taiwan said their carriers entering the zone must send flight plans to Chinese aviation authorities. A transport ministry official in Seoul said South Korean planes would do the same.

An official at the Japan Civil Aviation Bureau said Japanese airlines flying through the region to non-mainland Chinese destinations would likely need to inform China of their plans. "Airlines have been advised to take greater care in the area," said another bureau official.

Singapore Airlines and Qantas Airways Ltd said they would keep Chinese authorities informed of their flights through the area.

Korean Air said its flight plans would be delivered to Chinese authorities but the routes its pilots took would not be affected. Japan Airlines and ANA Holdings also said the zone had not affected their flights.

WAR OF WORDS

Japan protested the weekend move, warning of an escalation into the "unexpected" if Beijing enforced the rules. U.S. Defense Secretary Chuck Hagel called the move a "destabilizing attempt to alter the status quo in the region".

While Washington does not take a position on the sovereignty of the islands, it recognizes that Japan has administrative control over them and is therefore bound by treaty to defend Japan in the event of an armed conflict.

Tensions flared last year between Beijing and Tokyo when the Japanese government bought three of the islands from a private landowner to fend off a potentially more inflammatory purchase by the Tokyo metropolitan government, at the time headed by nationalist governor Shintaro Ishihara.

In the continuing war of words, China's Defence Ministry said on Monday it had lodged protests with the U.S. and Japanese embassies in Beijing over the criticism from Washington and Tokyo of the zone.

China also summoned Japan's ambassador, warning Tokyo to "stop (their) words and actions which create friction and harm regional stability", China's Foreign Ministry said. Meanwhile, Tokyo and Seoul summoned Chinese diplomats to protest.

Asian and Western diplomats said the zone was a problem for Japan, the United States and other countries that may be wary of any acknowledgement of China's claims over the area.

"No one wants to be in a position where by following Chinese instructions you are giving tacit acknowledgement of their sovereignty over a disputed area," one Asian diplomat said. "And there is a fear that is precisely the game that is being played - it seems no accident that the disputed Senkaku islands are now in the heart of overlapping zones."

Japan has its own Air Defence Identification Zone but officials said Tokyo only required aircraft seen to be approaching Japanese territorial airspace to identify themselves.

In its announcement on Saturday, China's Defence Ministry said it would set up other such zones when preparations were finalized. It gave no further details and the ministry's news department declined to elaborate when contacted by Reuters.

China also claims the South China Sea, which is believed to be rich in oil and gas. The Philippines, Vietnam, Malaysia, Brunei and Taiwan also claim parts of the South China Sea, making it one of the region's biggest 
flashpoints.

CHINA PATROLS UNDER WAY

China's official Xinhua news agency said the rules for the East China Sea came into effect on Saturday and that the Chinese air force conducted its first patrol over the zone. The patrol included early warning aircraft and fighters, it said.

Japanese Prime Minister Shinzo Abe said China was forcing other countries to conform to its rules.
Abe, who came to office last December promising to beef up the nation's military, has said Tokyo's door is open to dialogue to improve Sino-Japanese ties but has declined to acknowledge the existence of a formal territorial dispute over the islands, a step upon which Beijing insists.

"It's a unilateral step, changing the status quo in the East China Sea," Abe said in parliament on Monday.
China's Defence Ministry said it was within the country's right to set up the zone.

"We reiterate that the purpose of China's approach is to defend national sovereignty and territorial airspace security, maintain the order of airspace flight, and is an effective exercise of our right of self-defence," spokesman Yang Yujun said in a statement.

Yang said China's move complied with international law.

"The United States, on the issue of the Diaoyu islands, must earnestly not take sides, not make inappropriate remarks and not give the wrong signal to Japan and encourage (its) risky behavior," Yang said.

Japan's own Air Defense Identification Zone extends around the Japanese archipelago and overlaps with China's new zone in part of the East China Sea.

"We might have more risk of encounters with Chinese aircraft in the area," said one former Japanese air force official. "We need to establish a system to avoid unnecessary incidents."

The topic was hot on China's Twitter-like Sina Weibo, with some users calling for war with Japan. "There can be no discussion on territorial issues, only war," wrote one user.

Source: Reuters By Ben Blanchard and Tim Kelly

SkyTeam Alliance steps up to counter threat of low-cost carriers

Faced with the emergence of budget airlines, established carriers will focus on enhancing service quality, rather than strive for a market share, and they will intensify cooperation with peers to share the market, said Michael Wisbrun, managing director of SkyTeam Alliance, on November 19.

During the annual meeting of the alliance, attended by executives of its 19 member airlines, Wisburn remarked that the European air market will maintain low growth next year, while the North American market will feature a healthy balance between supply and demand, thanks in part to moderate recovery facilitated by the continuing quantitative easing policy, and Asian airlines will be strained by surging demand, especially during peak seasons such as Chinese Lunar New Year holiday for cross-straits airlines which need to step up their cooperation in deployment.

SkyTeam Alliance boasts major airlines across the strait among its members, including China Airlines, China Southern Airlines, China Eastern Airlines, and Xiamen Airlines, with the four having garnered a 32% share in the greater China market.

Meanwhile, Shanghai-based Spring Airlines, China's leading low-cost carrier, is intensifying its marketing initiatives with the launch of "match-making flights," for three routes, Shanghai to Kunming, Shijiazhuang to Kunming, and Tianjin to Kunming, starting Dec. 1. Participating passengers can bring a friend, who must be single, free of charge to take the flight. A "matchmaking" section will be set aside inside the cabin, so long as 10 or more passengers participate.

The fierce competition between budget airlines, which now account for 15% of the global market share, in terms of flight seats, has prompted established carriers in the US and Europe to merge.

The strong competition has been complicated by soaring operation costs, prompting members of Sky Team alliance to step up, in terms of cost saving and the sharing of resources, such as common ground services, common VIP rooms, joint procurement, and joint training, according to Su Liang, vice managing director of SkyTeam alliance. In addition, passengers can accumulate their mileage record by taking flights with any alliance member.

Source: Want China Times  

Taiwan's China Airlines to Join Low-Cost Aviation Market

HONG KONG—Taiwan's China Airlines Ltd. is set to become the first carrier on the island to join the race in Asia's booming low-cost aviation market, and will make public its plans as early as December, according to the company's chairman.

The move by the Taiwanese full-service airline follows those of its many Asian rivals, including Singapore Airlines Ltd. and Japan Airlines Co., to invest in the budget-carrier market in response to growing competition from no-frills startups in the region. Low-cost carriers now account for around a quarter of the Asia-Pacific's airline traffic.

China Airlines Chairman Huang-Hsiang Sun said he expects faster growth in the low-cost market in northeastern Asia because of further liberalization in the region's aviation industry, such as new open skies agreements signed between Taiwan and Japan. He said though that the market in that part of Asia remains at a very nascent stage as against other Asian regions.

"Therefore China Airlines would also like to have our own low-cost carrier as a defense against (other budget airlines)," Mr. Sun said in an interview with The Wall Street Journal.

However, he declined to give details of the planned investment and whether it will involve a transformation of one of its existing airline units or a partnership with other investors. "We don't expect explosive growth at the start but we don't want to be absent in this marketplace."

Mr. Sun said the airline had been considering investing in the budget carrier market for four years but Taiwan had lacked the necessary air rights to accommodate new startups. The gradually liberalizing skies in Asia has helped make such plans feasible now, he said.

Meanwhile, China Airlines' domestic rival EVA Airways Corp. has no plans to join the low-cost race or cut fares to compete with no-fills carriers, says EVA President Austin Cheng. "The impact of LCCs is limited in Taiwan and we will continue to monitor the situation," Mr. Cheng said. He said the carrier would instead to strengthen its full-service offerings by boosting transit capabilities and further improving services and products.

Still, both China Airlines and EVA are facing mounting pressure from more low-cost airlines flying into the market. Spring Airlines Co., China's biggest budget carrier, will launch a Shanghai-Taipei service, which according to some airline executives is the most lucrative route in the China-Taiwan market, starting in December. The airline is marketing one-way fares of as low as 199 Chinese yuan (US$33), a substantial discount to current fares on the route.

Other budget carriers including Malaysia's AirAsia Bhd., Japan's Peach Aviation, Singapore's Scoot and Australia's Jetstar Airways are also serving the island.

The 11 budget airlines now serving Taiwan account for just 4% to 5% of the total market share in terms of airline capacity on the island, according to Mr. Sun, adding that China Airlines sees strong potential for more growth in that segment.

In addition, China Airlines, Taiwan's biggest airline by fleet size, also hopes to further boost its full-service operations by acquiring new widebody jets and adding more frequencies over the next few years.

"It's like operating a hotel group," Mr. Sun says of the airline's two-pronged strategy. He said the planned budget carrier is a one-star hotel, while China Airlines is positioned as a four-star hotel chain. He said the airline will unveil new cabin designs and crew uniforms in September next year when it receives the first of 10 Boeing  777-300 extended range aircraft on order.

Mr. Sun says he expects transit traffic, which currently accounts for 10% of total passengers, to rise to 30% over the next few years when the Chinese government allows mainland Chinese travelers to transit to other destinations from Taiwan.

Visitors to Taiwan from mainland China have surged in recent years as relations have between both sides of the Taiwan Strait have improved. The number of Chinese visitors to Taiwan jumped to 2.6 million in 2012 from 1.8 million a year earlier. The number of mainland visitors in the first nine months this year jumped by 15% to 2.2 million, according to Taiwan's tourism bureau.

Mr. Sun said China Airlines, which also plans to receive its 14 Airbus 350 widebody jets on order from 2016, will in the first half of 2014 decide on a new round of aircraft purchase plans that involve up to 25 narrow-body jets, with new generations of the Airbus A320 and Boeing 737 families under consideration.

Source: Wall Street Journal by Joanne Chiu

HNA Chairman Sees China Warming to Budget Flights

HONG KONG—China is warming to the idea of domestic budget flights and demand will be "tremendous" as airlines rethink their offerings to compete with high-speed rail and road travel, HNA Group Co. Chairman Chen Feng said.

Mr. Chen, the founder of China's fourth-biggest airline, said the development of budget-carrier services in the country is "an inevitable trend" even though local airlines have been slow to adopt the low-cost model. High-speed trains running throughout the country have stolen away customers on short-haul domestic routes, he said.

Chinese regulators have protected state airlines from the incursion of low-cost carriers, but that stance now appears to be changing as the government encourages airlines to boost efficiency and reduce costs in the face of competition from Asian budget airlines. The domestic market accounts for the bulk of revenue at Chinese airlines.

"The low-cost airline era in China has arrived," Mr. Chen told The Wall Street Journal in an interview on Friday. "We have anticipated this trend and made ourselves ready by investing in two budget airlines."

China's deputy civil aviation chief said last week the government is looking at measures such as easing restrictions on plane purchases and imports and reforming how airport slots are allocated, in the hope of providing a more favorable environment for budget carriers. Those comments followed the lifting in May of a six-year ban on the establishment of independent airlines.

Mr. Chen said HNA Group, which has businesses ranging from transportation to hotels, has converted its regional carrier Hong Kong Express Airways and Chongqing-based West Air Co. into low-cost airlines, in competition with the nation's sole budget operator Spring Airline Co.

"China has restrictions on aircraft purchases, so it's hard to predict our fleet growth plans. The faster [regulators] approve our purchase plans, the quicker we can expand," Mr. Chen said.

Budget flights into China are only available on a handful of routes. Malaysia's AirAsia Bhd., Singapore's Scoot and Australia's Jetstar Airways operate some of those flights.

Mr. Chen said he doesn't expect HNA's low-cost operations to directly compete with its full-service airline, Hainan Airlines Co., which will continue to focus on expanding key routes and to international destinations. Hainan Airlines, which counts billionaire financier George Soros as an investor, competes with the state-run Air ChinaLtd., China Southern Airlines Co. and China Eastern Airlines Corp.

In just over a decade, Mr. Chen expanded HNA Group from a relatively unknown entity outside the country to a major Chinese purchaser of international assets. Its investments include several commercial properties in New York City, as well as a stake in Spanish hotel chain NH Hoteles SA  and in marine container leasing company GE SeaCo, formerly part-owned by General Electric Co. 

Mr. Chen said the group will continue to look for overseas investment opportunities to take advantage of lower asset prices.

"Now is a good time to invest overseas. We're looking for investments which complement our existing businesses." He also noted that listing plans by its Hong Kong Airlines Co. unit remain on track, without giving a time frame. "Hong Kong Airlines will soon go public, in the foreseeable future…the more funds we raise the better."

Mr. Chen said HNA Group's shipping unit has settled most of its disputes with shipowners involving ship charter contracts, but he declined to elaborate.

The shipping operation had signed on to charter rates of more than $50,000 a day at the peak of the shipping boom, but the financial crisis in late 2008 and subsequent oversupply in shipping capacity drastically reduced the prevailing rates to $10,000, pushing the company to seek lower contract prices.

In one dispute, Chinese shipowner Shagang Shipping Co. accused HNA Group's shipping unit of defaulting on payments and attempted to seize the cruise ship involved. The ship was sailing in South Korea at the time, and the action left more than 1,500 passengers stranded.

Source: Wall Street Journal by Joanne Chiu