US airlines struggle for profits from China’s travel boom

Published on : Monday, January 7, 2019

China will soon become the world’s biggest market for air travel, but American carriers are having trouble profiting from the rapid growth.

 

Some US airlines are cutting routes to China, the world’s second-biggest economy. American Airlines is dropping its service between Chicago and Shanghai, while Hawaiian (HA) is suspending flights between Honolulu and Beijing.

 

American said last week that it is shelving the Chicago-Shanghai route from October because it “is unprofitable and simply not sustainable in this high fuel cost environment.”

 

The airline announced earlier this year it was scrapping its Chicago to Beijing route.

 

United (UAL) axed its service between San Francisco and Hangzhou last year after operating it for just 15 months.

 

The difficulties faced by US carriers are largely the result of fierce competition from state-backed Chinese rivals, which have rapidly increased their international routes.

 

Peter Harbison, the executive chairman of research firm CAPA – Center for Aviation in Sydney asserted that it is a very competitive marketplace, even for the Chinese airlines.

 

Chinese carriers have improved their fleets and quality of service markedly over the past few years compared with other big international airlines, according to industry experts.

 

The problem has been compounded by the rise in oil prices over the past two years.

 

Chinese airlines benefit from government subsidies that help them keep ticket prices low, according to analysts.

 

Shukor Yusof, the founder of aviation-focused consulting firm Endau Analytics in Malaysia said that the Chinese carriers will be the ultimate winners because they have strong government backing and they have deep pockets.

 

Research by Singapore-based bank DBS this year found that government subsidies to China’s aviation industry have doubled in the past four years.

 

Despite the challenges, US airlines have strong incentives to stay the course. China will displace the United States as the world’s largest aviation market by 2022, including flights to, from and within the country, according to the International Air Transport Association.

 

DBS forecasts that the number of Chinese air travelers will triple to 1.5 billion by 2036 as the population gets wealthier and travels more.

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