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Vol. 22 No. 5 June 2015orientaviation.comSHINYAKATANOZAK A’SCHALLENGEAnalysts put a“hold” on Chineseairport investmentIndustry developingstringent rules forlithium battery shipmentsSPThe Muellermethod: startingover at MASAs ECIAigr a-P Laow ci Rin ing fic EPflu g air Oen lo lin RTce b a esl ’Attracting the youngaboard ANA as the carrier’sageing passenger base erodes
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CONTENTSVolume 22, Issue 5COVER STORY20PUBLISHED BYORIENT AVIATION MEDIA GROUPMailing address:GPO Box 11435 Hong KongOffice:17/F Hang Wai Commercial Building,231-233 Queen’s Road East,Wanchai, Hong KongTel: Editorial (852) 2865 1013Fax: Editorial (852) 2865 3966E-mail: info@orientaviation.comWebsite: www.orientaviation.comWINNINGOVER THECOSMOPOLITANYOUNGPublisher & Editor-in-ChiefChristine McGeeE-mail: cmcgee@netvigator.comChief CorrespondentTom BallantyneTel: (612) 9638 6895Fax: (612) 9684 2776E-mail: tomball@ozemail.com.auANA Holding’s new president mustattract the young to a business thatcan no longer be supported by anageing passenger baseGreater China CorrespondentDominic LalkTel: (852) 2865 1013Fax: (852) 2865 3966E-mail: dominic@orientaviation.comNorth Asia CorrespondentGeoffrey TudorTel: (813) 3373 8368E-mail: tudorgeoffrey47@gmail.comIndia CorrespondentR. ThomasTel: (852) 2865 1013E-mail: info@orientaviation.comCOMMENT7Old world carriers’ bias laid bareNEWS BACKGROUNDERS14 The Mueller method: starting over at MAS16 Analysts put “hold’ on Chinese airportMAIN STORY8investmentAssault from the EastPhotographersRob Finlayson, Colin Parker,Graham UdenDesign & ProductionChan Ping KwanPrintingPrinting Station(2008)18 Qantas bounces back on fuel price dropADMINISTRATIONGeneral ManagerShirley HoE-mail: shirley@orientaviation.comCARGO26 Airlines wary of lithium battery bulk businessADVERTISINGSouth East Asia and PacificTan Kay HuiTel: (65) 9790 6090E-mail: tankayhui@tankayhuimedia.comThe Americas / CanadaBarnes Media AssociatesRay BarnesTel: (1 434) 770 4108Fax: (1 434) 927 5101E-mail: barnesrv@gmail.comEurope & the Middle EastREM InternationalStephane de RémusatTel: (33 5) 34 27 01 30Fax: (33 5) 34 27 01 31E-mail: sremusat@rem-intl.comSPECIAL REPORT Asia-Pacific Airlines’ importance to worldaviation29 Asia-Pacific airlines’ global influence accelerates All rights reservedWilson Press HK Ltd.,Hong Kong, 2014JUNE 2015/ORIENT AVIATION/ 3
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COMMENTOld world carriers’ bias laid bareAirlines advocate liberalized skies, open markets and the abolition ofoutdated rules and regulations – except when it does not suit them.The latest example of this blinkered thinking is a heavy hittingcampaign, orchestrated by North America’s American Airlines, DeltaAirlines and United Airlines, to contain Gulf carrier expansion in the U.S.The anti-Gulf onslaught centres around a U.S. government WhitePaper, which was published in April and largely researched by the BigThree American carriers over a two-year period. The paper argues thatEmirates Airline, Etihad Airways and Qatar Airlines have been assistedin their rapid global expansion by Gulf government subsidies of at leastUS 40 billion and hence have an unfair operating advantage in theU.S. market.But as our main story this month reveals, this may be only thebeginning of the Northern American carriers’ competitive woes. Theycould soon be fighting a market war with not one, but two formidablefoes: the big three airlines from the UAE and China’s Air China, ChinaEastern Airlines, China Southern Airlines and Hainan Airlines. All fourMainland airlines have made it clear building market share to the U.S. andbeyond is a priority.It appears, however, that North American airlines have one rule forthe Gulf carriers and quite another for Mainland airlines. The question iswhy?A decade ago, the same U.S. airlines that are protesting againsta Gulf invasion were all for Open Skies with the People’s Republic ofChina. But China’s civil aviation authority resisted the U.S. government’sovertures when its representatives came courting in Beijing. Chinabelieved their young airline industry was not yet ready to competeagainst the then mighty U.S. in an Open Skies environment.Fast forward to 2015 and Chinese airlines are in a very differentplace. Industry forecasts universally agree China will overtake the U.S. asthe largest domestic airline market in the world in the near future – andthat their global growth will be exponential.In our main story, “Assault from the East” new statistics fromconsultancy, CAPA, reveal that for the first time in trans-Pacific airlinehistory, China will have more seats into the U.S. in the peak season thanU.S. airlines will have to China.So why are North American airlines crying poor about Gulfcompetition and saying very little about a much larger threat,numerically, from across the Pacific?Chinese airlines are subsidized. They make no secret of it.Collectively, they received a minimum of US 1 billion in subsidiesfrom central and provincial governments and airports in 2014. Yet this“assistance” does not seem to bother American carriers in the same wayit does when they attack Gulf competitors.Could it be that Mainland China is critical to North Americancarrier’s expansion and therefore relationships must be nurtured ratherfractured? Delta Airlines’ CEO, Richard Anderson, the most public face ofthe anti-Gulf campaign in the U.S., has made it clear he wants Shanghaito become a hub for his Atlanta-headquartered carrier. He has no suchambition in the Gulf.Unfortunately, whatever the merits of the opposing arguments, thisbattle is not going to go away soon. In May, after a long period of lobbyingby major European airlines against Gulf carrier growth into Europe,the Europeans reportedly have had a victory. The Netherlands mediahas said its government will freeze Gulf carrier route expansion intoAmsterdam’s Schiphol Airport.It is argued that the bankruptcy protection many U.S. carriers haveenjoyed is a form of subsidy and saved them from extinction. So theyshould accept that if the industry, as a whole, wants to operate freely thentheir protectionist stance has no industry validity. TOM BALLANTYNEChief CorrespondentOrient Aviation Media GroupThe voice of Asia-Pacific aviationORIENT AVIATIONCHINAORIENT AVIATIONINDIAORIENT AVIATION“It has established itself as the primary source of information on industry topics in the Asia-Pacific region”JUNE 2015/ORIENT AVIATION/ 7
MAINSTORYASSAULT FROMTHE EASTMilitary commanders fear fighting on two fronts,yet that is the spectre U.S. carriers face. As aggressive Gulf rivalsattack their markets across the Atlantic an evenmore serious threat is emerging as Chinese airlinesexpand into North America, writes TOM BALLANTYNE.The news has not grabbed the headlines yet, butwhen it does, it will mark out 2015 as a landmarkyear in trans-Pacific airline operations. Just twoyears ago, American airlines flew close to doublethe number of flights to China as Chinese airlinesdid to the U.S.This year, in the peak northern summer travel season, AirChina, China Eastern Airlines, China Southern Airlines andHainan Airlines will overtake their U.S. rivals for the first timeon the trans-Pacific route.According to OAG data and the CAPA consultancy,Mainland China’s four biggest airlines will operate 2,028U.S.-China flights a week from July to September 2015compared with 1,853 flights by U.S. carriers. Each week, forthree months, Chinese airlines will operate 9.4% more flightsand 14.5% more seats across the Pacific than their NorthAmerica counterparts.And the threat from Asia is increasing. Hainan Airlineshas announced a twice a week Changsha-Los Angeles servicethat is not yet bookable and therefore not included in the data.It is another significant shift in aviation’s balance of power andadds statistical weight to the argument that the axis of airlineinfluence is moving east.Carriers in the U.S. might be having their most profitableperiod in years, but the twin threats from the Gulf and Chinamean they must fight on two fronts to retain their global8 / ORIENT AVIATION / JUNE 2015industry influence.For the last two months, America’s big three airlines,United Airlines, Delta Air Lines and American Airlines, haveattempted to discredit the Gulf’s Emirates Airline, EtihadAirways and Qatar Airways by alleging their success is fed byUS 40 billion in Gulf government subsidies. They are hopingto convince Washington to contain the Middle East carriers’North American expansion and revise the terms of an OpenSkies agreement.Several analysts believe that American airlines havebecome so focused on the Gulf that they will be taken bysurprise when they are hit by the even bigger threat to theirmarket share from across the Pacific.According to the Civil Aviation Administration of China(CAAC), 6.13 million airline passenger trips were madebetween China and the U.S. last year; a number expected togrow by around 15% annually. Whoever captures the biggestpiece of that expanding pie will dominate the market.The CAPA consultancy said the U.S. airlines fearcompeting with the Gulf carriers, which operate under OpenSkies regimes into the North America. Of more lastingimportance, it said is how critical the North Americanmarket, and especially the U.S., will be to Chinese airlines’international growth.For years, the U.S. has wanted Open Skies with theMainland, but China resisted because its airlines were smaller.
They wanted gradual expansion. “Now the tables are turning.The rapid change of pace, with more growth clearly to come,is giving U.S. airlines cause to reflect on their experience withGulf carriers,” said analysts.A new round of bilateral negotiations between Chinaand the U.S. is approaching. It is thought U.S. airlines mayno longer favour Open Skies with China and will want toprevent another onslaught of foreign carrier capacity intotheir territory. “Consumers, tourism bodies and the U.S.government may have another fight looming,” CAPA said.Like their Gulf counterparts, Chinese airlines are makingno secret of their intentions to expand. Air China vicepresident and North America general manager, Dr. Zihan Chi,said at a recent U.S. conference that China-U.S. services were“low-hanging fruit”. Hainan Airlines vice president, Hou Wei,said North America was the biggest opportunity for his airline.Hainan has announced it will buy 30 B787-9s and thatmost of them will be used for North American services. ChinaEastern Airlines’ order for 20 B777-300ERs will be primarilyutilized on North American flights.Air China, China Eastern and China Southern arebuilding their trans-Pacific networks by adding flights to NewYork from thriving inland cities such as Wuhan and Chengdu.Fujian-headquartered Xiamen Airlines has ordered six B787sand raised the possibility of flights to the U.S. later this year.But it would be misleading to suggest the big U.S. carriersare totally ignoring the threat from the East. Delta’s chiefexecutive, Richard Anderson, recently told his employeesin a recorded message that the airline wants to createan international hub in Shanghai to build on a growingrelationship with China Eastern. Both airlines are SkyTeamalliance members.Delta will launch a daily Los Angeles - Shanghai servicelater this year. “As we plan for our long-term future, it becomesclearer every day that China will be a major part of ourbusiness,” he said.American Airlines chief executive, William Parker, visitedChina on his first trip abroad after taking charge at the carrier.He admitted that although the group is the largest airline inthe world, it has been late in targeting the China market.“I visited China because we think it is a crucial marketand is very important for our growth,” he said in an interview.“China is relatively small for us now, but it has huge potential.China will become a very important emerging market forus. We think the Asia-Pacific will grow the fastest becauseeconomic growth here is the fastest in the world,” he said.“Secondly, we are smaller than our competitors in this region,so our growth rate can be higher.”American flies to Shanghai from Chicago, Los Angelesand Dallas/Fort Worth, and from Chicago to Beijing. InMay, it launched a service from Dallas/Fort Worth to Beijing.Parker said the airline is concentrating on tier one cities, butdepending on how air rights negotiations proceed, tier two andthree cities could be the future focus for the Dallas/Fort Worthheadquartered airline.The largest U.S. carrier in the China market is UnitedAirlines. Its president and chief executive, Jeff Smisek, saidChina is very profitable and important for the airline and thatUnited intends to expand to more Chinese cities.Stiffer competition and Chinese airlines’ improved servicequality are pushing United to remain competitive, he said. “Itis healthy for everyone, no matter whether it’s the passengersor carriers,” he said. Smisek is concerned over-capacity coulddevelop on China routes and warned if capacity grew fasterthan demand, fares would fall and damage the market.In the meantime, while China’s U.S. onslaught isgathering pace, there are no signs that the angry war of wordsbetween the big three North American carriers and the majorGulf airlines is abating. United, Delta and American aremaintaining the rage and standing by their accusations thatEmirates, Etihad and Qatar have benefitted from more than 40 billion in subsidies from their government owners in thelast ten years.In mid May, Etihad Airways published a report written byan independent consultancy, The Risk Advisory Group, whichsaid the three largest U.S. airlines have received US 71.48billion in government assistance, of which most of it has beenprovided since 2000. The report said the funding support waslargely associated with Chapter 11 restructuring and bailoutsfrom the Pension Benefit Guaranty Corporation. The accusedAmerican carriers said the report was wrong.Etihad alleged the benefits have helped American, Deltaand United “to transition from the verge of bankruptcy totoday’s industry leaders, each achieving multi-billion dollarprofits”.The Risk Advisory Group said the biggest beneficiarywas Chicago-headquartered United Airlines, which receivedfunding of US 44.4 billion, and added the three airlines werebeneficiaries of billions of dollars in fuel tax savings and taxincentives.Also in May, Emirates president, Sir Tim Clark, pointedout it had taken the U.S. carriers two years to compile theirJUNE 2015/ORIENT AVIATION/ 9
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MAINSTORYSubsidised Indian carriers drove us from India says Delta bossDelta Airlines chief executive, RichardAnderson, claimed North American carriershad to abandon India because of the subsidiesIndian carriers receive from their national andprovincial governments.Anderson, in a speech at the U.S. NationalPress Club in Washington DC last month,said: “India is a very big country. It has ahuge relationship with the U.S., particularlyfor Information Technology, and there is hugeagricultural trade between the two countries.“But in essence, we don’t really havean aviation trade. We have exited the market completelybecause subsidized [Indian] carriers have come into themarket place to shift the traffic from us and take us out ofthe market place.”report on alleged subsidies. “If it took them two years andwe have a response to make - which has to be robust - we willrequire more time to do that. So we will do that. We will deala sledge hammer blow to that report. So watch this space. It’scoming.”Emirates chairman and chief executive, Sheikh Ahmedbin Saeed Al Maktoum, told reporters in Dubai the airline ispressing ahead with global expansion that could include moreU.S. routes.He wouldn’t name potential destinations and citedcompetitive reasons and confidentiality agreements for hisreticence.“We cannot stop. This is really the direction of the UAEgovernment and the Dubai government. The minute youstop, somebody will pass you. In terms of expansion, we willcontinue,” he said. Emirates recently announced plans fordaily flights to Orlando, its 10th U.S. destination, to begin inSeptember.Qatar Airways will expand its services in the U.S and hasannounced its first direct flights to Los Angeles, Boston andAtlanta from its Doha hub and its second daily flight to NewYork.It will operate B777s to Los Angeles and Atlanta and thenew A350 to Boston and for its second New York flight. TheLos Angeles service begins next January, followed by Boston inMarch and Atlanta in July.The U.S. airlines, in a joint statement, said these additionalflights and capacity increases “will exacerbate the existingharm to U.S. airlines by diverting even more passengers awayfrom U.S. airlines’ to the Gulf carriers’ subsidized services”.In Washington last month Qatar’s outspoken chiefexecutive, Akbar Al Baker, refuted the “baseless” claims ofthe “Big Three” U.S. airlines and called them “a transparentattempt to block new competition and limit consumer choice”.He told a press conference U.S. Open Skies agreements areabout offering choice and the ability to fly with the airline youprefer, to regions which are under-served by U.S. carriers.“The Big Three want to restrict choice. World travelersAnderson said Delta and AmericanAirlines should be in India “but that it wasnot sustainable when there are US 41 billionin subsidies (allegedly for Indian airlines). Itis very difficult, if not impossible for us tocompete. And that harm is immediate.”He added the recent U.S. White Pape
China, China Eastern Airlines, China Southern Airlines and Hainan Airlines will overtake their U.S. rivals for the first time on the trans-Pacific route. According to OAG data and the CAPA consultancy, Mainland China’s four biggest airlines w
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