(Updates yield gap in 16th paragraph, shares in 20th paragraph.)
June 3 (Bloomberg) -- Ma Xiaojing will abandon airlines for trips to Beijing from Shanghai after suffering through delays that can triple the length of the two-hour flight. Instead, she will take the new bullet train.
“It’s so annoying when you hurry to the airport, board on time and then get stuck in the cabin for hours,” said Ma, 34, a marketing manager for a Shanghai-based luxury-goods company. She takes her Apple Inc. iPad to pass the time during delays, studying English and watching the TV show “Friends.” “I will definitely take the bullet train.”
A 221 billion-yuan ($34 billion) high-speed rail link connecting China’s most important cities in less than five hours is due to start service later this month. The line, designed to carry 80 million passengers a year, will challenge Chinese airlines that have delays on at least one in four flights nationwide.
“There will be plenty of travelers willing to switch to trains as they can’t stand any more airline delays,” said Jack Xu, an analyst with Sinopac Securities Asia Ltd. in Shanghai. “Given how much the line cost, the ministry will have to try and win every one of them.”
The blue-striped, silver-bodied bullet trains, built by Beijing-based CSR Corp., will begin their 1,318-kilometer (819 miles) journeys at the capital’s South Station, about six kilometers south of Tiananmen Square. They will travel at speeds of up to 300 kilometers per hour (186 miles per hour) to Shanghai’s Hongqiao station, which is next to the city’s main domestic airport. The Lujiazui financial district is a 40-minute subway ride away.
The line has passed a preliminary check and met standards for running as fast as 350 kph, the ministry said in a statement today. Operations will start “soon,” it said, without elaboration.
There will be about 90 services a day when the line opens, Rail Minister Sheng Guangzu said in an April 13 interview with state-run People’s Daily. There will be non-stop services, and ones calling at stations on the way, he said.
Second-class fares from Beijing to Shanghai will likely cost about 600 yuan to 650 yuan, said Zhao Jian, a professor at Beijing Jiaotong University, which specializes in rail engineering and management. A one-way June 30 flight with China Eastern Airlines Corp. costs about 640 yuan, according to Ctrip.com International Ltd.’s online travel agency.
The rail ministry declined to comment on fares, timetables and targets for the bullet-train line, which is known in Chinese as “Jinghu,” or “Beijing-Shanghai.”
The line is the centerpiece of a 2 trillion-yuan investment in high-speed rail. The country, already home to the world’s biggest bullet-train network, plans to have 16,000 kilometers of high-speed track by 2015, the rail ministry said in January. Five bullet-train lines were in service at the end of last year.
Ma, who travels to Beijing from Shanghai as much as three times a month, has already taken high-speed trains on trips to Suzhou and Hangzhou, which are both in eastern China.
“The experience is pretty good,” she said. Stations are easy to use, the trains are comfortable and “mostly important, the services are reliable,” she said.
The introduction of bullet trains on other routes has caused fare increases and a reduction in cheaper regular services. The start of the Hangzhou-Shanghai high-speed line in October, for instance, led to a 56 percent jump in second-class fares, according to state-run China Daily.
The rail ministry has announced nationwide plans to slow bullet trains to 300 kph from 350 kph beginning July 1 to pare operating costs and ticket prices. The attempt to boost sales follows a first-quarter loss of 3.76 billion yuan, according to a statement. The ministry operates most of China’s passenger- train services.
Concerns about losses and mounting debts have contributed to the yield gap between the ministry’s one-year notes and government debt more than doubling this year to 118 basis points, according to Chinabond data on the Bloomberg terminal.
The ministry has sold 70 billion yuan of bonds this year, making it the nation’s biggest issuer. The total debt pile stands at almost 2 trillion yuan, People’s Daily said in a May 9 report citing spokesman Wang Yongping. It will sell another 15 billion yuan of one-year bonds on June 9, according to a statement posted on China Foreign Exchange Trade System today.
The ministry faces a “debt crisis” by 2015 if passenger levels fall short of projections, Zhao said. He expects the new Beijing-Shanghai line to carry fewer than 30 million passengers in its first year.
It will be “very difficult” for the government to reduce fares to win more travelers because of construction costs, he said. By comparison, Amtrak’s Acela Express high-speed service carried 3.2 million commuters along the Washington-New York- Boston corridor last fiscal year.
Expansion of China’s high-speed network has slowed since Sheng replaced Liu Zhijun as rail minister in February. The Ministry of Environmental Protection last month halted work on a line between Tianjin city and Qinhuangdao in the northern province of Hebei and barred services on a route in Shandong province because they hadn’t passed required evaluations, according to a May 12 statement.
Liu, an advocate of bullet trains, left the rail ministry amid a Communist Party investigation into “severe” disciplinary violations, the state-run Xinhua News Agency said Feb. 12, citing the Ministry of Supervision and the party’s disciplinary body. CSR, China’s largest listed trainmaker by market value, has fallen 27 percent in Hong Kong trading since Liu’s departure, while the benchmark Hang Seng Index is little changed.
China Eastern, the biggest carrier in Shanghai, expects the new line to affect as many as 10 of its routes from Hongqiao airport, including services to Beijing, Tianjin, Jinan and Xuzhou, said a spokesman, who declined to be identified, citing company policy. Zhu Mei, a spokeswoman for Air China Ltd., the biggest Beijing-based carrier, couldn’t be reached for comment.
“Bullet trains will definitely lure some passengers from carriers,” said Li Lei, an analyst with China Securities Co. in Beijing who expects as much as 10 percent of airline passengers to ditch planes for trains. “Airlines will have to assign smaller planes to the route or offer better ticket prices.”
20,000 Seats Daily
China Eastern operates 55 flights a day between Beijing and Shanghai, one of its three most-profitable routes, and it filled about 85 percent of seats in the first four months of the year, the spokesman said. Carriers will offer an average of more than 20,000 seats a day on the route this month, the seventh-highest tally worldwide, based on data from OAG Aviation Solutions.
China Eastern is banking on services including online check-in and the ability to book trips weeks in advance to help retain business travelers, the spokesman said. It also plans to make travel more flexible, for instance, allowing passengers to fly into Shanghai and then leave from another city at no extra cost.
Frequent delays may hinder airlines’ attempts to retain customers. About 25 percent of flights nationwide last year were delayed, according to a May 4 report by the aviation regulator. Delays are measured according to when the plane door closes, rather than when the aircraft takes off or lands. About 80 percent of U.S. flights arrived within 15 minutes of their scheduled time last year, according to Department of Transportation data.
Ye Lu, who flew from Shanghai to Beijing 10 times last year, is looking forward to taking the bullet train. The trip to the capital from her hometown, Suzhou, about 100 kilometers west of Shanghai, can take five hours door-to-door.
“High-speed rail will appeal to me if the tickets are around 600 yuan,” said Ye, a senior manager for an investment promotion bureau in Suzhou. “It will be so much easier to go to the station than having to hang around at the airport.”
--Tian Ying, with assistance from Kevin Hamlin and Penny Peng in Beijing, Jasmine Wang in Hong Kong and Chua Kong Ho in Shanghai. Editors: Neil Denslow, Vipin V. Nair
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