Businessweek Archives

Look, Up In The Sky A Swarm Of Chinese Airlines


Special Report

LOOK, UP IN THE SKY--A SWARM OF CHINESE AIRLINES

Among China's carriers, Shanghai Airlines stands out. Run by scrappy entrepreneurs who first set up shop in a broken-down bus and later in an old chicken coop, Shanghai now boasts three Boeing 757s with leather seats, video screens, smiling flight attendants, and last year, $58 million in revenues. "If our people never smile, we fire them," says Sun Zhongli, a Shanghai vice-president. In a country where computerized ticketing is nonexistent, only this city-backed airline allows reservations by phone--and delivers the tickets.

As passenger traffic grows by 25% a year, China needs more airline capacity badly. At last count, there were 35 carriers, with nine more pending approval. The top companies are rushing to order aircraft and overhaul antiquated ground facilities. By the year 2000, some 500 new or newly renovated airports will be operating. "The scramble is on," says Robert Christensen, a consultant with Fleishman-Hillard Scotchbrook Asia.

BIG ORDERS. The charged climate means big business for China's large carriers and their Western suppliers. Take China Southern Airlines, one of seven national lines once controlled by the Civil Aviation Administration of China (CAAC). Now, CAAC operates like a regulatory agency, and its carriers act as independents. China Southern handled more than 8 million passengers in 1992. It recently ordered six Boeing 777s, in addition to the 14 737s and four 757s arriving this year. Boeing expects plenty more big orders: It figures China will buy $40 billion in commercial jets from the U.S. and Western Europe over the next 20 years. That means China will rank second only to Japan, the world's largest export market for Boeing, Airbus, and McDonnell Douglas.

Just as the different Chinese airlines prefer different airframe suppliers, so too are they beginning to compete with each other. China Eastern Airlines, the relatively well-run CAAC carrier in Shanghai, is already looking over its shoulder at hometown rival Shanghai Airlines, which is earning a reputation as the best in the industry. China Southern's Zhu took a Shanghai Airlines flight and concedes: "Shanghai Airlines has better service." Singapore Airlines Ltd. is already training Shanghai's flight attendants, and United Air Lines Inc. has agreed to train technical staff in Chicago, industry sources say.

But Shanghai Airlines' professionalism is not universal. Some CAAC carriers are still run by old-time party cadres. Although many city officials launch airlines to profit from lucrative landing fees, they have scant aviation experience. Sichuan Airlines, for example, leased some Russian Tu-154 aircraft last year and has since been flying near 100% capacity. Even rural villages are rolling out their tarmacs. Dongmotang--known for its chicken farms--is the first hamlet to set up an air fleet with three leased Boeing 737s.

The explosion in growth is prompting serious concerns about airline safety. "A child who is not ready to walk is attempting to run," says Lu Ruiling, director of CAAC's International Affairs Dept. Recently, CAAC raised the hurdle for a startup, which must now have at least three aircraft, $14 million in capital, and proper ground facilities.

But does CAAC have the staff to enforce these rules and other safety guidelines? Not yet, anyway. For now, inexperienced pilots are often flying overtime, and many crews know nothing about safety. In April, two people were killed and more than 150 hurt when a China Eastern flight to Los Angeles hit turbulence. In a four-month period last year, five accidents claimed nearly 300 lives.

So the birth of the Chinese airline industry will be explosive and a bit chaotic. But no one can doubt that the industry will be huge. And getting a piece of China's turbulent air space will be crucial in determining who prevails among the world's top manufacturers as well.Joyce Barnathan in Shanghai, with Dori Jones Yang in Seattle


Toyota's Hydrogen Man
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus