The aviation industry struggles to survive
China News Weekly reporter/Zhao Yiwei
Published in the 961th issue of China News Weekly on August 24, 2020
The shadow of the epidemic still looms over the aviation industry.
On August 4, Wuxi Transportation Group officially initiated the acquisition of a controlling stake from Ruili Airlines. Prior to this, the Fuzhou Municipal Government also issued an announcement stating that it will accelerate the reorganization of Fuzhou Airlines' equity. Many industry insiders told China News Weekly that small and medium aviation companies with weaker overall strength will be easier to survive through capital operations such as equity acquisitions, mixed reforms, and the introduction of investment. This is also something that may continue to happen this year.
"Selling oneself" is not the only way to save yourself. Since the beginning of this year, Air China, China Eastern Airlines, China Southern Airlines Group and related companies have successively issued bonds, with financing amounts exceeding 10 billion yuan. Several major airlines have stated that financing is mainly used to repay debts due and supplement operations during epidemic prevention and control. funds. In addition, in order to obtain part of the cash flow in advance, many domestic airlines have successively launched "Fly with Heart" products and launched discount air ticket packages for marketing purposes, in order to accelerate the restoration of travel confidence and boost business.
"The income from various marketing programs is just a drop in the bucket." The market leader of a large domestic airline told China News Weekly, "The airline has a lot of costs that are difficult to cut. For example, basic maintenance guarantees for aircraft, basic labor expenses, etc. Even after the massive layoffs and pay cuts this year, the current revenue situation is far from enough to make up for the loss."
According to data released by the Civil Aviation Administration of China, the overall loss of the civil aviation industry in the second quarter of this year was 34.25 billion yuan, and the total loss in the first half of the year reached 74.07 billion yuan. Among the three major airlines, Air China and China Southern Airlines both lost more than 6 billion yuan in the first half of the year, and even Eastern Airlines, which suffered the least losses, reached more than 4 billion yuan.
Compared with China, the situation facing the international aviation industry is even worse.
On July 28, the International Air Transport Association (IATA) held a press conference stating that from January to July this year alone, about 7.5 million flights worldwide had been cancelled, causing the aviation industry to lose about $84 billion. It is expected that at least until 2024, global air passenger traffic will return to the level before the outbreak of the new crown epidemic.
"This is another year later than we had previously expected." IATA chief economist Brian Pearce said that air travel has not improved with the increase in business confidence in Europe, the United States and China. Any recovery in the second half of the year will be "slower than we expected."
“At present, the airline industry’s travel confidence has not yet recovered on a global scale. Before the epidemic is over, various self-rescue plans may be just to stop boiling water.” Li Hanming, a senior civil aviation industry analyst, told China News Weekly, “especially in the liberalization of entry and exit. Before the control, the situation on international routes will continue to be bleak. If a country’s government cannot effectively contain the epidemic, no amount of external relief and internal self-rescue will be a stopgap measure to force life."
Local governments "buy the bottom"
In China, it is no exception for local governments to take over airlines. In fact, the epidemic has only further accelerated the trend of state-owned enterprises in China's private aviation industry.
On July 2, Hunan Hongtu Airlines, the first local airline in Hunan Province, was officially listed in the Airport Economic Demonstration Zone of Changsha City. This is a reorganization plan that was finalized as early as 2019. The Hunan Provincial Emerging Industry Equity Investment Guidance Fund under the Hunan Provincial Government entered through capital increase and share expansion and became the second shareholder of Yunnan Clay Air.
As early as 2019, many small and medium aviation companies in many places began to plan reorganization. Qingdao Airlines, Okay Airlines, Ruili Airlines, Hongtu Airlines and other companies have undergone shareholder changes, and the objects of the changes are mostly state-owned assets. Beijing, Guangxi, Urumqi and other places also plan to reorganize Capital Airlines, Beibu Gulf Airlines, and Urumqi Airlines, and realize local holdings of airlines through equity transfer, capital increase and share expansion.
Lan Xiang, vice president of Qunar.com, the former CEO of Qingdao Airlines, believes that as an important industry related to the national economy and people's livelihood, private aviation is bound to accommodate a portion of state-owned assets.
In fact, the local government is very happy to see the establishment of airlines in this province. For example, Qingdao Airlines has inextricably linked capital with Air China, Shandong Airlines, and local state-owned enterprises and leading enterprises in Shandong.
“Generally, such enterprises will not take the usual path of bankruptcy and reorganization when they have problems. They will first seek government support or take over.” A market leader of a local airline told China News Weekly, “especially for small and medium-sized enterprises. For airlines, state-owned assets mean a solid safety pad."
"Airlines with the right to speak in local governments can also provide great help in attracting investment and developing tourism." Li Hanming told China News Weekly, "It is foreseeable that similar cross-regional cooperation in the acquisition of local airlines by local state-owned assets, and Some other diversified integration methods will be more used in the civil aviation industry in the future."
Li Hanming believes that for local governments, now may be a good time to "buy the bottom". Due to local development considerations, the reproducibility of the local government taking over the small airlines is quite strong. In the future, there may even be situations where the number of local governments that intend to take over exceeds the number of airlines that can be acquired.
As a typical environmental impact industry, the aviation industry is both strong and fragile. Especially when it is impacted by major social and public events, the aviation industry is prone to large-scale industry restructuring. At such times, the support from the government is particularly critical and powerful.
Since March of this year, the Civil Aviation Administration of China has successively introduced 16 policies, including the issuance of special subsidies, the exemption of airline civil aviation development funds, and the extension of the loss carry-over period to relieve the burden of civil aviation enterprises. In May, the civil aviation industry received 110 billion yuan of low-interest preferential loans, which can be used to supplement working capital for enterprises. In theory, these rescue policies and measures form a joint force that can solve the survival problem of major civil aviation companies in 2020.
Internationally, most of the support measures adopted by the government for the aviation industry also include direct financial subsidies, lower taxes and fees, and preferential guarantees, but most of the government will attach some conditions.
When the Dutch government provided KLM with a financial support package of 3.4 billion euros, a series of additional conditions included reducing operating costs, stopping dividends and issuing bonuses, and contributing to sustainable development. The Dutch government will also appoint an agent to monitor the use of funds. In order to meet the restrictions on emissions, KLM will cut night flights by one-fifth.
While providing 7 billion euros in financial assistance to Air France, the French government requires Air France to cut its domestic capacity by 40%, reduce carbon emissions, and upgrade its fleet to more sustainable aircraft. If the short-haul route overlaps with the railway line, Air France must reduce the short-haul flight. In order to balance revenue and expenditure, Air France plans to lay off 20% of its staff, which is 10,000 of the group's more than 52,000 employees.
After the German government provides Lufthansa with a rescue agreement worth 9 billion euros, the German government will acquire at least 20% of Lufthansa's equity and appoint two board seats.
"The domestic government's support policy for the aviation industry is relatively systematic, direct, and relatively strong. Therefore, there has not been a large-scale wave of bankruptcy or mergers and acquisitions in the industry for the time being." The market leader of a large airline told China News Weekly. Said, "However, judging from the situation of the epidemic, there are already a number of small and medium airlines on the verge of bankruptcy. Once the epidemic is over, there are likely to be multiple mergers and acquisitions among domestic airlines."
Domestic airline marketing self-help
This weekend, Siyu, who works in Beijing, just experienced the embarrassment of "flying as you like". In June, she purchased a certain airline "Fly as you wish" product. When redeeming air tickets, she frequently encountered system crashes. She had to redeem air tickets with great pains and went from Beijing to Shanghai. flight delay.
"Go out early on Saturday morning and arrive at noon. On Sunday, the return journey is delayed and I only go home early in the morning." Siyu said, "The experience is too bad, and it is difficult to book tickets now. The itinerary is rushed and full of uncertainty. It’s also very tiring to play, and I’m not interested in flying once and then flying again."
In fact, "fly as you wish" products have become the most popular marketing tool for domestic airlines this year. Following the launch of major airlines such as China Eastern Airlines, HNA, and China Southern Airlines, Spring and Autumn, Xiangpeng, China, China United Airlines, Sichuan Airlines, Shandong Airlines and other places and small and medium-sized airlines have also followed up. Today, more than ten airlines have released similar products. Recently, online travel platforms have also joined in. Fliggy, Ctrip, and Qunar.com have all announced the launch of cross-airline "unlimited flight" products.
However, it is worth noting that "Flying with your heart" products seem to be "Xishin", but in fact they have strict restrictions on their use. Many products have also caused consumer dissatisfaction during their use.
On the Black Cat complaint platform, there have been more than 200 complaints against various "Flying Free" products. "There are few redeemable air tickets", "Cannot book follow-up air tickets", "Buy Xianfei but still need to pay the full price of air tickets", "Difficulty in refunding" and other issues have been collectively complained about, involving various airlines.
"Products such as XFLY are all actuated by airlines. Passengers may take a little fleece, but the airline will definitely not lose money." A marketing manager of a local airline told China News Weekly, "This Such products have strict conditions of use, which are not cost-effective for everyone, and are more suitable for consumers who have flexible time and have a rigid need for short-term trips."
Li Xiaojin, director of the Institute of Air Transport Economics, Civil Aviation University of China, pointed out that the average one-way fare for domestic routes in 2019 is about 800 yuan, and passenger-related costs account for 30% of the fare. Aircraft depreciation, airframe fuel consumption, and pilot hourly fees Waiting costs account for 65%, and the remaining 5% is profit. According to these data estimates, when the passenger who purchases the product takes less than 3 round-trip flights, the airline will protect the capital. If the passenger takes 3 or more round trips and less than 6 times, the airline's profits may be lost. If more than 6 times, the airline's cash flow may be lost.
"This type of product is a stimulus to the downturn in the market, and it is also a self-rescue strategy for the airline." Civil aviation industry analyst Li Hanming said that this type of product can help airlines obtain market revenue in advance, cultivate a fixed customer base in advance, and withdraw funds in advance. Both have benefits.
At this stage, it is the strategic consensus of all airlines to maximize travel confidence. Data from a large-scale sample survey in the first half of 2020 jointly conducted by the China Air Transport Association and the Civil Aviation University of China shows that the average pre-sale time of all samples in 2019 is 127.22 hours, while the average pre-sale time of all samples in the first half of 2020 is only 80.64 hours . "This means that leisure travelers who have longer pre-sale periods and are more inclined to purchase tickets in advance have shrunk." Li Hanming pointed out, "Whether from the perspective of travel confidence or the airline's return of funds, it is similar to selling forward ticket options. The practice is all desirable."
The "Fly with Heart" product has a significant effect in boosting business. Take China Eastern Airlines as an example. At present, the number of China Eastern Airlines' domestic flights has recovered from the lowest level of more than 200 flights per day to more than 2,000 flights, exceeding 80% of the level before the epidemic. Take Shanghai as an example, the popular place of departure and destination. At present, China Southern Airlines' flight frequency in Shanghai has recovered to about 90% of the same period last year.
"The number of products is limited, the prices and profits are not high, and they contribute little to the airline's revenue." The market leader of a large state-owned airline told China News Weekly, "The revenue from these products is, It is far from enough to solve the urgent need, at best it is a measure to promote promotion and activate the market."
The above-mentioned person in charge stated that for the purpose of participating in market competition, his company has launched two rounds of "fly as you wish" products, but considering the profit margin, if the epidemic is stable and the business recovers steadily, it is almost impossible for the company to launch similar products.
China leads the recovery
International Air Transport Association (IATA) data show that the number of passengers in the global aviation industry is expected to decrease by 55% by the end of 2020, revenue may be halved from last year's 838 billion US dollars to 419 billion US dollars, and the global aviation industry debt will reach 550 billion US dollars. In terms of restoring expectations, it is expected that next year will only be expected to rise to 598 billion US dollars.
Alexander De Juniac, president of the International Air Transport Association, believes that the several crises experienced by the aviation industry are less severe than the impact of the new crown epidemic. The impact of the new crown epidemic on the aviation industry will continue for many years.
Under the continuing epidemic, the international airlines are facing a major reshuffle. Since the outbreak, at least 23 airlines around the world have faced bankruptcy. Airlines that have not yet reached the brink of bankruptcy have also begun large-scale layoffs, including British Airways, Emirates, American Airlines, Scandinavian Airlines, Alaska Airlines and other large international airlines successively announced plans to lay off at least 3,000 employees. As of July 22, about 400,000 airline employees around the world have been fired, temporarily on leave, or notified that they may be unemployed due to the epidemic.
From the data point of view, the recovery speed of China's domestic market is already among the best in the industry. The International Air Transport Association pointed out that the improvement in global air passenger demand in May was mainly due to the recovery of some domestic markets. Among them, the performance of China’s domestic passenger market was particularly remarkable. Compared with the plummet in March, China’s May year-on-year decline has already Control within 50%.
"China's domestic passenger transport market is already leading the world in the speed of recovery, but this is almost insignificant for the global aviation industry." The aforementioned market leader admitted frankly that under normal circumstances, international passenger transport accounts for nearly three percent of the global air passenger transport market. Two of them, but it is still almost completely stopped. "
"In the second half of the year, international aviation business will continue to be described as tragedy, because countries will not easily open entry restrictions. Even if they do, they will only be restricted to the'most necessary business travel'." Li Hanming said, "Only after the epidemic is over When personnel from various countries can flow normally, and the stable situation is maintained for more than half a year, the global civil aviation industry can return to the normal track."
Alexander de Juniac believes that the recovery of the global aviation industry is slower than expected because business travel has been replaced by video conferencing, and businesses and individuals are more cautious about travel due to economic conditions and health and safety. If countries do not take effective measures to prevent and control the epidemic and develop vaccines, the recovery of air passenger traffic may be more delayed, and the air transport industry and the global economy will face a longer recovery period and greater pain.
China News Weekly, Issue 31, 2020
Statement: The publication of "China News Weekly" manuscript is authorized in writing