Behind the super big order: How far is civil aviation from recovery?
China News Weekly reporter / Li Mingzi
Published in the 1051st issue of "China News Weekly" magazine on July 11, 2022
Every time he passed the tarmac of an international passenger plane, Pan Xiaoliang couldn't help but look through the floor-to-ceiling windows, looking for an "old partner" who had been flying with him for more than ten years.
Before the epidemic, these wide-body passenger planes, which can carry more than 300 people, ran almost non-stop, staying on the ground for a few hours at most. During the period, there were also loading and unloading, loading and unloading of passengers, refueling, and maintenance.
At this moment, they are like gold-devouring beasts in captivity, lying on the ground bored, only consuming, not producing.
There is a saying in the civil aviation industry: When the plane is parked on the apron to bask in the sun, it seems that you can hear the sound of money melting.
After the Spring Festival in 2022, the first-tier cities such as Shenzhen, Guangzhou, Shanghai, Beijing and other first-tier cities have experienced epidemics one after another. Prevention and control measures have been introduced in various places, people's travel has been hindered, and flights have been canceled in large areas.
Oil prices continue to rise, the RMB exchange rate fluctuates, and the operating costs of the aviation industry continue to increase.
After two consecutive years of sluggish operation, the "3.21" China Eastern Airlines MU5735 aircraft flight accident once again cast a shadow over the industry. The demand for civil aviation travel was further suppressed, and the industry ushered in a difficult time.
According to the Civil Aviation Administration of China, the entire industry completed 15.37 million passenger trips in March this year, a year-on-year decrease of nearly 70%.
By April, passenger traffic had further halved, recording only 7.88 million passengers, returning to the industry passenger traffic level of two decades ago.
Industry losses are still expanding. According to the 2021 Civil Aviation Industry Development Statistical Bulletin released by the Civil Aviation Administration of China, the industry lost 84.25 billion yuan last year.
In April this year, the entire civil aviation industry lost 33.02 billion yuan, the largest monthly loss in history, and the entire industry suffered losses for nine consecutive months.
On the evening of July 1, China Southern Airlines, Air China and China Eastern Airlines successively announced "epic big orders" to purchase 292 Airbus A320NEO passenger aircraft with a total list price of 37.257 billion US dollars, which is more than 240 billion yuan in RMB.
This transaction is the single largest purchase order for aircraft in the history of the three major airlines in terms of quantity and value.
Are there signs of a recovery in the airline industry?
For China's civil aviation industry, it is too early to talk about turning losses in the absence of a recovery in the international airline market.
After the outbreak of the epidemic, the civil aviation industry supervision department issued a "five one" policy to restrict the entry of international flights to prevent the risk of epidemic importation.
In the past two years, the number of international flights has decreased by about 90% compared with 2019.
Under heavy pressure, after more than two years, this policy has gradually shown signs of relaxation in the near future.
Flights grounded, 'wallet is empty'
After the Lantern Festival this year, Robin did not receive new flight missions for more than three consecutive months.
Before the epidemic, Robin often flew international flights in a row, and each time he went to work meant he was away from home for more than ten days in a row.
During the three months from winter to spring, his daughter asked him several times: Why didn't Dad go to work?
Robin is the captain of a small and medium-sized joint venture airline. He has 15 years of flying experience, and his annual income before the epidemic exceeded one million yuan.
In fact, as early as the beginning of April, Robin, who rested at home for a month and a half, received a work arrangement, but he was quickly notified that the flight was cancelled.
Subsequently, 5 consecutive weeks of schedules were canceled, and the company did not inform the reason.
"Everyone knows that it must be because of the epidemic, and no one can do anything about it." Robin said helplessly.
According to public data, in April 2022, the domestic passenger traffic of the three major airlines, Air China, China Southern Airlines and China Eastern Airlines, decreased by 41.3%, 65.6% and 45.6% respectively from the previous month.
Compared with the pre-pandemic period, based on the same period in 2019, the domestic passenger traffic of Air China, China Eastern Airlines and China Southern Airlines dropped by 82.3%, 90.3% and 78.2% respectively in April this year.
The spread of the epidemic has caused aviation demand to dip again.
"Different from the previous two years, in the first half of this year, the epidemic appeared in important node cities one after another, which had a great impact on domestic and international routes." Li Xiaojin, professor of the School of Economics and Management of the Civil Aviation University of China and director of the Institute of Aviation Economics, told "China Newsweek analysis.
The epidemic occurred in Shenzhen in February, Guangzhou and Shanghai in March, and a new round of Omicron epidemic broke out in Beijing in April. The airports in the four major first-tier cities were almost closed.
In 2019, before the epidemic, the passenger throughput of the Capital Airport alone exceeded 100 million, and the passenger throughput of the three major city airports in Beijing, Shanghai and Guangzhou accounted for more than 1/5 of the domestic total.
The outbreak and prevention and control of the epidemic have simultaneously suppressed the demand and supply of civil aviation travel.
Passengers are afraid to go out for fear of being infected. The original business trips have been changed to online work from home. Airlines have canceled flights on a large scale in order to cooperate with epidemic prevention. Even if some routes can pass, they can only suspend flights because there are no passengers.
The most intuitive manifestation of the cold winter of the industry befalling every practitioner is that "the wallet is empty".
The main income component of pilots and flight attendants is hourly fees. The more flying time, the higher the income.
More than two years after the epidemic, Robin's average annual flight time was only about 400 hours, less than half of that before the epidemic, and his income was reduced to 40% of the original.
Passenger flights are cancelled, and the captain can fly to a cargo plane. A large number of flight attendants have no work to do, so they can only stay at home and receive a basic salary of 2,000 to 3,000 yuan per month.
The annual salary of a pilot of one million yuan was very common before the epidemic. Robin, who settled down in a second-tier city, is now able to guarantee his family’s normal expenses after paying off his mortgage and car loan every month. 50,000 to 60,000 yuan, living austerely.
Domestic flight licenses have strict requirements on the amount of pilot training. For example, each pilot must have 3 take-off and landing exercises within 90 days, either on a real aircraft or a simulated aircraft.
Under normal circumstances, this level of training is easy to achieve, but after the epidemic, many people like Robin were unable to fly for three consecutive months, and the company had to spend higher training costs to meet flight safety requirements. Industry stagnation brought more High management costs.
In addition to the epidemic, the aviation industry is also facing the dual pressures of high oil prices and the devaluation of the yuan.
The oil price at the cost side of airlines has always been at a high level. In May, the ex-factory price of domestic jet fuel was 7,859 yuan/ton, a year-on-year increase of 97%. In the context of the ongoing crisis in Russia and Ukraine, oil prices have always been high.
Since the second quarter, the RMB has depreciated by about 5%, and the exchange loss of airlines will further expand.
Parking fees, take-off and landing fees, maintenance fees, as well as depreciation and labor costs for fixed expenses, whether grounded or flying, airlines are facing high costs.
According to the "guaranteed margin" strategy, only when the fare income brought by the execution of the flight on the margin can cover or exceed the variable cost of the flight, the flight will be selected, otherwise the flight will be cancelled.
During the trough period of the industry, every airline company is living a life prudently.
As a representative of a heavy asset industry, another major feature of civil aviation is its high debt ratio.
From 2014 to 2019, the asset-liability ratios of the three major airlines were all above 50%.
Galaxy Securities pointed out that the repeated outbreak of the epidemic has caused the cash flow of airlines to be tight, and many airlines have relieved the cash pressure by issuing ultra-short-term financing bonds, but this has increased current liabilities and further increased the debt ratio.
Spring Airlines, China's first low-cost airline, has been hit hard by the current round of the epidemic because its main base is in Shanghai. "The company is still working hard to tide over the difficulties." The head of Spring Airlines' publicity department told China News Weekly.
Spring Airlines achieved operating income of 10.858 billion yuan and net profit attributable to the parent of 39.1119 million yuan in 2021 when the epidemic was frequent, turning losses into profits year-on-year.
However, public data shows that although Spring Airlines’ June capacity deployment and passenger turnover increased month-on-month, they still fell 63.3% and 71.4% year-on-year, less than half of 2019.
As the epidemic situation in Shanghai, Beijing and other places gradually eased, the flight volume of various airlines recovered in May and continued to rebound in June.
In the first ten days of June, the average daily domestic civil aviation flight was about 6,100, an increase of 37% from the previous two weeks.
However, airlines as a whole are still operating at a low price. Since 2022, the average air fare for civil aviation has only been 574 yuan, down 23% from the same period in 2019.
However, Shanghai, which announced the resumption of work and production from June 1, has not yet stepped out of the trough of civil aviation.
According to flight steward data, on June 26, the number of flights at Shanghai Hongqiao Airport and Pudong Airport was only 106 and 83 respectively.
As of 8:00 on June 27, Shanghai Pudong Airport had cancelled 1,100 flights, and Shanghai Hongqiao Airport had cancelled 760 flights, with a cancellation rate close to 90%.
"The epidemic prevention policy must be coordinated, and we have no better way to solve the current predicament. We can only wait, wait for the epidemic to pass, and wait for the industry to recover." The middle management of an airline company whose main base is located in Shanghai told "China News Weekly" helplessly. Say.
"Customer-to-goods" make up little
By the last day of June, pilot Pan Xiaoliang had just stayed in a quarantine hotel for a month, half the total quarantine time since the last flight.
According to the company's requirements, after each international flight, the crew members will be quarantined for 14 days after returning home.
The first week of pure isolation, the flight can continue to be carried out from the second week, but after the last flight, at least another week of isolation will be required before the lockdown can be lifted.
For European routes, the crew can unload, load, and refuel the aircraft without disembarking or entering the country, and then fly back to China directly.
However, the flight to the United States is required to be registered, which means that the quarantine is doubled after returning to China, and an additional 14 days are required.
Combined with different epidemic prevention requirements, the longest isolation time is finally calculated.
If a person is confined in a small room for too long, negative emotions will gradually dominate uncontrollably. One of Pan Xiaoliang's colleagues "collapsed" during the isolation. When he left the hotel, lunch boxes and garbage covered the whole room.
"The crew members' emotions should be paid attention to. To be more serious, this is also a safety issue." Pan Xiaoliang said.
Pan Xiaoliang has worked in a state-owned civil aviation company for more than ten years. After the outbreak of the epidemic in 2020, he was quickly transferred from international passenger transportation to the international cargo department.
"The company arranges it directly and does not ask for personal opinions. To be honest, it would be good to have work in the past two years." Pan Xiaoliang calmly accepted the job change, the international flight time is long, and the cargo plane subsidy is more than two years. Income does not decrease but increases.
At the end of March 2020, the "Five Ones" policy was released. In order to effectively block the imported epidemic from abroad, an airline only reserves one route in a country, and it operates at most one flight a week.
Passenger international flights fell sharply, while cargo was less affected.
In order to improve aircraft utilization and revenue, some airlines have increased their investment in freight, expanding passenger aircraft personnel to their freighter fleets, and some airlines have switched to passenger aircraft to transport cargo.
In April 2020, Robin completed the last passenger flight, "retrograde" under the epidemic situation, picked up Chinese stranded overseas from London, and began to fly "passenger to cargo" in May.
According to the "2021 Civil Aviation Industry Development Statistical Bulletin" issued by the Civil Aviation Administration of China, in 2021, the entire industry will complete 7.3184 million tons of cargo and mail transportation, an increase of 8.2% over the previous year.
The cargo and mail traffic volume of domestic and international routes both increased compared with the previous year, among which the cargo volume of international routes increased significantly, reaching 19.6%.
"From a financial point of view, the increase in freight volume has little effect on making up for passenger losses." Li Xiaojin analyzed that although freight profits doubled during the epidemic, freight revenue accounted for a relatively low proportion, mostly less than 20% of total revenue. It is still the main source of revenue for airlines.
Taking China Eastern Airlines, which has obvious changes in its revenue structure, as an example, the proportion of cargo revenue has increased from 3.17% in 2019 to 11.37% in the first quarter of 2021. Even if passenger revenue declines, it still accounts for 82.01% of total revenue.
The decline in passenger flow and the increase in cargo flow have not only prevented the growth of the airline's performance, but also affected the airport.
Compared with airlines, the losses of various airports are often ignored.
As one of the most important aviation hubs in China, the business volume of Shanghai Pudong Airport has plummeted. The airport recorded a passenger throughput of 42,600 in April, down 98.93% year-on-year; aircraft took off and landed 3,520, down 90.67% year-on-year; cargo and mail throughput 111,600 tons, down 70.04% year-on-year.
In April this year, Shanghai Hongqiao Airport even had fewer than 10 flights entering and leaving the port every day.
As a means of survival, non-aviation business has become an important source of revenue for various airports under the epidemic.
In 2021, Guizhou Zunyi Airport will generate revenue of 390 million yuan through non-aviation businesses such as new parking lot charging pile business, cooperative operation of machine repair business, and cooperation with major customers to sell specialty agricultural products.
Fuyang Airport in Anhui coordinated the development of airport advertisements, terminal shops, parking lots, gas stations, real estate in the city and other resources. In 2021, non-aviation revenue will increase by 347% year-on-year, accounting for nearly 1/3 of total revenue.
However, Li Xiaojin also pointed out that the core elements of airport revenue are still passengers and cargo. Without passenger and cargo flow, both main and non-airline businesses can only face losses.
Survive by "controlling costs"
Since the outbreak of the epidemic, Cao Zhigui, Marketing Director of Jiuyuan Airlines Co., Ltd., has added a new content to his daily work - paying attention to the epidemic prevention and control and relief policies in various places.
There may be a new incremental market hidden in these changes.
On June 10, the first flight of Jiuyuan Airlines between Guangzhou and Turpan was successful.
In the coming summer, Jiuyuan will continue to open routes to Altay, Yining, Shihezi and other places, and expand routes to Urumqi, further enriching its route network layout in Xinjiang.
"Under the influence of the epidemic, the competition in the stock market is more intense. Instead of fighting the price war, we will consider more about the incremental market. The policies introduced by Xinjiang this year are very suitable for the development of business travel." Cao Zhigui told "China News Weekly" that in early June, Xinjiang has issued a package of policies to stabilize economic growth.
Most of the passengers on the Xinjiang route are traveling for travel purposes. Jiuyuan Airlines has in-depth cooperation with local powerful hostels to bundle aviation products with travel products.
The Guangzhou-Turpan route has been opened for more than two weeks, and the passenger load factor has reached about 90%.
Cao Zhigui said that the company will add more than 20 new routes in 2021. For example, the Wuhan-Tangshan route opened at the end of March last year. No airline has ever flown before. Wuhan is a core city in central China, and Tangshan ranks first in Hebei in terms of GDP. With a considerable population and economic volume, the passenger load factor of this new route has remained stable at around 85%.
Jiuyuan Airlines was approved by the Civil Aviation Administration of China in 2014, and its maiden flight was officially launched on December 2.
The company is invested and established by Juneyao Airlines Co., Ltd., a subsidiary of Shanghai Juneyao (Group) Co., Ltd., and its main base is located in Guangzhou.
As the first low-cost airline in the central and southern regions, in 2021, when the epidemic fluctuated repeatedly and the industry lost 84.3 billion yuan throughout the year, it became one of 35 civil aviation companies that achieved profitability.
After inspecting these 35 companies, the research team of the General Department of the Civil Aviation Administration wrote an article and concluded that although these companies are of different scales, different natures, and different direct reasons for their profits, their management concepts and management mechanisms have shown a high degree of success. flexibility.
In addition, enterprises are more precise in specific measures and practices to increase revenue and reduce expenditure, reduce costs and increase efficiency.
Why do low-cost airlines and small and medium-sized airlines perform better in the epidemic?
Li Xiaojin analyzed that the market players of low-cost airlines and regional airlines are in small and medium-sized cities, which are less affected by the epidemic.
Compared with large airlines with high debt ratios, small and medium-sized enterprises can respond more flexibly to market changes, and regional airlines enjoy government subsidies, which is conducive to further reducing costs and increasing efficiency.
"Ensure that the entire company can implement the concept of low-cost aviation, especially to improve decision-making efficiency and respond to market changes in a timely manner." Cao Zhigui introduced, for example, in response to the sudden outbreak in Guangzhou in 2021, the company decided to urgently deploy capacity to Xi'an and Wuhan , Wuxi and other places, the company's flight, operation control, maintenance, cabin, ground support and other departments need to conduct demonstration and evaluation, but the entire decision-making process takes less than three days.
It is ultimately reflected in the operational data. With a man-machine ratio lower than the industry average, it has achieved operational performance that is higher than the industry average. In 2021, the aircraft passenger load factor is 82.07% and the punctuality rate is 89.98%.
Not long ago, Juneyao Airlines issued the "Announcement on the Company's Provision of Financial Assistance to Jiuyuan Airlines Co., Ltd." RMB) financial assistance.
In addition to this financial assistance, in the past 12 months, Juneyao Airlines has provided 580 million yuan in financial assistance to Jiuyuan Airlines.
The announcement also disclosed that the asset-liability ratio of Jiuyuan Airlines in the latest period exceeded 70%.
"Under the epidemic, the industry continued to lose money, and the debt ratio of airline companies generally rose. 70% is really not high in the industry." Cao Zhigui said.
In an online forum in early February, he called on the Civil Aviation Administration to more support companies with healthy operations, strong governance capabilities and cost advantages in terms of aircraft introduction and other related policies.
Uncertain "Minimum Insurance"
On May 25, the Civil Aviation Administration and the Ministry of Finance jointly issued the "Notice on Phased Implementation of Financial Subsidies for Domestic Passenger Flights", commonly known as the "Minimum Insurance Policy" in the industry.
From May 21 to July 20, whenever the average daily domestic passenger flight volume does not exceed 4,500 in a week, the financial subsidy mechanism will be activated for all eligible flights.
The conditions include that the average number of flights per week does not exceed the minimum number of flights, the average passenger load factor of each flight segment per week does not exceed 75%, and the actual flight revenue cannot cover the variable cost.
According to the public introduction of Xiong Yanhua, director of the Finance Department of the Civil Aviation Administration, the upper limit of the subsidy is set at 24,000 yuan per hour.
"24,000 yuan per hour is enough to cover the variable cost of the flight, that is to say, even if a passenger does not have it, it will not lose money." Li Xiaojin analyzed that the variable cost of the flight includes fuel consumption, personnel salaries, some airports and air traffic control charges, passenger tickets. sales expenses, etc.
According to the calculation by the research team of the Civil Aviation University of China based on 2019 data, the change is about 24,000 yuan per hour, accounting for half of the total cost of passenger flights.
When there are more passengers, the airline earns more, and the need for subsidies decreases.
Benefiting from multiple rounds of bailout policies, the vitality of the civil aviation market is recovering.
According to the Civil Aviation Administration, from June 24 to 26, the number of single-day civil aviation flights exceeded 10,000 for three consecutive days, reaching 10,609, 10,083, and 10,198 respectively, and the overall recovery was about 60% before the epidemic.
The single-day passenger traffic volume reached 896,000, 830,000, and 851,000, respectively, recovering to about 49.4% before the epidemic.
The number of domestic passenger flights exceeded the subsidy bottom line of 4,500 flights per day on June 4, which means that the implementation conditions of the policy subsidy may become invalid.
As early as May 30, the Civil Aviation Administration has issued a notice announcing that the implementation of policy subsidies will be suspended from June 4 to 10.
However, the Civil Aviation Administration has not publicly stated whether it will cancel the subsidy policy in this regard.
Airlines are also exploring more possibilities.
Airlines in distress have begun to rescue themselves, and live broadcast promotions are no longer a new way of playing.
Since the outbreak of the epidemic in 2020, the chairman of Spring Airlines has sold air tickets and fuselage advertisements live, and China Eastern has launched the "Fly with Your Heart" product.
On May 16 this year, Hainan Airlines flight attendants carried goods overnight in the live broadcast room. With the advantage of duty-free shopping in the outlying islands of Hainan, the sales of big-name skin care products and make-up were hot, with a single sales of 1.53 million yuan, setting the latest sales record since the live broadcast of Hainan Airlines.
Many airlines have started catering side businesses.
Sichuan Airlines has launched the hot pot delivery service of "order today, delivery tomorrow"; Xiamen Airlines launched the group meal delivery service as early as two years ago, using idle manpower and equipment to provide various agencies, groups, Enterprises, institutions and other collective catering.
At the beginning of 2022, there was a forecast in the civil aviation industry that the development trend of the civil aviation industry in 2022 would be "low before and then high". It is expected that the annual passenger traffic will recover to at least 75% of the pre-epidemic level.
However, force majeure events such as the outbreak of the epidemic in the first half of the year have made it difficult for the civil aviation industry to achieve this goal.
For the civil aviation industry at this time, the signal of the gradual increase in international flights is good news.
Liang Nan, director of the Transportation Department of the Civil Aviation Administration of China, said at a press conference held by the Civil Aviation Administration on June 17 that at present, under the coordination of the joint prevention and control mechanism of the State Council of China, the Civil Aviation Administration is negotiating with some countries to gradually and steadily increase the number of regular international Passenger flights to meet the needs of personnel exchanges.
"First Finance and Economics" reported that China Southern Airlines, Air China and Hainan Airlines have obtained the allocation of new international flight quotas from the Civil Aviation Administration.
China Southern Airlines has obtained new flight quotas to and from Kyrgyzstan, Tajikistan and Turkey. The flights to the first two countries were temporarily suspended after the epidemic. China Southern Airlines will also operate Guangzhou-Yangon, Guangzhou-Phnom Penh and other routes from June. Extra classes.
Air China has been allocated a quota of flights to and from Belarus and the United Arab Emirates, to which flights were reduced in September 2021.
Hainan Airlines recently announced that it will restart the Chongqing-Rome route on June 23, a route that has been discontinued after the epidemic.
Previously, the State Council executive meeting proposed "33 Articles" to stabilize the economy. For aviation, "the civil aviation emergency loan will be increased by 150 billion yuan, and the aviation industry will be supported to issue 200 billion yuan of bonds. Domestic and international passenger flights will be increased in an orderly manner, and measures to facilitate personnel exchanges of foreign companies will be formulated. ." Industry insiders expect that the Civil Aviation Administration is preparing to increase more international flights to implement the decision at the State Council executive meeting.
According to the statistics of the approval results of international routes disclosed on the official website of the Civil Aviation Administration of China, there were as many as 41 international routes that major domestic airlines applied for overtime and charter flights in June and July, compared with only 38 and 12 in the first two months.
At present, the imbalance between supply and demand of international flights has led to high fares, and a flight is very profitable, which will bring obvious effects to the improvement of airline operations.
The industry generally believes that the orderly opening of international flights is an important measure to promote the opening of logistics and transportation on the premise of ensuring safety.
Despite the slow recovery, the large purchase orders of the "three major airlines" also released a clear signal of optimism for the future.
"Based on the confidence in the future development of the civil aviation industry, the company needs to plan and reserve the fleet capacity in advance." In response to the reasons for this large-scale introduction of aircraft, China Eastern Airlines stated in the announcement.
In terms of specific capacity growth, Air China expects this transaction to increase capacity by about 10.4%, while China Southern expects capacity to increase by about 13.0%.
"People want to travel. Once travel restrictions are lifted, people will return to the blue sky." Willie Walsh, director of the International Air Transport Association (IATA, referred to as "IATA"), said publicly.
However, he also pointed out that the Asia-Pacific region is the slowest recovery among the major regions. In 2022, passenger traffic to and from the Asia-Pacific region and within the region will only recover to 68% of the 2019 level. It will take more time for a full recovery.
(At the request of the interviewee, Robin and Pan Xiaoliang are pseudonyms in the text)
"China News Weekly" Issue 25, 2022
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