February 25, 2013
In the seventh and eighth centuries, Urumqi was a stop on the Silk Road, the caravan trail along which trade flowed between China and Europe. In the 21st century, the city in China's far northwest may again become a key point in trans-Eurasian communications, for much the same reason as before: It is on the way.
That, at least, is an idea that has occurred to China Southern Airlines as it grapples with developing its international business despite the geographic limitations of its home city and main base, Guangzhou. While an international hub at Urumqi is not imminent, it is a significant possibility to follow China Southern's immediate objective, gaining access to international routes at Beijing. In particular, the carrier needs to find enough work for five Airbus A380s it has ordered. Development at Beijing is more important to China Southern than even Guangzhou, say executives of the airline.
The SkyTeam member is not letting its international challenges slow it down. It is bidding for a greater share of the Chinese market in 2013 by scheduling 11% more capacity than last year, aiming to grow faster than the national traffic target. China Southern will boost capacity on highly profitable routes and increase cooperation between its subsidiaries, says General Manager Tan Wangeng. Internationally, it is focusing on Australia and Southeast Asia. The location of its main hub at Guangzhou is not much use for other foreign markets.
For this year, the Civil Aviation Administration of China is targeting 8% higher passenger and freight traffic for Chinese mainland airlines. In 2012, their traffic was up by 6.1%. If the national target is hit and China Southern maintains its average loads while flying 11% more capacity, it will take traffic share from Air China, China Eastern Airlines and Hainan Airlines. (The industry's composite traffic figures, expressed in ton-kilometers, combine passenger and freight payloads.) China Southern has already been outpacing its main rivals. In 2010-12, its overall traffic grew at an average annual rate of 11%, compared with 7.7% for Air China and 7% for China Eastern.
The international share of China Southern's traffic rose last year. Key developments in its international business have included great strengthening of services to Australia over the past few years, starting a Guangzhou-London service in June and, in October, the deployment of A380s on the Guangzhou-Los Angeles route. Tan says the Guangzhou-Los Angeles average passenger load factor is 84%.
“Currently, the company's international operations are steadily recovering,” Tan says. “The passenger load factor on the Guangzhou-Sydney route has reached 90%.” The London service allows China Southern to enter the market for one-stop flights between Britain and Australia, the Kangaroo Route—but it is hardly alone there.
Two other obvious routes for the airline's A380s would be from Beijing to Paris and New York—the catch being that Beijing is Air China's territory in the country's highly regulated civil aviation industry. To ward off China Southern's attempts to obtain permission to fly the Beijing-Paris route, Air China proposed last year that it and China Southern jointly sell seats on such an A380 service. But executives from both airlines say the deal looks dead: Air China turns out to be not much interested, after all. SkyTeam member Air France cannot have been keen on the idea, either, although China Southern says the alliance did not seek to veto the proposal.