Fleet revamp shrinks Air China's U.S. capacity
Notwithstanding the launch of new passenger flights across the Pacific, Air China’s presence in the U.S. market is shrinking.
In July, the Beijing-based airline is due to add a fifth U.S. destination to its network with the launch of flights between its home base and Houston. Initially, it will serve the new route four days per week using B777-300ER equipment.
The start of Houston flights is part of a move to ramp up the airline’s footprint in North America in the passenger business. In March, Air China boosted the frequency on the New York-Beijing sector from seven to 11 weekly flights and the Los Angeles-Beijing route went back to twice daily frequency. On the Beijing-San Francisco route, the airline deployed a larger 747-400 aircraft. Frequency on the Beijing-Vancouver sector is due to rise from seven to 11 weekly flights in May.
While these moves boost the carrier’s belly-hold lift in the U.S. market, Air China is in retreat on the main-deck side. Buffeted by sluggish demand, high fuel costs and downward pressure on yields, the carrier has struggled with its freighter fleet, which consists of eight 747-400BCF aircraft and three 747-400Fs. The BCFs have especially turned into millstones.
“Because of the high fuel cost, the BCF has no business case at all,” Titus Diu, COO of Air China Cargo, says.
The plight of the converted freighters has accelerated the decision process on the carrier’s fleet renewal plans. It has signed an order for eight B777 freighters, of which the first will be delivered as early as December. Diu expects it to enter service in January 2014.
The remaining seven 777Fs are scheduled to come on stream before the end of 2015. The rapid access to 777 production slots is the result of a deal that involves Boeing as well as Air China Cargo stakeholder Cathay Pacific, which had contributed five BCFs to the cargo venture.
Cathay opted to take three more 747-8s in lieu of the 777Fs, although its management has stated that it will likely add 777Fs to its line-up at a later stage. For Air China, the 747-8 was the less attractive option. Unlike Cathay’s set-up, which is geared to network utilization, the Beijing-based airline’s business is predominantly point-to-point, which makes the task of filling a 140-ton freighter more daunting, Diu says.
Like Cathay, Air China got Boeing to buy its BCFs (minus two aircraft that are on lease, which will be returned to the lessors when their terms expire in July and October). With the BCFs headed for the exits, the carrier will have a fleet of 11 freighters – eight 777s and three 747-400s – by the end of 2015. However, as the BCFs are leaving faster than the new freighters arrive, the fleet effectively shrinks from 11 to seven freighters this year. Two BCFs have already gone back to Boeing.
The brunt of the shortfall of capacity resulting from this shrinkage is hitting the carrier’s transpacific operations. The production freighters have been deployed chiefly on intra-Asian sectors, where they perform well, and the BCFs hemorrhage less on the Asia-Europe routes than on the longer sectors to North America. Moreover, Air China intends to apply for ETOPS in the U.S. for its 777 freighters, and it takes some time for its flight crews to build up the necessary experience, Diu says. Initially, the 777 freighters will be fielded on Asia-Europe sectors.
The carrier has already stepped up its China-Europe freighter activities this year. In March, it launched flights from Shanghai (its freighter hub) via Zhengzhou to Amsterdam and via Chongqing to Frankfurt. Amsterdam, which the carrier only added to its main-deck network last September, is now up to six weekly flights.
U.S. freighter services, on the other hand, are waning. At this point, Air China serves four U.S. destinations with all-cargo aircraft — New York City, Los Angeles, Chicago and Dallas/Fort Worth.
“All of these are important markets, and we do not want to withdraw from any of them, so we are reducing frequency,” Diu explains.