Chinese Conundrum

Chinese airlines are pushing to boost international
cargo routes, but is freight following the effort?

By Ian Putzger

hina went from El Dorado to Pandora's box last year as cargo capacity surged past the momentum of air exports. Particularly worrying for the Western airlines that had fed lavishly on those export yields was the international expansion of Chinese airlines - relatively modest still but decidedly more aggressive than in previous years.

Moreover, those fledgling cargo carriers borne of joint ventures with international airlines were headed for the runway in earnest. Jade Cargo International was growing aggressively and Great Wall Airlines had recovered from its initial setback. The Air China-Cathay Pacific Airways and Korean Air-Sinotrans cargo ventures were supposed to take off before the end of 2007, while China Southern edged closer to a similar enterprise with Air France-KLM.

Along with the prospect of an armada of Chinese flag freighters taxiing to the runway was the announcement last September that in more than two years Beijing would grant traffic rights for 27 new routes to Europe and America.

There also would be plans for 206 additional flights a week on existing routes to these parts of the world.

Pilot-Less

Another concern for airline executives from North America and Europe came from curbs on domestic flights imposed by the Beijing authorities last fall in response to the strain that the country's rapid aviation growth had put on traffic management, airport capacity and technical personnel.

For years, the Chinese carriers were too busy ramping up their domestic operations to find time and resources for international expansion.

So far, the armada has not reached the international scene. The joint ventures, which were supposed to spearhead that charge, have stepped on the brakes. Having announced plans to mount its first U.S. flights last year, Jade is hobbled thanks to a shortage of pilots.

"There will not be U.S. flights in the foreseeable future. For now the focus is on stabilization, not on expansion," said Nils Haupt, head of media relations of parent Lufthansa Cargo.

Although most of the paperwork is complete, the launch of Grand Star Cargo International Airlines has been postponed several times, with no indications of a new start date. Parent Korean Air Cargo is busy dealing with its own set-up right now, but it was clear last November the new outfit would not grow as rapidly as Jade. KAL signaled then the carrier would use one 747-400 and one A300-600 in its first year, starting with long-haul flights to Frankfurt, and build up the fleet gradually in subsequent years.

Delays, Delays

The Cathay-Air China venture has been held up mainly by the takeover battle for China Eastern Airlines, which is showing no signs of resolution.

Although CEA shareholders rejected the proposed buy-in from a Singapore Airlines-led consortium, the airline's management turned down a rival offer from the Air China-Cathay camp as incomplete, insincere and lacking legal validity. China Eastern management still favors a link-up with SIA.

The limbo is also shackling CEA offshoot, China Cargo Airlines. The freighter airline's parent threatened last year to take back control over the cargo operation, due to disappointing results, said sources in China.

China Cargo Airlines' flights from the United States to its Shanghai base are certainly far from full. The airline dropped fuel stops at Anchorage on the westbound flight out of Chicago. This saves some money in fuel and landing fees, but cuts payload by 30 to 40 percent.

Others are also struggling to generate sufficient loads out of the U.S. market. Yangtze River Express abandoned all-cargo flights to New York and Boston last year, but now apparently is reconsidering an East Coast service. The carrier is due to receive two more 747-400 freighters this year and has indicated plans to add Chicago to its network. It's doubtful the carrier will find easy pickings in that market. According to reports, Shanghai Airlines had freighters with 10 to 20 tons on board depart Chicago for Shanghai.

Shanghai Airlines seems more focused on its home market at the moment. In late January, it announced plans to lead an alliance of six companies under the banner of "Shanghai Airlines Logistics Enterprises Group." Also involved are two of the carrier's subsidiaries - including the joint venture in which EVA Airlines has a stake - and three Chinese companies. It remains to be seen to what extent this group can funnel more traffic into Shanghai Airlines' international freighter activities.

A recent survey of 60 senior economists from the government, research institutes, universities and financial institutions and 23 fund managers in China, which was conducted by one of the country's leading financial newspapers, found 70 percent of the respondents forecast a slight fall in China's exports this year, while over 16 percent predicted a sharp decline. Apparently, Chinese carriers have little cause to be gung-ho over opportunities to boost cargo flights to North America or Europe.

… Briefly

Japanese forwarder Nippon Express saw its net profit fall 11.7 percent to $115 million in the six months ending Sept. 30 and the operating profit fell 10 percent despite a 1.2 percent boost in revenue, to $8.2 billion. The company says its operating profit for transport fell 13.3 percent as rising fuel costs ate into profits. … Hong Kong-based forwarder U-Freight won security certification from the Transported Asset Protection Association for its operations in Shanghai. … All Nippon Airways hired IBS Software Services to manage the entire freight business of ANA with its iCargo system. … EVA Airways started twice-weekly MD-11 freighter flights between Taipei and Phnom Penh. ... Singapore signed an open skies agreement with the Slovak Republic. … China's civil aviation authority approved freight handler International Cargo Center Shenzhen as a provider of dangerous goods training. … Garuda Indonesia named GSA Cargo Services as its cargo general sales agent in Australia and New Zealand. … Russian carrier Transaero started 767 flights between Moscow and Sydney through Hong Kong every two weeks. … Hong Kong Air Cargo Terminals posted a record in November with 250,743 tonnes of freight, up 2.4 percent from last year. Tonnage from January to November was up 2.7 percent. … Cathay Pacific Airways added eight A330-300s to its orders with Airbus. … Shareholders of China Eastern Airlines rejected a bid by Singapore Airlines to take minority position in the struggling carrier after state-owned Air China offered more money. SIA had wanted to tap the lucrative China passenger and freight market. … Korea's Transportation Ministry will start new aviation treaty talks with up to 20 to nations, including China, Canada and Russia, to liberalize air service and build more flight connections. … Cargo traffic at Singapore Changi Airport fell 0.9 percent in 2007. The airport said it was "mainly due to the softening demand for electronics in the United States, as well as the growing preference by manufacturers to ship their products by sea instead of by air" because of high fuel prices."