China considering airline consolidation
Privatization and surging demand has led to the growth of numerous Chinese airlines. Now the Chinese government is considering merging three of its biggest airlines:
CAPA executive chairman, Mr Peter Harbison, said, ‘Profitability of the big three came under pressure in 2006, mainly due to higher fuel costs, but Shanghai’s China Eastern also struggled under the weight of a bloated cost structure. . . . A deal between China Eastern and China Southern is logical, as the latter retains significant operations in Guangzhou and Beijing, but is facing intense competition from the powerful Air China-Cathay Pacific combination.’
As anyone who has studied airline economics knows, airlines in general are tough investments, with high cost structures and easily influenced by a variety of external and internal factors. Hence, it’s tough to make money. I know precious little about the balance sheets of China’s many airlines, but if they are anything like the U.S. some consolidation here and there would probably be a good idea.
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