Air China Is a Champion. But for How long?
Among America’s Big Three airlines, there’s a clear profit champion. It’s Delta. Among Europe’s Big Three, there’s a clear profit champion: It’s IAG. And among China’s Big Three? The champion is no less clear: It’s Air China.
But Air China, more so than its champion counterparts abroad, has a lot to be nervous about. Problems, threats and misfortunes are surfacing. Many are beyond its control. Some could prove highly damaging.
Two years ago, China’s flagbearing carrier was flying high. With more than $2.5b in operating profits, its 2016 operating margin was 15%, double China Eastern’s figure and nearly double China Southern’s. Its Shenzhen Airlines subsidiary, based in the industrious Pearl River Delta region, itself earned a margin of nearly 16%. Like its peers, from collapsing energy prices that year, watching cheerfully as its fuel bill fell 9% despite 9% more ASK capacity. China’s economy was still growing strongly.
Chinese airline traffic was growing at a double-digit clip (it still is). And all major Chinese carriers were moving toward adoption of industry-best practices in areas like operations, marketing, revenue management and distribution. Chinese airlines were also benefiting from earlier rounds of consolidation, including Air China’s investment in Shenzhen Airlines but also China Eastern’s takeover of Shanghai Airlines and China Southern’s effective takeover of Xiamen Airlines. Lax antitrust enforcement probably helped inflate revenues too.
But Air China was better positioned than either China Eastern or China Southern, most importantly because its competitive challenges were less severe. As early as 2010, Beijing Capital Airport had surpassed London Heathrow to become the world’s second busiest airport after Atlanta. That year, Beijing’s traffic grew 13%. But this would be its last double-digit growth year, most importantly because of space constraints—the airport’s capacity was essentially maxed out. And like British Airways at congested Heathrow, Air China relished the upward …
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