China Southern makes major losses on A380 flights
Staff Reporter 2012-09-11 16:48 (GMT+8)
A China Southern Airlines Airbus A380 on the tarmac at Shanghai Pudong International Airport. (Photo/Xinhua)
China Southern Airlines incurred financial losses of around 100 billion yuan (US$157 million) on its Airbus A380 jet operations during the first half of 2012. Analysts said the largest air carrier in China needs to cultivate more international flights or provide joint flight services with other companies to make better use of the superjumbo jet.
The operating loss on the jetliner was widely expected, but the figure was still better than projections by some analysts who even predicted the loss could hit 2 billion yuan (US$315 million), according to Shanghai's First Financial Daily.
China Southern Airlines became the first Chinese carrier to put the A380 superjumbo into service. The company's chairman, Si Xianmin, had said that whether the new jet was able to generate profit would hinge on factors like seat occupancy rates, the selection of flight routes and flight network arrangements as well as setting the right ticket prices.
Most analysts said the timing for the arrival of the company's A380s was not good as air travel and international conferences and other events have decreased since the international financial crisis in 2008.
Other negative factors include the fact that China Southern has been unable to secure new long-distance international routes quickly enough.
Li Xiaojin, a professor at Civil Aviation University of China in Tianjin, was one of those who had anticipated the operating losses of the A380 mainly due to inadequate operational efficiencies under the principle of economies of scale.
Li noted that the price of the aircraft was set at around US$300 million each when the carrier signed the contract with Airbus in 2008. The daily depreciation cost should reach about 500,000 yuan (US$79,000) for a period of 10 years on the current flight service of 10 hours per day on the Guangzhou-Beijing route.
The air carrier should be able to generate revenue of 572,000 yuan (US$90,250) on each single journey if its 520 seats are adequately occupied, a target hard to attain for the time being.
Most aviation industry analysts said however that the temporary deficit will not affect the plane's long-term prospects because there is huge demand for large passenger planes in the vast Chinese market. The new jet also has the advantage of saving fuel costs up to 15% when carrying enough passengers for flights longer than 8,000 kilometers.
Li said that to best utilize the A380, China Southern needs to exert greater efforts of its own to create more international flight routes. Another tactic would be to form joint long-distance flight services with other carriers to share cost and risk, he said.
The company's A380s will have their first chance to spread their wings on international flights from Guangzhou to Los Angeles from Oct. 12 this year.
There are also market reports that China Southern has secured a deal to cooperate with Air China, another state-owned carrier, to use the A380 to provide services from Beijing to Paris, also expected to start in October.
The Beijing-Paris route is one of the busiest in the world, with passenger numbers reaching more than 760,000 in 2011.
Li said the joint Beijing-Paris service will definitely help elevate the utilization rate for the superjumbo.
