China Southern Gets First Dreamliner After Failed A380 Strategy
Stock Chart for China Southern Airlines Co Ltd (1055)
China Southern Airlines Co. (1055), the nation’s biggest carrier by passengers, took delivery of its first Boeing Co. (BA) Dreamliner after a two-year struggle to use its Airbus SAS A380s on overseas flights from Beijing.
The 787 arrived today in Guangzhou, where China Southern is based, after Boeing handed over the aircraft last month. The carrier, which has ordered 10 Dreamliners, will become the nation’s only operator of both Dreamliners and superjumbos.
China Southern will fly the composite-plastic plane to Paris from its hub after three months of domestic flights, Chief Operating Officer Zhang Zifang said last month. The decision to fly the Dreamliner from Guangzhou came after stalled talks with Air China Ltd. (601111) to use the A380 superjumbos from its rival’s base in Beijing.
“China Southern has the most high-profile aircraft now,” said Li Lei, a Beijing-based analyst at China Minzu Securities Co. “That doesn’t mean profits because its base is Guangzhou, not Beijing.”
Boeing delivered the 787 to China Southern after flaws in the plane’s lithium-ion battery forced a three-month global grounding of the jet starting in January. Carriers worldwide resumed commercial flights with Boeing’s most advanced jet in a phased manner starting in April.
Guangzhou Versus Beijing
Air China also has 15 787s on order, due to be delivered from the end of 2015 to mid-2018. Hainan Airlines Co., the nation’s fourth largest carrier, has ordered 10 Dreamliners. China Eastern in 2011 swapped orders for 24 of the model for smaller planes, citing late delivery and waning international travel demand at that time.
China Southern has lost money flying the double-deckers because they have been mainly used on domestic routes from Guangzhou, a smaller city with less traffic compared with China’s capital, according to Li.
Guangzhou, less than 200 kilometers away from Hong Kong, can’t command a premium unlike Beijing or Shanghai, he said in a phone interview.
China Southern said in April it will fly the A380s from Guangzhou to Sydney later this year.
Air China has a lock on Beijing routes because of the aviation landscape established by the Civil Aviation Administration of China, according to Li Yanhua, a professor at Tianjin-based Civil Aviation University of China.
China Eastern Airlines Corp. (670) similarly controls Shanghai, the nation’s financial capital, while China Southern has Guangzhou.
Air China has about 37,000 weekly long-haul seats out of Beijing airport this week, 18.5 times China Southern’s 2,000, according to data compiled by CAPA Centre for Aviation, which advises airlines. China Southern received first A380 in October 2011.
The fuel-efficient 787 will help China Southern shore up profitability, said Will Horton, an analyst at CAPA.
“Chinese carriers are generally unprofitable on long-haul routes, so using a 787 could enable China Southern to keep a route but have improved economics,” Hong Kong-based Horton said.
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