China’s three biggest airline stocks are in descent as an expanding national fleet adds seats that must be filled before the companies break even.
The CHART OF THE DAY shows shares of Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp. have halved from their highs in October 2010. Since then, the number of aircraft has increased 31 percent to 2,293, according to Boeing Co. It delivered a record 143 planes to China last year.
“They’re facing competition in the market where they used to be very strong,” said Andrew Orchard, an analyst at CIMB Group Holdings Ltd. in Hong Kong. “They’ve responded by cutting underperforming routes, but then that decreases their utilization rate of their planes.”
Air travel demand growth has trailed behind capacity as low-cost carriers acquired aircraft. The proportion of empty seats at the three biggest carriers has kept operating revenue below expenses for at least six years. The expansion of the country’s high-speed railroads have also lured passengers away with cheaper fares.
Boeing expects to deliver about 140 aircraft to China this year, while travel demand growth is expected to slow to 10.5 percent this year from 12 percent in 2013. The aircraft maker estimates that China will have 6,450 planes by 2032.
China has built a high-speed rail network of 11,000 kilometers (6,837 miles) in six years and aims to cover 90 percent of the population by 2020. The 2,298-kilometer Beijing-Guangzhou line, the world’s longest, opened in December, cutting the rail travel time between the two cities to eight hours from almost a day.