Skift Take
Air China is its country’s clear profit champion. But as a new airport soon opens in its home city, its challenges are many.
Editor's Note: This story was first published in Skift Airline Weekly on August 13, 2018.
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 flag-bearing carrier was flying high. With more than $2.5 billion in operating profits, its 2016 operating margin was 15 percent, 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 percent. Like its peers, Air China enjoyed the windfall from collapsing energy prices that year, watching cheerfully as its fuel bill fell 9 percent despite 9 percent more seat 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 percent. But this would be its l
