Monopoly in China’s civil aviation still strong despite reforms

Monopoly in China’s civil aviation still strong despite reforms

Staff Reporter

2014-02-25

After more than three decades of economic reforms, the civil aviation sector in China is still monopolized by the nation’s six leading civil aviation groups in many areas, including air routes, booking systems, ground services, aviation fuel and aviation supplies.

However, reform in the opening of lower airspace has accelerated after the third plenary session of the 18th Communist Party of China as the Civil Aviation Administration of China plans to set up a team to lead the reform.

China’s aviation industry was reformed in 2002, when three air transport firms civil aviation groups — China National Aviation Holding Company (Air China), China Eastern Airlines Corporation Limited and China Southern Air Holding Company (CSAH) — as well as three aviation services groups — China TravelSky Holding Company, China Aviation Oil Holding Company and China Aviation Supplies Group Corporation — were established.

Reforming the civil aviation sector has been a slow process, with some saying that certain market concentration had helped maintain ideal aviation safety standards for many years.

Tian Baohua, a member of the policy consulting team of the Ministry of Transport, however, stated that safety was not an excuse for slow reform in the civil aviation industry.

Tian, who is experienced in drafting reforms for the industry, said the sector had tried to reform a couple of times, but the reforms were abandoned or suspended due to external factors.

China Aviation Supplies has monopolized the procurement of air-related materials.

In other countries, airline companies have the power to decide the timing and volume of their procurement while purchasing aircrafts. Both state-owned and private airlines in China, however, have to make such purchases through China Aviation Supplies as the government is of the view that centralized procurement can reduce prices.

An executive at a state-owned airline said that centralized procurement was sometimes more expensive, however. China’s airline companies use the “world’s most expensive fuel” as the aviation fuel supplies, pipelines and refuel channels are controlled by China Aviation Oil.

As for IT solutions for the travel industry, TravelSky is the dominant provider in China. A report in 2000 showed that TravelSky charged 5.50 yuan (US$0.90) per ticket sold by domestic airline firms, which earned the company 330 million yuan (US$54.1 million) in 1999, based on a total capacity of 60 million (US$9.8 million) that year.

In contrast, airlines in other countries can choose freely which IT solution provider they want to work with.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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