10 Year forecast of global emerging threats to China Southern Airlines, with focus on development of domestic high speed rail, fuel prices, maintaining growth in China, economic downturn, governmental influence.
3. China Southern is the world's 5th largest airline by passenger carried, Asia's largest airline in terms of both fleet size and in passengers carried. Fleet size of 342 (2009) More than Airfrance-KLM and BA
4. China Southern has carried 30.95 million passengers in the first half of 2009 - 10.98% higher than the same time last year
6. China Southern has a network of flight routes with Guangzhou and Beijing as the hubs, covering China and the rest of Asia and connecting Europe, America, Australia and Africa.Top Five Emergent Threats within 10 Years Development of High Speed Rail Governmental and CAAC Influence Maintaining Growth Oil Prices/Peak Oil Economic Voted Best Airline in China SKYTRAX 2009 China Southern Airlines
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8. China will have added 13,000km of high-speed lines by 2012, shortening journey times considerably for the expected seven billion annual passengers.(bbc.co.uk)
9. China will invest $50 billion on its high-speed rail system in 2009 and the total construction cost of the high-speed rail system is $300 billion
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11. Amongst 160 domestic routes of China Southern Airlines, about 38 will directly rival the express trains
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13. Add more air express routes to better compete with high-speed railway connections
14. Expand international network to Asia-Pacific, due to increased rail competition three to five years, the proportion of its international airlines to the total will likely be lifted to more than 20% from 17%.(tradingmarkets.com)
15. ”If you are travelling less than 1,500km, taking the train wins,” Rail Europe CEO Pierre-Stephane Austi. (http://www.news.com.au) Therefore a focus on long-haul routes will counter the competition.Chinese Bombardier Train
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17. The CAAC imposes regulations on domestic and international routes, air fares, jet fuel prices, aircraft maintenance, and air traffic control, among others. While these regulations are necessary to ensure safety in the industry, they also limit the flexibility of China Southern to respond to competition, lower expenses, and adapt to market conditions
18. Communist government - known to carry out own procedures without consultation – Capitalism without Democracy
19. Chinese government does not let the fares rise to try and prime from a largely undeveloped market (the poorer cities to the west) this is despite rises in fuel.“The theory of Communism may be summed up in one sentence: Abolish all private property.” Karl Marx
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21. Chinese airlines are allowed to hedge fuel for international routes, while prices for domestic routes are fixed.(chinadaily.com.cn)
22. Private owned Airlines historically more likely to make a profit, less governmental waste and bailout – Privatisation a hard solution to achieve.
35. It has happened before... 1979 energy crisis a small 5% decrease in supply caused $15 a barrel to rise to $39. All time high until 2008. (1979_energy_crisis.totallyexplained.com)
36. Oil is not limitless. “Jet fuel accounted for about 40 percent of the total operating costs of Chinese airlines.” news.airwise.com
39. China Southern will impose a charge of 50 Yuan ($7.32) for flights of more than 800 kilometres (500 miles)(bloomberg.com)
40. Cut back on costs to counter the effect of Fuel Prices
41. Fuel hedging to cater for a rise in the future“Jet fuel accounted for about 40 percent of the total operating costs of Chinese airlines.” news.airwise.com
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43. China Southern Airlines Co., the country's largest carrier by fleet size, received a CNY3 billion ($439 million) subsidy from the government last month(online.wsj.com)
44. China Southern, Asia’s biggest carrier by passenger numbers, posted a net profit of 284 million Yuan ($42 million), compared with a loss of 830 million Yuan a year earlier (bloomberg.com)
45. Despite the current global financial crisis, China Southern has carried 30.95 million passengers in the first half of 2009 - 10.98% higher than the same time last year.“Looking forward into 2009, the airlines industry will continuously face challenges such as a decrease in international market demand and an overcapacity in the domestic market.” Si Xian Min China Southern AirlinesChairman
48. Fuel hedging is an option to cater for any excess rise of prices. A temporary fix to high costs
49. A structural and management reshuffle could reduce costs for the Airline. – Government waste is common for public owned companies
50. Maintaining growth in a growing market will also increase revenue which should in theory raise profit margins if costs are kept low
51. Cutbacks on routes that face too much competition or too much capacity is an option of reducing any costs
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53. Rapid growth can only be sustained if costs are low with the cost to fly rising and the onslaught of rail. Maintaining growth will be hard.
54. With Extensive Government backing and a seemingly limitless supply of money to prevent bankruptcy China Southern can ride through the global recession with little worry. However, government intervention often restrains and limits China Southern and can pose a threat in the future if capacity is too high or prices too high putting China Southern at a disadvantage to international carriers.
55. Capacity will have to be restrained due to rail competition. This is despite the clear demand and the double digit growth over the past few years. A balance of long haul international and long haul domestic should cater for the drop in demand from trains. To Summarise – China Southern is at an advantage compared to other airlines who have a largely stagnated market to tap into. China Southern can adapt for the rapid growth of China and benefit from the economic power it has become and will become.
China Southern has significant exposure to foreign currency risk as substantially all of the Group’s obligations under finance lease and bank and other loans are denominated in foreign currencies, principally in US dollars.