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Carriers mull ways to trim excess flab

By Lu Haoting and Zhou Yan (China Daily)
Updated: 2008-12-13 10:31

Models of Boeing airplanes on display at the Zhuhai Air Show in November.

Chinese airlines are still weighing the pros and cons of canceling or deferring taking delivery of new airplanes next year after the government on Tuesday asked them to strictly control capacity to maintain a balance between demand and supply.

"We will make final decisions in the first quarter of 2009 based on our load factor, " said Xu Junmin, board secretary of Shanghai Airlines.

China Southern Airlines, the country's largest airline by fleet numbers, made a similar comment, saying their plan of receiving new planes is going to be adjusted in accordance with the traffic demand.

The carrier has planned to receive 35 new jets for 2009, the majority of which are Airbus A320 and Boeing B737 single-aisle aircraft.

"We agree with the policy, but canceling orders is not the only option for us to trim capacity," a company official said on condition of anonymity.

Air China, the country's flagship carrier, said it would not change its plan to receive 23 A320 and B737 jets next year.

"We made purchase plans cautiously after prudent study on market outlook. The new jets will all be used on domestic routes because when we placed the orders we believed there would be some growth in the domestic market. Our estimation has not been changed," said Rao Xinyu, board secretary of Air China.

China Eastern Airlines plans to receive 20 jets next year. Luo Zhuping, the airline's board secretary, told the Oriental Morning Post that the company is still evaluating market outlook for next year.

"Chinese airlines are now caught in a dilemma," said Li Lei, an aviation analyst with CITIC China Securities.

While they suffer from huge losses due to falling demand caused by a deteriorating global economy, new aircraft deliveries would result in extra capacity and additional costs, which could push the airlines deeper into the mire.

But if they cancel orders or defer delivery, they will have to pay aircraft manufacturers for breaking the contracts, Li said.

Airlines have other options to cut capacity, such as not renewing aircraft leasing contracts, retiring old airplanes or selling planes.

"They won't cancel orders if they still have other choices," Li added.

Airbus and Boeing said on Friday that they had not received any requests from Chinese airlines to delay or cancel airplane orders.

Both companies declined to release their delivery schedules for China in 2009.

Chinese airlines made orders in the past two years based on an annual industry growth rate of 15 percent. Boeing's website showed China ordered 424 airplanes between 2005 and November 2008, and the company delivered 130 aircraft to China during the period. Figures from Airbus were not available.