Following the alliance with Singapore Airlines, China Eastern Airlines is aiming to become China's major international carrier, helping to establish its home base Shanghai as an international airline hub.
"The market share of China Eastern in Shanghai is nearly 40 percent, which is not too far below the international standard of over 50 percent to build a local airline hub," said Luo Zhuping, board secretary of China Eastern.
"China Eastern is in an advantageous position to develop as Shanghai is gearing up to be an international airline hub and with the expected boom in demand triggered by the 2008 Olympics and 2010 World Expo."
Shanghai Airlines, the second largest Shanghai-based airline company after China Eastern, has an 18 percent market share. Analysts have long said that a merger between the two would enable the combined group to gain the needed market share to achieve the Shanghai hub goal.
"A merger between two airlines first needs the government's consent," said Luo. "It also needs the willingness of both parties so that their staff's sentiments are not hurt."
The revenue ton kilometers and passenger kilometers of China Eastern amounted to 49.46 million yuan and 375.29 million yuan respectively from January to August this year.
Cargo and passenger turnovers in Shanghai airports amounted to 2.53 million tons and 46.12 million passengers last year.
"China Eastern still has a long way to go in order to expand its market share, but its alliance with Singapore Airlines can help it speed up the pace of reaching the goal," said Xia Fulu, an analyst at Industrial Securities.
China Eastern's deal with Singapore Airlines, which is subject to shareholders' approval, is expected to improve the company's products and marketing.
"We will first introduce Singapore Airlines' standard in services and marketing and see if we can make any improvements," said Luo, adding that China Eastern operates the highest flight frequencies for both inbound and outbound traffic in Shanghai compared with all other airlines in Shanghai.
According to the agreement, Singapore Airlines will provide continuous financial and operational support to China Eastern.
Luo said long-distance routes, which are losing money, are expected to turn a profit after the close cooperation with Singapore Airlines.
The occupancy rate of China Eastern's long-distance routes is less than 50 percent while that of Singapore Airlines is over 90 percent, according to Luo. An occupancy rate of below 60 percent indicates the standard of service has not met customers' satisfaction, he said.
"We want to improve our occupancy rate to 70 to 80 percent in the coming years," said Luo.
(China Daily November 16, 2007)
