Aviation

In for the long haul

Why China Southern’s losing money flying its new A380 jets

The A380: a big plane and currently a big problem for China Southern

When Orville Wright first took to the air in 1903, his inaugural flight travelled a triumphant 120 feet. On that December morning, as the aviation industry was born, could the inventor have envisaged that one day an aircraft would be built with a wingspan more than double the distance he flew?

That aircraft is the A380 and its wings measure 262 feet from tip to tip. In fact everything about this plane is big: its cabin space is 49% larger than the next biggest aircraft type. In full economy class configuration it is capable of transporting 853 passengers but even in a more standardised set-up, its maker, Airbus, claims that it uses 2.9 litres of fuel per passenger per 100 kilometres, a little over half the current average.

That all sounds good, except to one of the A380’s Chinese customers. Last October, China Southern Airlines took delivery of three of the planes, and spent tens of millions of renminbi advertising their arrival, as well as the benefits of flying on this larger, quieter jet.

But when the airline released its first-half results recently it soon became clear that the new planes had been anything but a boon. In fact, management had to concede that the A380s had lost China Southern Rmb100 million ($16 million) in the period. How so? Well, the problem is that the A380 is specifically designed to fly long-haul and it is over these distances that its touted fuel advantages kick-in. But that’s not how China Southern has been using them. Two of its A380s fly between the homebase of Guangzhou and Beijing, while the other plies the Hong Kong-Beijing route.

China Business reports that operating these short haul flights with A380s doesn’t make sense, as they require more take-offs and landings – the most fuel-intensive periods. To minimise fuel burn (which constitutes 40% of China Southern’s costs), a plane needs to be up in the air for the maximum number of hours.

Flying on three to four hour trips also keeps the aircraft’s utilisation rate lower, spending too much of its day on the tarmac earning nothing.

Indeed, the A380 was never designed with routes like Beijing to Guangzhou in mind. An aviation expert told China Business that using the aircraft type in this fashion “is unprecedented in the world” and that airlines like Emirates are using them far more profitably for long haul.

To make matters worse, the routes the A380 is now flying on are competitive ones with lower fares, meaning that every time fewer than 328 passengers are on board the flight is estimated to lose money.

That begs the obvious question: why hasn’t China Southern been using its A380s for longer flights too? The answer is simple: thus far it hasn’t got permission to fly them internationally. Shanghai Daily reckons this was partly because the government wanted the airline to demonstrate it could safely handle the new planes before allowing them to venture abroad.

There’s also sibling rivalry: Air China is said to have lobbied to keep its rival from flying the A380 on international flights out of Beijing. However, China Business reckons that a deal has been brokered and China Southern could announce the launch of a Beijing-Paris route imminently, possibly co-run with Air China. China Southern is also said to be close to flying another A380 long distance between Guangzhou and Los Angeles.

Longer haul routes will be vital to turning round China Southern’s A380 fortunes. And the airline needs to find a solution quickly – it will take delivery of two more A380s by January.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.