Time to plan that trip to 36L. ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2002/12/13/f= inancial0003EST0003.DTL ---------------------------------------------------------------------- Friday, December 13, 2002 (AP) China hopes mergers will turn its airlines into global players MARTIN FACKLER, Associated Press Writer (12-13) 06:30 PST SHANGHAI, China (AP) -- They're courting business travelers from abroad. They're preparing for t= he millions of increasingly cosmopolitan Chinese looking to go overseas in coming years. They're talking about onboard massages and haircuts. In China's airline industry, ambitions are flying as high as the aircraf= t. Chinese aviation officials have pushed through a wave of mergers streamlining an increasingly crowded industry to create three larger airline groups. Authorities want the new companies to compete directly with international carriers by expanding fleets, improving service and shedding their image as cut-rate carriers for travelers on shoestring budgets. "The goal is to form big civil aviation service groups that are competitive in world markets," said Ma Songwei, a spokesman for the aviation administration. The reshuffling in October folded six small, low-earning airlines into t= he country's three largest carriers to form the Air China Group, China Eastern Air Group and Southern Airlines Group. The government-ordered mergers, which airline officials said were resist= ed within the industry, handed the three new groups an overwhelming share of one of the world's fastest-growing air markets. Together, they now fly more than 80 percent of passengers on China's domestic and international routes, analysts say. Twenty-two smaller Chinese airlines split the remainder. The new big three are also the only companies allowed to offer regular overseas service, while other Chinese airlines are restricted to charters. Chinese airlines now operate about 190 international routes. The mergers coincide with deregulation of air fares, which Beijing hopes will force companies to be leaner and more efficient. By 2004, airlines will price their own tickets within a range 40 percent above or below an official base rate. Chicago-based Boeing and Europe's Airbus are counting on China's fleet expansions to offset slowing demand elsewhere. They have estimated Chinese airlines will quadruple the size of their current fleets by buying 1,600 new aircraft over the next two decades. The new aircraft will be needed to keep pace with the Chinese market's soaring annual growth rates of more than 10 percent, analysts said. Last year, Chinese airlines handled 75 million passengers, compared with about 400 million passengers in the United States, according to the General Administration of Civil Aviation, which regulates the industry. "In 20 years, China will pass the U.S. in size" to become the world's largest market, said Philip Wickham, regional aviation analyst in Hong Kong for Dutch investment bank ING. Despite their bulk, the big three groups face stiff competition in the domestic market from smaller, nimbler carriers like Shanghai Airlines, which contends with China Eastern in its home market, Shanghai. "Small companies can be more profitable than big ones," Shanghai Airlines Chairman Zhou Chi said. "The market has enough room for small companies to grow." However, they do enjoy a firm grip on Chinese overseas tourism, one of t= he fastest-growing segments of the international travel market, analysts said. Tens of millions of Chinese are expected to travel abroad in coming years as incomes rise among the country's 1.3 billion people. Chinese airline officials also said they hope to compete for foreign passengers by introducing more modern aircraft and expanding code-sharing and frequent flyer programs. China Eastern, for instance, plans to target foreign business-class travelers with larger seats, private movie screens and novel on-board services like haircuts and massages, said Luo Zhuping, secretary to China Eastern's board of directors. The airline is hiring foreign flight attendants to close the gap in service with larger foreign rivals, Luo said. He said his group, which operates about 50 flights outside mainland China and flies to Los Angeles and Paris, hopes to further expand overseas service and add prime destinations like London and New York. "China Eastern will be a world-class airline in five years," Luo said. He said the mergers will take about a year to complete. The six smaller companies will continue to operate under their own names until late next year. The government had pushed the mergers for more than a year to correct a problem created in the 1980s when China's sole government-owned airline was broken up as part of deregulation. Dozens of airlines eventually appeared, many owned by local governments. After years of fierce price wars, Beijing waded back in four years ago by imposing the government-mandated fares. =20 ---------------------------------------------------------------------- Copyright 2002 AP