Date
24 September 2017

XiamenAir: What price success?

Unlike some of its bigger rivals, XiamenAir lacks a few things. It has no state-backed parent, no national footprint, no instant name recall.

But the obscure regional carrier has one thing in abundance — profit.

XiamenAir (formerly Xiamen Airlines) flies in the face of falling passenger and cargo revenue and thinning margins that ail China’s domestic airline industry.

It continues to confound analysts with numbers that look more like a miracle than anything resembling business fundamentals.

Take market share, for instance. XiamenAir had a paltry 4.3 percent share of China’s total available ton kilometers and available seat kilometers during 2011 to 2013. These are measures of carrying capacity for cargo and passengers and therefore a rough proxy of revenue potential.

Yet, the airline cornered 15 percent of the industry’s cumulative earnings during the period.

That’s hardly big news compared with the fact that the company is on a 27-year profit run through the most turbulent times in the industry, including Sars and the global financial crisis, reports CAAC News, the official organ of China’s aviation authority.  

Last year, XiamenAir booked 1.5 billion yuan (US$244.5 million) in net profit. By comparison, Shenzhen Airlines had 1 billion yuan. Shandong Airlines (200152.CN) and Sichuan Airlines had 500 million yuan each.

XiamenAir owes much of its success to its relatively young fleet of 102 aircraft. With an average age of five years, these planes appeal to safety-conscious frequent flyers and save plenty of maintenance and fuel costs. 

Then there is the small matter of booking and inventory. The airline uses a homegrown system more suited to the needs of Chinese passengers. Most carriers use foreign-made software.

This allows XiamenAir to offer a combination of standard and discounted seats based on local information. 

For instance, when cadres fly — they used to travel in higher classes before a government crackdown on extravagance — the airline’s booking system can set aside extra full-price seats at the last minute on routes to Beijing and wealthy coastal regions, maximizing profitability.

None of these, however, came from short-term planning. By cultivating customer loyalty, the carrier is enjoying the benefits of first-mover advantage years in the making.

Its Egret Club is China’s first frequent flyer program, offering everything from electronics, concert tickets and dining coupons to lifestyle rewards and privileges. It was a hit early on with government officials who could use the points for themselves even if their tickets were paid for by the government.

When the domestic airline industry began to wane last year amid state curbs on official travel, XiamenAir responded by increasing code-share flights and offering high-end economy seats featuring extra legroom and in-flight services.    

The airline expects to take delivery of 50 new planes, mostly wide-body aircraft from Boeing, in the next two years, reports say. These include six Boeing 787 Dreamliners for long-haul international flights.

Also, XiamenAir has won regulatory approval to establish operations in Beijing, the country’s largest regional aviation market.

It remains to be seen how the carrier will negotiate the challenges in the next five years when a new round of industry consolidation is expected to engulf smaller carriers.

Shandong and Sichuan may be up for grabs, warned Li Xiaojin {李曉津}, director at the Civil Aviation University of China’s Institute of Aviation Transportation Economy.

And XiamenAir itself, being a mid-sized and profitable carrier, could be a takeover target as bigger rivals seek expansion.

Which begs the question: Is too much success all that good for XiamenAir?

– Contact the writer at [email protected]m

RA

 

EJ Insight writer

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