A Magazine for airline executives 2011 Issue No. 2

Taking your airline to new heights

The Jewel A Conversation With … Muhammad Ali Albakri, Chief Information Officer, Saudi Arabian Airlines, Pg. 24

18 Comair Limited adopts a variety of 40 The European Commission invests in 56 The most successful airline connects it’s entire new technologies modernized air traffic management organization, end to end system Airline Merchandising Evolution Airlines can help ensure business travelers embrace ancillary products As the industry embraces the era of ancillaries, technology keeps pace, delivering the best of both worlds to help airlines and corporate travel programs achieve their respective goals.

By Shelly Terry | Ascend Contributor Photos: Shutterstock CHALLENGES IN

A new competitor — high-speed rail — impacts airlines serving China

As high-speed rail continues developing across China, the country’s airlines are gearing up to the challenges ahead from this new mode of transport.

By Peter Berdy I Ascend Contributor

By Shelly Terry | Ascend Contributor ASCEND I INDUSTRY

s China unveils its high-speed rail Alstom, Germany’s Siemens and Canada’s the 2011-2015 five-year plan alone. However, (HSR) network over the coming Bombardier contributed technology that went if the economic objectives are realized, the decade, airlines are faced with into China’s HSR trains, which are now all effects on business and freight, as well as adapting to this new competitor. made in China. savings in energy costs to move passengers, HSR will offer consumers a new The rapid development of HSR is a key may very well balance out the extremely A choice of travel. Their decision enabler to stimulate China’s economy. high construction costs to develop the HSR to select air or rail will be made based on “We went through 30 years when [rail] network. availability, travel time, convenience and cost. development fell behind the national rate Airlines will need to deal with added capac- of growth, so now we have to go faster,” Economic Impact ity and price pressure from HSR. Competition said Yang Zhongmin, director general of the China is counting on the HSR network is expected to be fierce in short-distance Ministry of Railways development and plan- to aggressively improve market access, markets where HSR offers a distinct time ning department. facilitate population mobility, improve logis- advantage. The battle will also take place in China looked to public investment in rail tics efficiency and shrink China’s geographic medium-distance markets where the advan- construction to stimulate growth when the and economic disparities. Development of tage of HSR is lessened. global financial crisis hit in 2008. A good part China’s railway network should move travel- of China’s total fiscal stimulus package was ers around the country in large numbers State Of HSR spent on transport and most of that was on at unprecedented speeds. Smaller cities in China already has the world’s largest HSR rail. the interior should grow in importance as network dedicated to passenger transport. Its HSR is a costly investment. The recently travel will enable longer-distance trips and job rail expansion will be the biggest and fastest opened - route cost US$33 creation. rail expansion the world has ever seen. The billion to build. China’s total investment in However, critics of HSR indicate the uptake first HSR line opened in 2007 and grew to high-speed rail to 2020 had been estimated may be longer than expected. Many Chinese 8,358 kilometers (5,200 miles) by the end of at about US$300 billion, but recent reports will continue to take slower, cheaper trains. 2010. This network is targeted to reach more indicate that more than US$600 billion is “China’s per capita income is still relatively than 13,000 kilometers (8,100 miles) by the likely to be spent on rail construction during low and so is the economic value of time,” end of 2011, and at least 25,000 kilometers (16,000 miles) by the end of 2015, enough to stretch from Beijing to London and back. Percent System Exposure to HSR Based on Departures Plans are to extend the network even further to possibly 45,000 kilometers by 2020. China’s Ten Largest Airlines (September 2011 Schedules) By 2013, 50 percent of cities on the planned network will be connected to the 98% HSR grid. China’s Ministry of Railways’ vision 100% is to have the HSR network connect all 86% 90% provincial capitals and cities with populations 81% 78% over 500,000 by 2020. The network would 78% 75% 80% 75% be accessible to 90 percent of the Chinese 71% population. 69% In this time horizon, neighboring provincial 70% 32% 33% capitals would be only one to two hours 59% apart, and provincial capitals would be only 60% a half to one hour apart from other cities 43% 50% 39% 50% 43% 56% 56% 37% in their province. If economic growth and 50% HSR development takes place as planned, many cities in west and facing 40% economic difficulties will be revitalized by the HSR system. 30% Some HSR hub cities could even see passenger flow growing by as much as 10 Percent Domestic of Total System Departures 20% times in the coming decade, making them strategically important targets for develop- 10% 16% 19% 32% 25% 32% 22% 22% 44% 54% 65% ment including hotels, catering, logistics and properties. 0% Hainan China Sichuan China Shanghai Shenzen Shandong Tianjin Key elements of this expansion are speed Southern Eastern Airlines

and the technology used by HSR. Airlines fly 800-1500 km <800 km at 478 kilometers per hour between Beijing and Shanghai versus 300 kilometers per hour by HSR. Easier access to HSR makes door-to- Airline Exposure To HSR Sabre Airline Solutions analyzed published schedules for September to deter- door travel time about equal between the two mine China’s top 10 airlines’ potential network exposure to HSR as a percent of their total modes of travel on this key route. operations (domestic and international). Two categories were examined using distance bands typically China has enjoyed technology transfer and used to compare competition between the two modes of travel: highly competitive (operations less manufacturing capability of HSR systems due than 800 km) and competitive (operations between 800 km and 1,500 km). Combining both categories, to the eagerness of foreign manufacturers departure exposure to HSR ranges from 59 percent to 75 percent. In the highly competitive category, to enter China’s huge and lucrative market. Air China is the least exposed (16 percent of departures), and China Eastern and China Southern are Japan’s Kawasaki Heavy Industries, France’s twice as exposed.

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Zhao Jian, an economics professor at Beijing of cement in 2010. The Beijing-Shanghai spent on railway could generate three dollars Jiaotong University, wrote in the China Daily. route used about 110,000 workers while in investment. “Cheap travel with basic comfort suits ordi- the HSR line was being built. “In terms of a whole region, railways will nary Chinese passengers who do not want HSR is having a substantial impact on promote investment along the line in a notice- to spend three times as much for high-speed urban development as well. Local communi- able way.” he said. tickets just to save a few hours of travel ties connected to the HSR grid are investing Others believe HSR payback will take time.” in projects such as new roads to connect to years. Professor Zhao Jian believes high- HSR stations, providing easy access to ground “Typically for infrastructure, healthy build- speed rail will be unaffordable for most transportation by building new subway lines, ing should outpace demand by two to three people and that his views have been adding bus service and new parking facilities years,” said JP Morgan rail analyst Karen Li. proven by serious losses incurred on new as well as upgrading infrastructure such as “For high-speed rail, at this point, we may be HSR lines. He asserts that China will face new hotel construction in anticipation of looking at 5 to 10 years ahead of demand, in huge economic, social and political risks new tourism and traffic. An added benefit of my view. due to rail development and that a major developing new subway lines that reach new Another concern is that China is incur- debt crisis is looming that could become HSR stations should help to alleviate local ring heavy debt along the way. Existing a serious drag on economic development. traffic congestion and stimulate growth in HSR projects, the Beijing-Tianjin line in the If HSR development unfolds as planned, urban centers. north, Wuhan-Guangzhou in the south and the result should be a more mobile work At Qufu, the birthplace of Confucius, the Zhengzhou-Xi’an in central China, will all face force with growing markets that are easier new HSR station integrates a travel agency, difficulties breaking even, according to Zhao to access. In turn, this would stimulate airport ticketing and transfer services, hotel Jian. business and economic development. By bookings, and transport information. In addi- the numbers, the HSR network should tion, roads and infrastructure have been HSR Imact On Freight connect more than 250 cities and regions upgraded to connect the city’s main tourism While HSR will only carry passengers covering a population of 700 million with areas to the HSR station. and not cargo, it will play an important role the potential to moving 4 billion passen- “Everyone is talking about the arrival of by freeing-up capacity for freight growth. gers annually by the year 2020. the bullet train,” said Zhang Mingzhe, a city As passenger traffic switches to new HSR, China’s major cities are likely to get government spokesman. “They all want to older rail services are made available for even bigger. As a result of mobility, con- see how it will boost investments, job oppor- transporting freight, allowing for faster and nectivity to the HSR network and reduction tunities and property prices.” cheaper transport of raw materials, such as in travel times, large cities within proxi- Wang Shuang, an analyst with Industrial coal and wheat, as well as finished products mal distances will continue to expand Securities in Shanghai said that every dollar from Chinese factories to shipping docks. The and their boundaries will blur to create connected mega-metropolitan regions. A Morgan-Stanley research report indicates six super-city clusters within three hours by HSR are likely to develop by 2020, with Comparison of Lowest Economy Air Fares vs. HSR Second Class Fare catchment populations ranging from 67 July 2011 (air fares include fuel surcharge and airport departure fees) million to 220 million. As a result of HSR connectivity, the report identified eight emerging hub cities are likely to experience 1000 strong growth. 900 “One of the reasons we built the line was to help boost economic develop- 800 ment and business in provinces along 700 the route,” said Zhao Guotang, deputy general manager of the Beijing-Shanghai 600 High Speed Railway Co. New houses, offices and hotels have sprouted up along 500 the Beijing-Shanghai corridor. 400 Enhanced mobility created by HSR is already changing China’s economic and 300 business landscape. Real estate prices 200 and investment have surged at China’s inland cities that have already been con- 100 nected by high-speed rail in the last three 0 years. Businesses are flocking to these cities, now just a few hours by bullet train from China’s busiest and most international metropolises. Construction of new HSR lines has had Beijing-JinanNanking-Jinan (371km) (556km) Shanghai-Jinan (738km) Beijing-Nanking (920 km) a strong economic effect in the short term, Shanghai-Nanking (298km) Wuhan-Guangzhou (821km)Beijing-Shanghai (1097 km) Changsha-Guangzhou (557km) creating jobs and increasing demand for construction, steel and cement. Railway Airlines Cut Prices Airlines have cut fare prices to compete with HSR. Even the deepest discounted construction fueled the demand for 20 fares are higher priced than HSR, especially on short routes. million tons of steel and 120 million tons

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To remain competitive, airlines have cut prices. After HSR began operating the Beijing- Shanghai route, the cheapest airline ticket was 360 Yuan (US$56) before airport fees and fuel surcharge. Even at the deepest discount fares, airfare is more expensive versus HSR, especially at short distances. “There will be plenty of travelers willing to switch to trains as they can’t stand any more airline delays,” said Jack Xu, an analyst with Sinopac Securities Asia in Shanghai. “Bullet trains will definitely lure some pas- sengers from carriers,” said Li Lei, an analyst with China Securities Co. “Airlines will have to assign smaller planes to the route or offer better ticket prices.” China Eastern expects Beijing-Shanghai HSR to affect as many as 10 of its routes from Shanghai’s Hongqiao airport, including services to Beijing, Tianjin, Jinan and Xuzhou. China Southern will eventually have a quarter of its domestic network affected by HSR. China Southern’s chairman, Si Xianmin, said of the carrier’s 160 domestic routes, 38 Connecting Cities Via Rail In less than two years, 50 percent of cities on the planned network will are in direct competition with high-speed rail be connected to the HSR grid. By 2020, the HSR network is expected to connect all regional capitals with potential traffic declines of greater than and cities with populations of more than 500,000, making the network accessible to 90 percent of the 50 percent on 418 of its approximately 1,700 Chinese population. weekly services. “Airlines will lose all their current competi- result will also impact roadways since it will and Guangzhou. Wuhan-Nanjing air service tiveness, like saving time,” he said. be cheaper to switch to instead ceased operations at the end of the first quar- Air China’s chairman, Kong Dong, of using trucks to move heavy cargo across ter, resulting from intense HSR competition. expressed concern about the Beijing- the country. The number of flights between Changsha Shanghai HSR service, noting that the route and Guangzhou (705 kilometers) was reduced “is our lifeblood.” However, the airline Effect On Airlines from 12 to three per day due to a stop at is less exposed to HSR competition than After benefiting from years of strong Changsha on the Wuhan-Guangzhou HSR. other airlines. Air China’s manager of inves- growth and a lack of effective alternatives, and with- tor relations, Rao Xinyu, estimates China’s China’s airlines are facing a serious challenge. drew from the market, leaving China Southern HSR development would have a minimal 2 China is investing heavily in a modern ground as the only airline with service. Fares were percent to 3 percent impact on its network. transportation system including new subways reduced by 15 percent, but air passenger On domestic routes, Rao stated less and new bus services that offer easy access numbers have still declined by 48 percent to than 10 percent of the carrier’s revenue is to the HSR network. HSR trains are more 390,000 during 2010. generated from sectors under 800 kilome- comfortable than planes. HSR is cheap by The director general of the Civil Aviation ters, while the carrier’s routes under 1,000 comparison to air and is far more punctual Authority of China (CAAC), Li Jiaxiang, indicat- kilometers are focused in the southwest, as well. Additionally, air service requires time ed half of flights less than 500 kilometers and northern and northeast regions, which have consuming arrival, check-in and long boarding about 20 percent of flights between 800 kilo- minimal impact from HSR. procedures (most service on Beijing-Shanghai meters and 1,000 kilometers could become “There is no point competing head- is wide body). It is also more expensive and unprofitable as a result of HSR competition. to-head with high-speed rail,” said Wang plagued by on-time performance problems. CAAC Vice Minister Wang Changshun said Zhenghua, chairman of low-cost car- One in four flights in China experience delays. earlier this year the Beijing-Shanghai high- rier Spring Airlines. “We will stop our Experience in Europe and Japan shows speed line would be “another blow to the air Shanghai-Wenzhou, Shanghai-Wuhan, that HSR takes a substantial market share transport industry.” Shanghai-Fuzhou and other shorter flights from airlines. HSR is highly competitive with Air China, China Southern and China in stages.” air service under 800 kilometers and is com- Eastern Airlines have all acknowledged the Spring has started services to Japan petitive with airlines at distances from 800 to threat of HSRs, but have echoed CAAC com- and intends to be an active player in other 1,500 kilometers according to Morgan Stanley ments that the threat is focused on sectors regional international markets. transportation analyst Edward Xu. below 800 kilometers. China’s airlines are aware of the potential Estimates of the revenue impact on Beijing-Shanghai High-Speed Rail impact. In several instances, airlines have airlines resulting from lower prices and fewer The showcase 1,318 kilometer Beijing- been forced to cut back frequencies on short- passengers due to HSR are in the neighbor- Shanghai HSR opened June 30, a year haul sectors due to HSR. Prominent examples hood of CNY10 billion (US$1.5 billion) by ahead of schedule. are from Wuhan in central China (population 2012. One estimate suggests up to 9 percent The CRH380 (China Rail High designed of 10 million). Nearly 70 percent of flights less of passengers could shift from air to rail for speed of 380 kilometers per hour or 236 than 600 kilometers have been suspended transport by 2016. miles per hour) trains used on the route are after HSR was introduced between Wuhan built by Beijing-based CSR.

36 ascend flights. or Internet,somethingnotpossible onmany in thetrains.Passengerscan use thephone ers andotherdevices.WIFIwill beinstalled sockets forchargingmobilephones, comput- row infirst-andsecond-class haselectric arranged two plus three across. Each seat adjustable seatsinsecond-classcarsare for news, music and video. Rows of roomy, can rotate180degrees.Thereisasystem lamp. LCD TV, atraytable,socketandreading bed. Eachseatisequippedwithafoldable seats canrotateaswellbecomeafullflat leather seatswiththreeperrow. The and comfort.Thesecarshavewidelyspaced service offeringandhavethemostspace bird’s eyeperspectiveastraindrivers. Passengers can see scenery in the same multi-functional entertainment equipment. ton. The area also has sofas as well as become fullyflatatthetouchofabut- are configuredwithtwoseatsthatcan these trainsis1,066. the traindrivers.Thetotalnumberofseatsin handful of VIP sightseeing seats just behind and onediningcar. Inaddition,therearea class, fourforfirstonebusinesscar and Shanghaihave16cars:10forsecond utes. ThelargestHSRtrainsbetweenBeijing fastest service. route andwilltake38minuteslongerthanthe will stopatseventoeightstationsalongthe four hoursand55minutes.Thethirdservice will stopatNanjingandJinantake two-minute stopatNanjing.Asecondservice hours and38minutes,includingasingle the fastestservices.Thetakesfour operating ontheroute,withhigherfaresfor office oftheWorld Bank. said JohnScales,arailexpertintheBeijing business withtheirshippers,forexample,” coal guyscangototheportandconduct to BeijingandthentransferTianjin, sothe work —knowingyoucangofromShijiazhuang along theway. east-to-west raillinesattwodozenstations north-to-south trunkroutethatconnectsto ride away. cial districtofLujiazuiisa40-minutesubway city’s maindomesticairport.Shanghai’s finan- are fromtheHongqiaostation,nextto of .Shanghai’s operations Beijing’s SouthStationissixkilometerssouth combined with subway and bus service. Shanghai residentsandnearbyareaswhen ters andoffereaseofaccesstoBeijing First-class seatsareveryspaciousand Business classcarsarethepremium There aretwoVIPsightseeingareasthat Each stopalongtheroutetakestwomin- There arethreedifferentHSRservices “It’s thenetworktogetherthatmakesit The Beijing-ShanghaiHSR creates a HSR stationsarelocatedclosetocitycen- China forSabreTravel Network ed,” saidFlorenceZhong, sales director in HSR sincetheBeijing-Shanghairoutestart- of monthlydisposableincomeforurbanites. HSR ticketisequivalenttoabout35percent business class.Thepriceofasecond-class 935 Yuan (US$145),and 1,750 (US$270) for (US$86). HSRticketpricesforfirstclassare on Beijing-ShanghaiHSRcosts555Yuan Currently, aone-way second-class ticket China’s TravelSky reservations system. refunds orprovideotherservices. right tosellrailwayticketsbutcannotissue for cancellations.Designatedagencieshave administrative feeof20percentor50 station, andusuallypassengersmustpayan the ticket.Refundsaremadeatrailway days inadvance.Thereisnonameprintedon or atadesignatedagencynomorethan10 chased online,atrailwaystationticketoffices Spring Festival.Train ticketsmustbepur during keytraveldatesorholidayssuchas demand. However, pricesmaybesethigher There arenodiscountsduringperiodsoflow Distribution AndPricing prices. As aresult,carriersmayhaveto assignsmalleraircrafttospecificroutesorofferlowerticket Stiff CompetitionChina’s bullettrainsareexpected tolureanumberofpassengersfromairlines. tional channelfordistributingtraintickets. Now onlinepurchasehasprovidedanaddi- designated trainagencytopurchasetickets. travelers had to go to thetrain station or to a “Distribution has improved substantially on Railway ticketsarenotofferedthrough All HSRticketshavestandardprices. ® . “Previously, - More than80percentofdeparturesareon capacity isjustover12,000seatseachway. route, operates16flights.Total dailyairline Air China,thesecond-largestairlineon its newlyacquiredaffiliateShanghaiAirlines. are operated by and center thanHongqiao.Twenty-eight flights airport ofPudong,furtherawayfromthecity and theotherninefrominternational operate from Shanghai’s Hongqiao airport between BeijingandShanghai,ofwhich39 is 85percent. airlines. Theaverageloadfactorontheroute most profitabledomesticcitypairsforChina’s important businessmarket.Itisamongthe pairs intheworldforairtravelandisan Airlines FightBack HSR intoairlinedistributionsystems.” However, itwillstilltaketimetointegrate Zhong. able suchasregulartrainsandbuses,”said expensive, andthereareotheroptionsavail- on HSRmaystillbeconsideredrelatively to travel. so theywillchoosethemostefficientway business travelersarenotaspricesensitive, elers onshort-distancejourneys;however, Currently, thereare47dailyroundtrips Beijing-Shanghai isoneofthelargestcity “For many Chinese travelers, ticket prices Current HSRfareswillattractmanytrav- ASCEND I INDUSTRY ascend

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wide-body airplanes such as Boeing 777 and Airbus A330, which have just over 300 seats. By comparison, there are 34 daily HSR round-trip services between Beijing and Shanghai, offering up to 36,000 daily seats each way with each train having a capacity of more than 1,000 seats per departure. China Eastern and Air China are taking dramatic steps to minimize market share loss. They have added frequency, stream- lined passenger check-in, created dedicated check-in counters and security channels, and implemented additional services such as accel- erated baggage claim areas for passengers. They have also added free shuttle buses to and from the airport. According to Beijing News, airlines are expected to park a spare plane at both airports. They will also assign guides at airports to help passengers arriving late get on board in a short period of time. Air traffic control departments are being urged to give priority to Beijing-Shanghai flights when circumstances affect schedules, such as thunderstorms or military maneuvers. Paradoxically, there will also be cooperation HSR Expansion The expansion of China’s high-speed rail represents the world’s largest HSR between air and rail. Airlines will put pas- network dedicated to passenger transportation. The network is targeted to reach more than sengers on fast trains if flights are seriously 13,000 kilometers (8,100 miles) by the end of 2011, and at least 25,000 kilometers (16,000 miles) delayed or canceled. by the end of 2015. Future plans include extending the network even further to possibly 45,000 China Eastern offers services such as kilometers by 2020. online check-in and the ability to book trips Passengers from Tokyo, Seoul, Chinese “In China, we will have a debt crisis — a weeks in advance to help retain business Taipei and Hong Kong who travel by air can take high-speed rail debt crisis,” he said. “I think it travelers. It also plans to make travel more HSR to Wu Xi, Hangzhou and other cities in is more serious than your subprime mortgage flexible by allowing passengers to fly into Yangtze River Delta region. Passengers will be crisis. You can always leave a house or use it. Shanghai and then leave from another city at able to book tickets both for airlines and trains The rail system is there. It’s a burden. You must no extra cost. at the designated China Eastern Airlines’ site. operate the rail system, and when you operate To compensate for exposure to HSR, In addition, ticket-changing service for the two it, the cost is very high.” China’s airlines are looking to international mar- modes of transportation will be accessible at The Railways Ministry’s debt stands at kets. China Southern is accelerating the pace both rail and airline companies. US$276 billion, almost all borrowed from of its international expansion and intends to Air China’s Chairman Kong Dong actually Chinese banks. Critics claim that fares are too increase international operations to 30 percent sees the nation’s high-speed rail network as expensive and the majority of Chinese need of total routes by the end of the year and to 40 both a challenge and an opportunity. He stated cheap transportation instead of record setting percent over the medium term. there would be opportunities to cooperate with speeds. “It’s part of the efforts to build up and high-speed rail, including through codeshare Part of the cost problem has been that each enhance our long-haul flights on our global route agreements between airlines and rail. segment of the system has been far more network,” said Kong Fansheng, the carrier’s vice “Airlines and high-speed railways are not expensive to build than initially estimated. president of its Beijing branch. “We have set like water and fire. Each has its own advan- Many trace high costs directly to corruption up a tri-hub international route map based on tage,” he said. during construction. Earlier this year, China’s Guangzhou, Beijing and Urumqi.” railway minister and deputy chief engineer were China Eastern is also increasing focus on Questions And Concerns removed from office after auditors discovered international markets. Chairman Liu Shaoyong HSR development and safety have been problems with overcharging, unexplained costs has said high-speed rail will make it difficult for under criticism almost from the onset. Key and fake receipts. shorter air routes to be profitable. He stated issues include: The highly publicized HSR accident that the airline would “step up its exploration of the The high cost to develop the network, took place in July near the city of Wenzhou global market.” Top level of corruption and concerns about resulted in suspending new HSR construc- Taking the “if you can’t beat them, join them” construction quality, tion and recalling problem-plagued trains. The approach, the airline’s deputy general manager, Low ridership. accident, combined with expert warnings of Li Junalso, said airlines should “seek cooperation High-speed rail plans have been highly con- costs and dangers, persuaded the government with high-speed railways to explore interna- troversial. Some Chinese complain that the to scale back development and slow the unsus- tional markets they can’t reach.” Railway officials new services are effectively forcing up the tainably fast expansion. After the accident, the signed an agreement with China Eastern to inte- price of rail travel by reducing the number of government announced a speed reduction on grate services in the future. The Beijing-Shanghai cheaper, slower-speed trains. second-tier trains operating at 250 kilometers HSR will establish a combined transport service Professor Zhao Jian has been a longtime per hour to slow to 200 kilometers per hour at the Shanghai station with China Eastern, critic of high-speed rail. He believes the cost of and launched a nation-wide safety inspection. enabling passengers to transfer from railways the project might have created a hidden debt A 5 percent cut in ticket prices was also to airplanes without taking other transportation. bomb that threatens China’s banking system. announced to boost lagging ridership, along

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Easy Access High-speed rail stations are conveniently located near city centers and are easily accessible to residents of Beijing and Shanghai as well as nearby areas when combined with subway and bus service. Beijing’s South Station is six kilometers south of Tiananmen Square. with a reduction in the Beijing-Shanghai HSR Revenue pressure will be permanent. However, HSR needs to overcome safety schedule. Airlines must offer deeply discounted fares to and reliability problems, most importantly, and “High-speed railways will lose their competi- compete with HSR. Airlines will be vulnerable regain public confidence. China has 13 high- tiveness against airlines after the speed cut,” in high-demand periods where they typically speed rail lines in operation, with 26 under said a source from the railway authorities told offer fewer cheap seats and withdraw discount construction and 23 more planned. Their cur- the 21st Century Business Herald. “That would fares to bring in high revenues. Passengers will rent status is unclear. be bad news for the Ministry of Railways, consider cheaper HSR as an option. More than 2,700 years ago, it took Chinese which is already in huge debt, and for industries Chinese carriers will need to adopt dif- Philosopher Confucius a week to travel from participating in the project.” ferent strategies to avoid direct competition his home town of Qufu to Jinan to teach. If he In August, the manufacturer announced it from HSR. Among them are development could travel today, the HSR trip would take less recalled 54 trains following repeated delays of hub-and-spoke networks, operating lon- than an hour. Posters and banners in his home that were blamed on equipment failure. ger routes, expanding internationally, and town read, “High-speed railway changes life.” tie-ups through codeshares and global alli- There is no question that it will affect the Going Forward ances. On short-distance markets, airlines lives of millions of Chinese and cause ripples in If safety concerns are overcome and devel- will have to look for markets where HSR China’s domestic airline industry. opment takes place as originally planned, HSR will not reach, such as in the southwest will create traffic diversion and apply revenue and northwest, or face tough competition pressure on China’s airlines. The shift of pas- with HSR. To deal with pressures on profit- sengers from air to HSR could be short term ability brought by HSR competition, China’s based on strong historical and projected growth airlines will also have to focus on constant Morgan Stanley on rates in air travel. China Eastern’s deputy gen- cost control. China high-speed rail eral manager, Li Jun, does not expect the HSR China’s airlines have some advantages network to have a major impact. He said the versus HSR. In some cases, the higher cost airline sector is still in a growth stage and the of air service may not be a determining fac- industry in China still offers tremendous growth tor for passengers whose business travel is potential. As China’s economy continues to paid by their companies. More importantly, grow, experts believe there is room for both airline frequent flyer programs are highly Peter Berdy is a consultant for types of transportation. Passenger demand is valued since they provide a means for fami- Sabre Airline Solutions®. He can be projected to more than triple by 2020. lies to take vacations. contacted at [email protected].

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