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 CHINA 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 Beijing-Shanghai 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 central China 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% Air China Hainan China Sichuan China Shanghai Shenzen Xiamen 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. 34 ascend ASCEND I INDUSTRY 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.