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Airport Business News - Asia / Pacific.

New York (USAsian Network Business & Industry - Airport Business News Asia / Pacific) May 27, 2012

Analysis: Geography, not economy, counts in China's rebalancing A gleaming new $1.4 billion airport extension, a $5.2 billion bullet train and Samsung's planned $7 billion electronics plant, touted as the largest single high-tech foreign investment in China, are sure signs of economic intent in ancient Xi'an. Along with a $1.4 billion subway, a crane-cluttered skyline and rapidly rising tower blocks shrouded in industrial smog that cloaks the 3,000-year old former dynastic capital, they show that fixed asset investment remains the main route to growth for China - trod for three decades and likely for decades to come. For all of China's talk of economic rebalancing to shield it from internal and external risks, the only real re-orientation in the medium term is geographic - shifting infrastructure spending west to replicate rewards reaped by 30 years of coastal development. That is likely to stoke concerns already voiced by the International Monetary Fund about China's unprecedented rate of investment spending and confound investor expectations that rebalancing would be a swifter shift towards the consumption-driven growth of developed economies - not 20 more years of inland infrastructure creation. "There are experiments everywhere in China. Some good points emerge and the best points are what the centre tries to identify and encourages others to learn from," Zhang Wei Wei, a leading scholar of China's development model who was translator to its architect - Deng Xiaoping - told Reuters. China's rise, in Zhang's analysis, depends on a conscious effort by Beijing to perfect an urban development model that eases rural poverty and cements power in the capital. It implies fixed asset investment on a scale as enormous as that which has generated around half of China's growth in the last decade - when it amassed a foreign reserves fortune of $3.3 trillion, became the world's second-largest economy, the biggest exporter and the most important driver of global growth. Indeed, intensive urbanization is the only way Xi'an and dozens of similar cities can grow fast enough for the Communist Party to make good on pledges to raise incomes for the poor and achieve social stability, thereby justifying its grip on power. During the 2005-2010 five-year plan, average annual urban income in Xi'an roughly doubled to 22,244 yuan ($3,530). The plan is to double it again by 2015. But that still leaves wages way behind Shanghai's 71,874 yuan average - China's highest. STRATEGIC OBJECTIVE China's 'Go West' development strategy, in its second decade after generating $325 billion in investment since its launch in 2000, is the manifest example of the China model in action and ample evidence to long-term investors of its durability. "It is a conscious strategic objective," said Gang Zou, general manager in Xi'an for Applied Materials, the world's largest chip-fabrication equipment maker and an investor so important it is mentioned by name in the municipality's latest five-year plan - the cornerstone of government policy. "The first 10 years of the 'Go West' policy helped Xi'an build the infrastructure to be ready to take more opportunities in the second 10 years," Zou told Reuters on a tour of Applied's $300 million research, development and training facility - and the world's biggest privately-owned solar cell R&D laboratory. Applied, which has operated in China for 28 years, generated $2.5 billion of its $10.5 billion global revenues in the country in 2011 - a cool $1 billion more than it billed there in 2010. No wonder Samsung is following suit with an investment in a plant to make memory chips that will total $7 billion over several years - or 11.5 percent of Xi'an city's entire 2011 GDP. Samsung, like Applied, cites clear-planned, infrastructure-led urban development as a key reason for investing in a city that boasts one of the highest research institute and university campus concentrations in China. Sustained spending though risks a further increase in internal economic imbalances already at levels that worry the IMF. "Our fear is that China continues to invest so heavily as a share of GDP over the next four or five years that vulnerabilities begin to emerge," said Murtaza Syed, the IMF's chief representative in China. World Bank data shows gross fixed capital formation, which covers in investment in things like buildings, roads, bridges, railways, airports, industrial equipment and machinery, rose to 45.4 percent of GDP from 36.3 percent between 2002 and 2010. No economy of China's size has ever maintained investment at such a rate for such a sustained period before. The IMF believes it could stay around 45 percent for the next five years. "What concerns us is how this capacity is absorbed. Either it goes into the global market, or it is absorbed domestically, or it leads to non-performing loans," Syed said. COMPOSITION KEY The composition of the investment is key. That's why Beijing is determined to keep curbs on property speculation that it imposed two years ago after 4 trillion yuan ($635 billion) of fiscal stimulus injected in the wake of the 2008-09 global financial crisis sparked frenzied development. It's a lesson in how fixed asset spending can go wrong. The determination to avoid a repeat is so strong that growth is being sacrificed short term, with analysts citing property curbs as the main reason why 2012 is set to see China's slowest economic growth since 1999 - albeit at 8.2 percent. Productive, efficient assets like essential infrastructure and globally competitive factories are welcome. Building too much speculative capacity, particularly real estate, could backfire if they lead to bad debts and the recapitalization of the banks left holding them. Xi'an plans to increase fixed asset investments by 26 percent in 2012. Between 2005 and 2010, the value of such spending rose four-fold compared with the previous five years. Wolfgang Weil, chief operating officer at Xi'an Xianyang International Airport, reckons his new 20 million passenger-capable terminal and second runway - able to accommodate the Airbus A380 superjumbo jet - is part of a virtuous cycle. "I'm pretty sure in the case of Samsung, one factor helping their decision was that there is now a runway available at Xi'an airport without any limitation to aircraft type and payload," he told Reuters a couple of weeks after the official opening. Weil says sustainable passenger potential in Xi'an - home to 8.5 million people and the least developed, but fastest-growing city in China's four main metropolitan deltas - appealed greatly to Germany's Fraport, the airport's joint venture partner. Sustainable is a key word for those concerned that China's intensive urbanization is dangerously unbalanced development. While investment has soared, final consumption fell to 48.3 percent of GDP in 2010 from 59.6 percent in 2002. Economies of scale, however, mean that factories dwarf the household contribution to GDP and, by definition, a fall in investment spending in coastal provinces will naturally raise consumption's share of GDP there. Meanwhile shifting investment inland to where workers are cheaper allows China to squeeze another decade or two from a development model pushing its maximum potential on the coast. The apparently unbalanced development is China's greatest economic strength, according to Yukon Huang of the Carnegie Endowment for International Peace in Washington, who says the last major economy to develop in such a skewed way was the United States - the most powerful nation on Earth. That means the key question for investors is how Beijing can manage the investment and political risks generated by another two decades of development spending, when China's urban population is expected to swell to 66 percent by 2030 from 51 percent in 2011. "China is large and disparate enough for industry to shift and take advantage of comparative advantages and cheaper labor elsewhere in the country," said Eric Fishwick, head of economic research at brokerage CLSA. "But China's scale implies continuing friction as policymakers in developed nations have a wrong-headed view of what China's rebalancing means." May 24, 2012

Air China, Beijing Airlines Air China launches business jet subsidiary Beijing Airlines. Air China has launched Beijing Airlines after a one-year trial operation to enhance its position in the fast-growing domestic business aviation market. The new venture received its operating certificate from the Civil Aviation Administration of China (CAAC) in April 2011 and started trial operations the following July with a registered capital of CNY1 billion ($157.4 million). Air China holds a 51% stake, Beijing Enterprises Group Co. and Beijing State-Owned Assets Management Co. each hold an 18% stake, and Zhongda Yinrui Investment Co. has a 13% ownership in the new airline. According to chairman Fan Cheng, the new carrier reported a 2011 net income of CNY18.9 million and an operating revenue of CNY59.6 million. The Beijing-based airline has 11 business jets in its fleet. Embraer predicts China will need 470 business jets worth $14.3 billion by 2020. All major Chinese carriers have been exploring the burgeoning business aviation market in China. The new venture is expected to face fierce competition from Capital Airlines, the Beijing-based business jet subsidiary of Hainan Airlines launched with the assets of Deer Jet in May 2010. May 22, 2012

Cathay Pacific Cathay Pacific Airways, AsiaOs biggest international carrier, said economy fares have dropped between 8 percent and 10 percent this year as economic uncertainties sap travel demand. The Hong Kong-based carrier said last week that it expects OdisappointingO first-half earnings as it cuts fares amid competition and contends with fuel prices that have jumped 40 percent in two years. In a bid to cut costs, the airline has suspended hiring ground staff, offered cabin crew voluntary unpaid leave and pared growth. Singapore Airlines also has cut freighter flights and offered some pilots unpaid leave to cope with a demand slowdown. The Singapore-based carrier reported a surprise loss for the three months ended March. Cathay Pacific has dropped 5 percent this year in Hong Kong trading, trailing Singapore AirOs 1.2 percent gain in Singapore. Cathay rose 1.1 percent to HK$12.66 on May 11. The Hong Kong carrier is also working with cabin crew as it introduces more late-night flights, Slosar said. Some flight attendants marched on May 12 to protest work patterns that require them to make outbound and return flights in one shift, according to the South China Morning Post. May 22, 2012

IAG Airlines, Japan Airlines British Airways-Japan Airlines Joint Business Cleared. IAG said its joint business with Japan Airlines had received competition clearance, allowing the pair to cooperate commercially on flights between Europe and Japan. IAG, formed by the merger of British Airways and Iberia, said the Japanese Ministry of Land, Infrastructure, Transport and Tourism (MLIT) had formally approved Japan Airlines' application seeking anti-trust immunity to co-operate on flights with British Airways (BA). "BA has been flying to Japan for more than 60 years and this new agreement will strengthen our ties to the world's third largest economy and further enhance our relationship with JAL," said IAG's chief executive Willie Walsh. IAG said the joint business would launch in March 2013 and that the revenue-sharing agreement would strengthen its oneworld alliance. BA and American Airlines have a similar agreement where the pair share revenues and coordinate flight schedules. The deal provides a boost to IAG at a time when airlines are suffering because of continuing high fuel prices and the euro zone debt crisis. Earlier this month IAG said first quarter losses more than doubled as higher fuel costs and weakness in Spain undermined strength in premium long-haul travel out of London. May 25, 2012

IATA Premium traffic up 8.6% in March. IATA reported that international premium traffic for March was up 8.6% compared to the year-ago growth of 2.9% recorded in March 2011, and up from 6.3% growth in February. Although the March growth rates are exaggerated by the events of a year ago, air travel still looks strong, IATA said in its latest premium traffic monitor. OWe estimate that premium travel was about 4 points higher this March than it would have been in the absence of the Arab Spring and Japan earthquakeNbut that still has the market growing at a solid rate of over 4% in March. Over the last four months, premium travel has been increasing at an annualized rate of over 6%, above the annual growth of 5.5% in 2011,O IATA said. Economy travel showed a strong growth of 8.9% year-over-year, up sharply from 1.1% growth recorded in March 2011. The strongest premium traffic growth in March was recorded on the Africa-Middle East route, which reported a 40.3% growth year-over-year. Next highest growth rate was on the Central America-South America route (up 21.3%) and Middle East-Southwest Pacific routes (up 21%) compared to March 2011. The worst performing routes in March were on Europe-Southwest Pacific routes (down 24%), routes within Central America (down 10.5%) and routes within the Southwest Pacific (down 2.1%). May 25, 2012

Japan Airlines, IAG Airlines Regulator grants ATI approval for JAL-IAG cooperation. Japan Airlines (JAL) and the International Airlines Group (IAG) have been granted antitrust immunity from the Japanese Ministry of Land, Infrastructure, Transport and Tourism (MLIT) to cooperate commercially on flights between Europe and Japan, JAL said in a statement. The joint business, which will provide better links and more routes between the European Union and Japan, is expected to launch by late March 2013. The revenue-sharing agreement will strengthen the oneworld alliance, enabling it to compete more effectively with other global alliances, according to JAL. JAL president Yoshiharu Ueki said, "Amid the evolving Japanese aviation industry, the ATI will enable us to build a strong value-creating relationship with British Airways that can benefit our customers as well as our businesses.O May 25, 2012

Qantas Airways Qantas To Split Off International Business. Qantas Airways is splitting its loss-making international operations from its profitable domestic business and putting it under the charge of the head of its second-biggest money spinner. As part of a five-year turnaround plan, the two businesses will have separate chief executives and operational and commercial plans, Australia's biggest airline said in a stock exchange filing. The two businesses will also report earnings separately. Though speculation about the fate of the international business has surfaced since Qantas first announced the losses there in August, the move does not presage a sale of the unit or a spin off, analysts said. "This is aimed at showing external stakeholders, such as unions and government, how difficult the international business is," David Liu, head of research at ATI Asset Management said. ATI owns Qantas shares. "The split brings in added transparency and detail to the two units. It lets Qantas say this is what we have to do to fix it. I don't think this is about selling the unit." Qantas named Simon Hickey, CEO of its frequent flyer division, as chief executive of Qantas International. Qantas Frequent Flyer reported underlying earnings before interest and tax (EBIT) of AUD$119 million (USD$117.29 million) in the half-year ended December, accounting for more than 40 percent of the group's results. Lyell Strambi, group executive for airline operations, was named as chief executive of domestic operations. But it said Bruce Buchanan, CEO of its low-cost offshoot JetStar will leave in six months. Buchanan is credited with building the JetStar brand across Asia. JetStar was the No. 1 contributor to Qantas's first-half EBIT, netting AUD$147 million. 'RICH HISTORY' Qantas announced an underlying profit before tax of AUD$552 million for the 2010/11 financial year. It also, for the first time, gave a glimpse of the troubles at the international operations by saying it lost more than AUD$200 million, surprising investors. The airline, which is emerging from a bruising industrial dispute with unions, would also need a change in legislation to sell off the unit. The legislation is designed to protect Qantas's position as an Australian airline. "Qantas International, a great airline with a rich history, is loss-making and does not deliver sustainable returns," chief executive Alan Joyce said. "However, we are committed to turning it around through the five-year strategy we announced last year, based on flying to global gateways, deeper alliances, smart investment in product and disciplined capital management." RBS analyst Mark Williams called the move a sensible approach but said the challenge was to ensure the maintenance of the strong level of integration between the domestic and international businesses that is driving profits now. JOB CUTS Weak demand and high fuel prices are taking a toll on airline profits, pushing carriers across the world to cut costs and delay capital expenditure. The business separation comes as Joyce struggles to find a partner to float an Asian premium airline to take advantage of lower costs, with some analysts saying Qantas has given up that option for now. In March it ended talks with Malaysia Airlines. Qantas on Monday said it planned to cut 500 jobs on top of a similar number flagged in February to save up to AUD$100 million (USD$98.5 million) annually. It is consolidating engineering, maintenance and ground operation functions and also plans to sell some catering facilities. It has also cut AUD$900 million in capital expenditure. May 22, 2012

Singapore Airlines, SAS Scandinavian SAS - Singapore Airlines joint venture eyes growth, new route. SAS Scandinavian Airlines and Singapore Airlines have finalized a joint venture ces between the two regions. It could also potentially pave the way for a new route between Singapore (SIN) and Stockholm. Singapore Airlines operates three flights a week between SIN and Copenhagen under a codeshare arrangement with SAS. The new JV agreement fosters the development of business opportunities between the two carriers, such as coordination of flight schedules and joint sales activities, subject to regulatory approval from authorities in Singapore and Europe. The JV agreement follows the signing of a memorandum of understanding between the two carriers in January, covering routes between Scandinavia and SIN. Singapore Airlines CEO Goh Choon Phong called the agreement Oa win-win for Singapore Airlines and SAS. When market conditions allow for it we E look forward to expanding frequency between Singapore and Copenhagen, and adding new destinations in Scandinavia.O SAS president and CEO Rickard Gustafson said: OSingapore Airlines will be a vital part of our Asian strategy and we look forward to jointly exploring further growth opportunities in this exciting and important market.O May 23, 2012 2154-2260

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Publication:USAsian Network News & Business & Industry News
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Date:May 28, 2012
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