You have to pity a hard-travelling Chinese salesman. He has to rely on the domestic airline system. Inedible food is the least of his problems. More serious are the lengthy and routine delays and airports stuck miles away from the city centre.
"If an airline is half an hour late, that's basically considered punctual," says Huo Zhigang, a busy IT salesman in a Beijing-based software joint venture. On his last trip to Shenzhen, he had to spend the night at the airport after the last flight out was cancelled.
On the plus side, tickets are cheap - thanks to vicious fare cutting war between the carriers. The carriers all offer discounts to fill seats, even to the extent of selling below cost.
But this positive - at any rate for the consumer - is under pressure with the government's decision to reverse Deng Xiaoping's policy at the beginning of the 1980s to hurl the doors of the airline industry open. Local airlines mushroomed across the country under the protection of local governments and the pent-up demand for air travel. The government's former monopoly was fast disappearing, since a handful of the 15 regional airlines under provincial and city control, particularly Shanghai Airlines, proved formidable competitors.
But now the empire is striking back. Three new monopolies are being created, split between the super cities of Beijing (Air China), Shanghai (China Eastern) and Guangzhou (China Southern. ) The plan is for these cities to become gigantic hubs, with the eight local airlines under direct General Administration of Civil Aviation of China (CAAC) control merged into the super groups and assuming responsibility for intra-provincial branch routes. Their giant siblings will divide up the most lucrative inter-hub long distance routes amongst themselves, giving up landing rights at the six biggest provincial cities in return.
According to the plan, there will no competition between the groups on the most lucrative routes between the hubs, although officials say that will be the next step. Routes and prices will be shared out by the CAAC. But since the regulations stipulate that only airlines with headquarters in the key cities will be able to ply those routes, Shanghai Airlines - the only independent airline so fortuitously placed - will be able to compete with the super groups, each of which is based at one of the hubs.
Will this new oligopoly be any better than the system it replaces, and will it give free play to the best local airlines? It's important that these are given a fair playing field, since if they get squeezed out or bought up by the super groups it would leave the impression that they are being punished for growing faster than the companies directly under the CAAC.
According to a state council research department report in 1998, after 8 years of free market competition, the market share of the independent airlines had jumped from 4.4% in 1990 to 12% in 1998. The growth in the regional airlines has been at the direct cost of the centrally run airlines with a national scope - precisely the big three which are now being given regional monopolies.
This battle between Beijing and the outer provinces is a familiar features of China's historic and economic landscape. The provinces are out to maximize their assets, while the bureaucrats have the national interest in mind - as well as the desire to maintain their bureaucratic fiefdoms.
The official line is that there's plenty of justification for the New Order.
"The airline industry has several key characteristics which makes the reforms necessary: the high capital cost of acquiring aircraft, modern technology and ensuring safety, " says Sha Hongjiang, deputy director general of the CAAC, which directly oversees the super groups, although its remit doesn't extend to the day to day management of the companies under a decree separating government involvement from management issued in 1995.
Yet it's impossible for airlines to move to the next level in all these areas if their profitability and capital base was being undermined by "evil competition" as the Chinese term describes the discount war, maintains Sha, especially after easy profits dried up in the aftermath of the Asian Financial Crisis of 1997.
The scheme would also hopefully enable more capital to flow to regions in China's interior, which haven't had the funds to fully develop their services, leading to the majority of the 15 regional airlines saddles with debt and financially weak.
A factor militating against successful reform is the CAAC's own ambiguous role. On the one hand it should have the role of promoting a level playing field amongst the competitors and promoting competition to ensure consumers have the best service. On the other hand, it has a clear agenda in promoting the champions over which it has direct influence.
The hyper competition has brought benefits to consumers - and the phenomenon can partly blamed on the nature of the carriers under the CAAC.
They are majority owned by Beijing ministries which makes selling at below cost not much of a headache for their managers.
"It's very difficult for a large state-owned company to go bankrupt, so it's not as much of an issue for local managers. The bankruptcy law is still under revision and not usable in its present form. The carriers are aware that they are a unique and protected national asset and look on the discount wars as a form of long term investment," says one local analyst.
Yet CAAC counters that in fact the fare cutting came about as a result of the regional carriers, which started to defy their original remit of serving China's unprofitable poorer provinces and muscle in onto the trunk routes in 2000.
Whoever started it, its true that the cost of the price wars means the carriers find it hard to differentiate themselves in terms of punctuality, service, food and equipment, since there's little cash to go around.
Under the reforms, local airlines are to be swept under the wings of the three groups - not by an M&A process but by administrative decree. This extends to all the regional airlines which come under the purview of the CAAC, South West Airlines, North West Airlines, China Northern, and the regional airlines of Yunan and Xizang - a total of eight.
The 15 local airlines not directly under the CAAC have been given the choice of joining the process or remaining independent - and they are joining in the asset grab. The strongest such airlines are Shanghai Airlines, Shenzhen Airlines and Hainan Airlines, with Shandong Airlines a poor fourth. With their prime location in China's most prosperous eastern provinces and strong local government backing it's no surprise the first three are still holding out.
Yet in their efforts to grow they are hampered by a much smaller asset base than the super groups. Shanghai Airlines, for example, is tiny compared to its prime competitor China Eastern Group. Nor do they benefit from the administrative transfer technique, which means the super groups get the assets of the regional carriers for free. And anyway why would the CAAC make it easier for the independent carriers to take over with the weaker regional airlines which are directly under its control?
Two years ago, for example, Shandong Airlines attempted to take over North West Airlines but was forbidden. North Western is under the direct administration of the CAAC. Now it looks like time is running out for Shandong Airlines. After a splurge of acquisitions on new planes brought profits crashing down, the airline announced that its net profits were down 65% on the same period last year and a debt to equity ratio of 82%.
So far there have been few takeover successes for the independents. Shandong Airlines and Shanghai Airlines joined China Southern in the takeover of Sichuan Airlines. The Sichuan province asset administration bureau will retain a controlling stake of of 40%, followed by China Southern with 39% and a combined stake by Shandong and Shanghai airlines of 10%. Hainan airlines has taken over New China Airlines which operates out of Beijing, and has also taken over Shanxi Airlines.
Hainan Airlines, unlike Shanghai Airlines, will not be permitted to compete on the trunk routes - and according to press reports its therefore considering moving its headquarters up to Beijing. Shanghai Airlines is the strongest outsider with industry sources estimating that Shanghai Airlines has almost 17% of the crucial market between Shangahi, Guangzhou and Beijing.
Shenzhen and Shanghai Airlines are accelerating their plans for domestic stock market listing, with both companies estimating to be ready in the next 8-12 months.
Yet in the face of the CAAC's determination to push through its policy of consolidating its business among the chosen few, the odds are stacked against them. Nor does it spell the end of the airfare wars. After all, what's to stop the China Eastern Group reverting to discounted sales to drive Shanghai Airlines out of business? With the revenue from its grip on the other routes, it could well have the deep pockets to succeed.
Nor is it clear the hub system will work. The airports singled out for that role face many technology and operational issues. And it's hard to see how the branch routes will be profitable given the past struggles of the regional airlines to make a profit.
According to one study quoted in Caijing Magazine, China's leading finance magazine, regional Xinjiang airlines saw its passenger volume drop 82% between 1985 and 1996, partly due to strong improvements in road and rail links. The study goes on to say that flight under 500 km miles flown and passenger number compose account for just 2.5% and 9% of the national total.
The regional airlines were originally intended to foster the economic development of the inner provinces, but it is their under-development in the first place which makes making a profit difficult.
So what are the chances of this present round of consolidation becoming successful?
The jury is still out, but one interesting fact is the decision by the Wuhan based Junyao group to acquire an 18% stake in Wuhan airlines, in which China Eastern is also acquiring a 40% stake. The unique aspect of this deal is that the Junyao group is a private outfit, and the chairman is considered a canny and successful businessmen.
"This is an incredibly hopeful sign for the government. The input by Junyao group is a sign that the private sector could get involved and help the airline industry with capital and organizational issue," says Zhang Qiusheng, a airlines analyst with Galaxy Securities.
Since the three super groups are listed companies, either domestically or in Hong Kong they are in a position to change their predominantly government ownership structure - a prime objective of a government increasingly anxious to monetize its vast and largely non tradable share holdings, adds Zhang.
"The structures are in place for foreign investment, and the investment by the private Junyao group could well be the kind of sign foreign investors are waiting for," comments Zhang.
