It does not happen often that an airline disposes of large wide-body freighters and instead converts narrow-body planes into all-cargo configuration, but this is what is happening at Air China Cargo, the joint venture company of Air China and Cathay Pacific that manages a fleet of freighters as well as the belly capacity of its Chinese parent.
As reported earlier this year, Air China’s 747-400BCFs are on the way out, following an agreement with Boeing, under which the aircraft maker takes back the carrier’s BCFs while the airline placed an order for eight B777-200 freighters. This move essentially kept Air China Cargo in the international wide-body arena, but now its management has changed direction with an order for four converted B757-200 cargo planes. The first of these, which are being reconfigured by U.S.-based 757 specialist Precision Conversions, is expected to enter service by the end of the year.
The order signals a major shift in focus from the international to the domestic arena, specifically the express parcel sector in China, which has grown at a blistering pace and is expected to continue on this trajectory – fueled by the growth of the country’s emerging middle class and its patterns of consumption, notably online shopping.
Express delivery companies moved 5.69 billion parcels last year, with revenues of RMB105.53 billion (US$17.24 billion), according to China’s State Post Bureau. Some 60 percent of this volume was created by online shopping. By some estimates, this year the volume will rise to 8 billion parcels, with revenues of RMB140 billion.
Air China’s four 757s will be flying for China Postal Airlines, a joint venture between China Post and China Southern Airlines with 18 B737 cargo aircraft to its name.
Other operators are also ramping up their capacity to tackle China’s domestic express parcel market. YTO Express, one of the leading players in this field, is leasing three 737 freighters but has signaled plans to acquire eight cargo planes and build an air hub at Hangzhou Xiaoshan International Airport. The Shanghai-based company is planning an IPO next year and is in the process of changing its business model from a franchise set-up to direct sales. Shanghai-based STO Express has also made noises about taking on 6-8 freighters in the near future.
Another large international player that has the domestic parcel market in its sights is China Southern Airlines. The Guangzhou-based carrier launched an express service at the beginning of May that allows customers to book specific flights. Initially, it is available in 12 Chinese cities, but management intends to gradually expand it throughout the country.
Some 15 percent of China’s domestic express parcel volume is moved by air, according to the China Research Center. The lion’s share – about 80 percent – is carried by truck.
Air and truck carriers are about to face tougher competition from the China Railway Corporation, which was formed earlier this year in a sweeping revamp of the Ministry of Railways with a brief to oversee the commercial side, including passenger and freight transport. The new entity lost no time to overhaul its offerings. In June, it launched door-to-door service, which includes small parcel delivery. The chief concept is to carry these on the first high-speed train of the day to allow for same-day or next-day delivery to final destination.
In 2010, a newly opened high-speed rail link between the cities of Zhengzhou and Xian reduced the train journey from previously more than six hours to fewer than two. This forced the suspension of scheduled passenger flights between the two cities. Less than two months after the rail service kicked off, the incumbent two airlines stopped flying on the route. Flying time had been one hour, and one of the airports was located about an hour’s drive from the city.
The seemingly inexorable advance of high-speed trains suffered a severe setback in 2011 after a collision between two trains, in which 40 people were killed and more than 190 injured. Still, after a lengthy investigation into the accident, the authorities maintained their ambitious expansion plans, aiming to double the high-speed rail network to about 16,000 kilometers (10,000 miles) by 2020.
Unfazed by the new competitor, airlines seem bent on expanding domestically for the time being while moving slowly in their long-haul activities. Like Air China Cargo, China Southern is moving away from 747 freighters. It parked its two 747-400Fs at the beginning of September, reducing its all-cargo activities to six B777-200Fs, with two more to come on stream later this year and another four in 2015.
But Air China Cargo has not taken its eye off the long-haul arena. According to COO Titus Diu, preparations are in full swing to launch the carrier’s first B777-200F operation in late December 2013 or early January 2014.