China air passenger market set to explode

Includes: CEA, ZNH
by: Ezra Marbach

Steve Cohen of Simat Helliesen & Eichner, a consulting firm specializing in the air transportation industry spoke at a Citigroup airline industry conference in early June. Here are a number of key quotes:

....China was recently negotiated to allow for new U.S. carrier service with Continental recently awarded seven frequencies and American being awarded seven frequencies to begin next March. Additional awards available to either a passenger or cargo carrier, one each in March 2009 and March 2010. Further, there are 28 either passenger or cargo frequencies available for award, setting each year beginning in 2007.

....By 2010, there may be five or six U.S. passenger carriers sharing about 100 weekly frequencies in the China market, but one must consider that by 2010 the China market - China-U.S. market may be as large as 2.7 billion passengers per year. To put that in perspective, the FAA recently forecast that the entire domestic market in 2010 will only be able 780 million passengers. So we may have a market with five competitors and 100 frequencies serving in a market that is more than three times the size of the U.S. domestic market.

(Quotes are from the CCBN StreetEvents transcript.)

Comment: Both Ctrip (ticker: CTRP) and eLong (ticker: LONG) hope to continue to enjoy the fruits of increasing air travel in the foreseeable future. With increasing use of the Internet, improving faith in online transactions, greater disposable income, and affordable air tickets, CTRP, LONG, and Chinese airlines China Southern (ticker: ZNH) and China Eastern (ticker: CEA) should experience solid growth. And if The New York Times is correct Chinese airlines will also benefit from a Chinese currency revaluation. See here.