Airlines benefit from rail woes
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Shanghai Daily, July 26, 2011
Domestic airlines are expected to regain their market shares from rail rivals because travelers may turn to the air as a safer option following the devastating train accident at Wenzhou City, Zhejiang Province, on Saturday.
China Eastern Airlines led share rallies of China's three air giants in the Hong Kong market by gaining 4.76 percent to close at HK$3.96 (51 US cents) yesterday. Air China rose 3.59 percent to HK$8.08 and China Southern Airlines rose 3.4 percent to HK$5.17.
The increase bucked the downward trend of the Hang Seng Index, which closed down 0.7 percent at 22,293.3 points.
"China Eastern was most affected when the Shanghai-Beijing high-speed railway opened, so it rebounded most when investors became concerned about the safety of bullet trains," Luo Zhuping, China Eastern's board secretary, told Shanghai Daily.
But Luo said passengers in the long term will ultimately choose the means of travel with which they are most familiar, so this stock price rally has a limited life.
Goldman Sachs said in a report: "We think airlines in the short term may regain market share lost to high-speed railways, as travelers' confidence in China's high-speed railways could take time to rebuild.
"High-speed railways are unlikely to increase their operating speed in the near to medium term.
"Over the longer term, however, we expect safety issues to be resolved and, in our view, they will still be a competitive and energy-efficient mode of transport for China."
Domestic airlines have been working hard to retain passengers following the launch of high-speed railways, particularly the Shanghai-Beijing railway. Their efforts have included extending check-in services and adding security channels to improve efficiency.
However, the Shanghai-Beijing route has encountered several breakdowns due to power failure, weakening passengers' confidence in the country's largest rail project.
Chu Hai, an analyst at Ping An Securities, said: "Following the accident, high-speed railways are expected to divert fewer passengers from airlines than predicted, and air fares and load factors are expected to increase.
"Business passengers will prefer airlines to railways until the safety of the high-speed rail system can be guaranteed."
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