Shanghai Airlines Co yesterday revealed it had agreed to take over China United Airlines at a cost of 70 million yuan (US$8.4 million).

The move suggests the country's smaller carriers are trying to become more competitive through acquisitions.

Shanghai Airlines, which is competing with the nation's third-biggest airline, China Eastern Airways, has 31 aircraft and reported a turnover of US$546 million and a profit of US$11.11 million last year.

Shanghai Airlines is one of the country's two smaller carriers not to have been snapped up by one of China's "big four" airlines.

"But the local carrier is feeling competitive pressures, as well as the need to expand its fleet and routes," said an unnamed aviation expert.

Shanghai Airlines has acquired China United so the Shanghai-based carrier can improve its own flight network by taking advantage of the Beijing-based carrier's flight route resources.

The two companies have already reached a purchase intent, the expert said.

China United Airlines, which was established in 1986, previously flew many routes based in Beijing and used many military airports.

"China's aviation market will experience fierce competition in the years to come, as it opens further to both international and private players," the expert said.

General Administration of Civil Aviation of China (CAAC) Director Yang Yuanyuan said earlier that the country would deepen the reform and opening of its civil aviation industry to meet growing demand and impending competition from foreign airlines.

Market access would be broadened and investors would be allowed to enter the sector by establishing new enterprises or using their shares in existing companies, Yang said.

China's civil aviation industry earned profits of 5.17 billion yuan (US$622.8 million) in the first half of this year.

This is a remarkable rise compared to the 770 million yuan (US$92.8 million) profit earned two years ago.

The industry suffered a loss of 3 billion yuan (US$361 million) last year, mainly a result of the SARS (severe acute respiratory syndrome) outbreak.

Domestic airlines earned a profit of 3.24 billion yuan (US$390.3 million) in total, four times what they earned in 2002, apart from China Post Airlines.

Airbus Customer Affairs Division Vice-President Adam Brown said China's airline traffic will see a robust long-term growth following a strong rebound from the crisis, such as terrorist attacks and the SARS outbreak.

Air travel will continue to experience strong growth over the coming 20 years, he said.

This will mean that it will be nearly five times its current level in the coming two decades, he said.

Passenger traffic carried by the country's airlines will grow at an annual rate of more than 20 per cent this year and next, Brown said.

It will grow by an average of 8.1 per cent per year to reach almost 500 billion revenue passenger-kilometers - nearly five times its present level - by 2022, he said.

Air travel will be driven by continuing robust growth in gross domestic product and personal income, he said.

It would also be driven by the deregulation of ticket prices, privatization of airlines, less restrictive bilateral air services agreements with other countries, he said.

(China Daily July 30, 2004)