China’s major airlines are spilling red ink everywhere.

The SCMP is reporting that mainland carriers have amassed RMB1 billion (US$160 million) in losses in the last three months, with pressure coming from China’s ever-expanding high-speed rail network.

Those suffering include Guangzhou-based China Southern Airlines, the biggest of the major domestic carriers, whose revenue per kilometer – a measurement of the available seats sold – fell 1 per cent year-on-year. By comparison, Air China shed 1.5 per cent and China Eastern slumped 2 per cent.

But those statistics don’t really tell the story of last year.

China Southern, which is ramping up capacity with the introduction of five Airbus A380s, is putting more resources into its long-haul operations. The newly appointed ‘Canton Route’ is part of the new international focus. At the same time, it is having to contend with soaring jet-fuel prices.

Here is a significant line from the general manager Tan Wangeng carried in CAPA revealing the extent of today’s problems:

All of the carrier’s 30 weekly services from Guangzhou to Australia and New Zealand are profitable, the result of the carrier’s strategic transformation into an international network carrier (Xinhua, 06-Feb-2013). According to Mr Tan, the majority of Chinese carrier’s international routes are making losses.

With high-speed rail supercharging national connectivity, it’s going some way to put downward pressure on airfares, placing it at odds with the state-backed carriers.

Here’s what MF Global’s greater China transport analyst Geoffrey Cheng told SCMP’s Charlotte So:

“The diversion to high-speed trains has become more and more serious as the memory of the high-speed-train tragedy in Wenzhou in 2011 fades out.”

The situation has been made worse by airlines boosting capacity in expectation of a brisk Chinese New Year. Now, rock-bottom prices are in the system to try and fill seats.

While lagging, aviation analysts CAPA say growth will more than make up for short-term sluggishness. They says airlines can absorb a 3 per cent capacity cut in 2013.

If the 3% drop in capacity is entirely correlated to HSR, the one-year drop would be made up for in coming years with higher growth.

With the Chinese government tightly controlling aircraft imports, demand generally exceeds supply, which would allow any excess capacity on a route to be re-deployed.

CAPA has also conducted more of a detailed analysis on the impact of high-speed rail in China.

HSR holds an advantage over air travel on sectors under 800km. Between 800-1200km there could be a tradeoff depending on factors including how direct the train tracks are and what the fare difference is. Above 1200km air travel will almost always hold an advantage.

Seems pretty straight forward.

China Southern’s biggest high-speed rail threats are from Guangzhou to Wuhan (1020 km) and Beijing (2170km).

Image: Danny Lee