Today, after years of production and bureaucratic delays, China Southern marked a significant milestone with the arrival of its first Boeing 787-8 in Guangzhou. The airline having taken delivery of the aircraft registered B-2725 on May 31.

The 787 delivery marks the next chapter in the transformation of China Southern. B-2725 will enter revenue service on 6 June, operating the inaugural service from Guangzhou to Beijing. Initially the aircraft will also be deployed on Guangzhou – Shanghai services. The 787s are expected to be deployed internationally by the end of 2013 on the ‘Canton Route’ between Australia and Europe, and to Vancouver. China Southern will receive five of the ten 787’s it has on order by the end of 2013.

President & CEO Tan Wangeng has previously said he “will spare no effort in building the Canton Route into a premium product” to be operated by Airbus A380s and Boeing 787s.

China Southern in 2015

Already big and getting bigger; China Southern is the largest passenger airline in Asia, carrying over 85 million passengers in 2012. The third largest by market capitalization. The sixth largest by fleet size. And, Skytrax’s most improved airline of 2011.

International operations currently account for only 18.4% of the carrier’s Available Seat Kilometres (ASKs), the smallest of China’s ‘big three’ airlines. 80% of its domestic route network, and 81.6% of its ASK capacity competes directly against high speed rail. The result? China Southern is turning to international markets with the aim of increasing its international ASKs to 35% by 2015.

Chairman Si Xianmin noted in a 2012 interview that “[we’re] looking at route expansion into South America, Africa and other emerging markets to expand our hub network. The broader vision of the Canton Route is to build Guangzhou as a global, comprehensive, long-haul aviation hub”.

Currently operating 35 weekly services to 5 Australian cities, Tan says that “More than 30% of the passengers travelling on this [Canton] route are from Australia and Europe”. Plans see this increasing to 55 weekly return services (110 total segments) to Australia by 2015. In addition, South American services are likely to operate through Nairobi, home of Skyteam partner Kenya Airways, linking three of the world’s largest developing markets.

However, if it is to win greater market share from other ‘Kangaroo route’ carriers, the airline will need to substantially improve the transfer experience at Guangzhou’s Baiyun Airport. One of those ‘only in China’ experiences, transferring at Baiyun remains a messy affair and while the carrier is developing a winning onboard product, the result of substantial focus and investment, its ground services lack the polish of competitors.

Urumqi hub

Ürümqi is China Southern’s strategically located second international hub. Ürümqi acts as a western entry point, one of the focus airports that the CAAC uses to efficiently distribute airline traffic across the China. A cooperation agreement signed in 2011 by China Southern – with its 75% international market share – and the Xinjiang Autonomous Region government, has seen Ürümqi Airport’s passenger traffic grow to become China’s fourth largest international airport. From Ürümqi the carrier offers services to the middle east, Turkey and following the resumption of services to Tashkent in July all of the CIS republics (except Moldova). Supported by expanding minerals exploration in the region, could China Southern leverage Ürümqi’s strategic location to reshape sixth-freedom traffic flows across Asia?

Opportunity much? Nearly 3 billion people live within 4.5 hours flying time of Urumqi. China Southern’s current international network from Urumqi, and connections to its other major China hubs.

Deploying the Airbus A380

Image: Xinhua.

In late 2012, almost a year after after taking delivery of the A380, international operations commenced with daily services from Guangzhou to Los Angeles. To date, this remains the sole international A380 route, with the aircraft otherwise restricted to domestic services.

Sources say upon EIS in 2011, the Civil Aviation Authority China (CAAC) restricted operations over concerns that cockpit flight crew English levels were insufficient to operate in a monolingual English environment, particularly in relation to the aircraft’s Electronic Flight Bag (EFB). An extensive and successful flight crew training programme during 2011-2012, resulted in the CAAC lifting operational restrictions.

China Southern originally planned to use the A380 on new services from Beijing, however the CAAC has long restricted competition between the ‘big three’ on international services, particularly direct competition with Air China in Beijing.

In 2012, China Southern entered into negotiations with Air China and it’s powerful coterie of interests, to operate joint-services from Beijing to Paris, and Frankfurt. Initial negotiations shaped the operation as a revenue sharing joint-venture with Air China code sharing on China Southern operated services. However by early 2013 talks were faltering; Air China changed its position, negotiating only to wet-lease the aircraft, to operate and market the proposed Paris services as Air China only services. In early May, China Southern Chief Financial Officer Xu Jiebo reported “the discussions were suspended as many issues arising during the negotiations couldn’t be resolved”.

Central to this was disagreement on Terminal access at Beijing. With Air China operating from Terminal 2 and China Southern Terminal 1 at Capital Airport the carriers would be unable to offer seamless connections. This would only be compounded further when China Southern relocates its operations to the new Beijing Daxing Airport when it opens in 2017.

The result? China Southern will now operate the A380 daily from Guangzhou to Sydney from October 27, preferring not to compete head-to-head with Air China. Tan says “on our current Sydney route we operate [a] double daily using our A330 aircraft and the load factor has been very satisfying, which means we can operate a triple-daily service. We have studied if the market will be big enough to digest this capacity”.

China Southern’s ambitions for Australia are big, but just how realistic these ambitions are remain to be seen. China Southern is on the verge of being unleashed in the same way Emirates was 10 years ago. A blue dragon is rising, and it’s winging its way to a city near you.

Image: Jay Miller.