High Speed Rail Eats Into Chinese Airline Profits – And That’s Good News
One of the main reasons to build high speed rail in California is to lure passengers away from airlines, which spew huge amounts of CO2 into the atmosphere, and put them onto bullet trains powered by renewable electricity. All over the world we’ve seen how riders will make the shift from planes to trains once given the choice, and more news from China proves it again:
China Southern Airlines is the latest Chinese airline to post miserable year-end 2013 results. Net profit dropped 24 percent to 1.99 billion yuan ($321 million), and operating profit fell 70 percent. China Southern Airlines joins Air China, where net profit dropped 32 percent in 2013, and China Eastern Airlines, where it fell by 25 percent.
High oil prices, as well as increased competition from low-cost carriers and each other, have taken a toll. But, as each airline has recently acknowledged, so has China’s massive and growing high-speed rail system.
What may surprise you is that this is a good sign for American airlines.
As this blog has repeatedly explained, US airlines want to focus on the more profitable medium and long haul routes rather than place their bets on the short haul routes like San Francisco to Los Angeles. That’s why Virgin America is leaving SJC and ending its San José to LA flights – they make more money flying east to other parts of the North American continent than they do flying within California.
Low-cost carriers that got their start on short haul routes are making the switch. And they want HSR to replace those short haul routes because it opens up more gates at existing airport terminals so these carriers can operate more medium and long haul flights. It’s why JetBlue is bullish on HSR and why Virgin and Southwest want to operate the California HSR system.
In the early 1990s Southwest Airlines helped kill a Texas high speed rail proposal. 20 years later they are not standing in the way of HSR anywhere in the country. The executives who run California’s airports, including SFO, wholeheartedly embrace HSR because they see it as a complement to their services, not a threat.
China’s experience with high speed rail shows once again that if you build it, they will ride. That’s exactly what the airlines are banking on and why they want HSR to be built as planned.