China Eastern Airlines’s chief executive has warned that should the tariff tiff between the US and China develop into a full-blown trade war the carrier’s new aircraft orders, passenger numbers and cargo volumes would be impacted, necessitating significant network changes.
“If the US-China trade war becomes increasingly worse, market conditions will certainly affect passenger numbers, cargo volume and the introduction of new aircraft,” said China Eastern Airlines chief executive, Ma Xulun. “China does not want to fight a trade war – but is not afraid of doing so,” he added.
Speaking during a press conference in Beijing last week, Ma was quoted by Xinhua as saying that both China and the US will be losers in the trade war.
According to Ma, China Eastern had already initiated a study into the potential impact of the increased tariffs, as well as a potential contraction in US-China market demand.
China Eastern is set to see a net increase in its fleet this year by 52 aircraft, worth an estimated CNY 28.3 billion (USD 4.5 billion). Chief marketing officer Dong Bo said China Eastern would adjust deliveries as well as network development depending on the impact of the trade war.
“We will make some adjustment to our fleet if passenger numbers fall on China-US routes, for example by switching the Boeing 777 to the Airbus A330-200. If the impact is more severe, we may make adjustments to airline frequency,” he said according to a Reuters report. Shanghai Hongqiao-based China Eastern is a member of the SkyTeam alliance for both the passenger and cargo divisions and is the largest Chinese carrier by passenger numbers and the world’s 12th largest cargo carrier.
Last week Beijing imposed a 25 per cent import duty on US-manufactured aircraft weighing between 15,000 kilogrammes and 45,000 kilogrammes, impacting select variants of the B737 Family. The move was part of a package of 106 tariffs applied on US imports in response to US President Donald Trump’s imposition of 25 per cent tariffs on some 1,300 Chinese products.
The US exported USD 15 billion of aircraft to China in 2016, ranking on par with agricultural products like soybeans.
Last week China Eastern released its best profit in 20 years of CNY 6.4 billion (USD 1 billion), boosted by the soaring demand for travel worldwide and the yuan’s strength against the USD.
But the carrier still faces pressure from steadily rising fuel costs, a situation which could hit Chinese carriers particularly hard as virtually all Chinese carriers abandoned the practice of fuel hedging after 2008. This was a bonus when oil prices plunged in mid-2014, but leaves them particularly vulnerable to steadily rising fuel prices.