China Airline Stocks Soar on Government Plans

High Flyer: China will consolidate its airline industry to create two or three super-carriers.

China airline stocks are soaring on the news that China plans to invest at least 1.5 trillion yen ($216 billion) to build them into world-class competitors over the next five years through industry consolidation.

The central government will use subsidies and tax rebates to help carriers launch more international routes and become more competitive with global leaders, reported the Shanghai Securities News quoting an industry regulator. China’s top carriers — Air China, China Southern Airlines and China Eastern Airlines — saw shares rise sharply on expectations of mergers and acquisitions which typically entail tender offers at 25-40% premium over market prices.

In 2010 Chinese airports hit another record high traffic volume with passenger throughput of 564,312,000, up 16.1% from 2009. Cargo and mail throughput was 11.29 million tons, up 19.4%.

Chinese airports are divided into three categories: first, three hub airports, including Beijing Capital International Airport, Shanghai Pudong Airport and Guangzhou Baiyun Airport; second, 17 major airports in Chengdu, Kunming, Xi’an, Urumqi, Wuhan and other cities; third, other types of airports.

In 2010 due to an increase in the total number of airports, the volume of the three hub airports declined slightly to 27.6% of total throughput. The passenger throughput of Beijing Capital International Airport accounted for the highest 13.1%, while Guangzhou Baiyun Airport 7.3 % and Shanghai Pudong Airport 7.2%.

China’s aviation sector would still be in its ‘golden era’ for the next 20 years, said Civil Aviation Administration of China chief Li Jiaxiang.

“We should press ahead with industry alliance and consolidation via government guidance and market operations in order to form two or three carriers with a large network and global competitiveness,” Li said.

He added that China would continue to subsidize aggressive development of regional airports to facilitate booming domestic air travel.