Fitch Ratings sees limited room for consolidation among Chinese airlines, because the big four players along with subsidiaries and associates hold 90% of the market.
While there has been speculation about mergers among the three state-owned players – Air China, China Eastern Airlines and China Southern Airlines – competition among the trio is already limited on international routes, making mergers to achieve synergies or cost savings less compelling, says the ratings agency.
It adds that each group's complex corporate structure "that involves many subsidiaries and affiliates, large workforces, legacy debt burdens and political and personnel conflicts", also make mergers complicated. These comments were made in its recently released Chinese Airline Sector Blue Book.
It also views a merger of Hainan into one of the big three airlines unlikely in the short-term, but does not rule out the possibility in the longer term. This is since the airline is "financially viable", while airlines that were previously acquired by state-owned carriers were mostly in financial distress.
"Merging Hainan with any of the big three would substantially increase the market share of the merged entity and therefore would be likely to encounter strong opposition from the other two airlines," it adds.
Fitch also sees limited room for private airlines and new entrants to compete against the state-owned carriers since they dominate most prime routes.
"Private airlines also lack the economies of scale and access to readily available external funding enjoyed by the big three, making them susceptible to liquidity shocks during market downturns," it adds.
Source: Cirium Dashboard