South China Airlines Battle New High-Speed Train

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SUBJECT: South China Airlines Battle New High-Speed Train

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1. (SBU) Summary: The new high-speed train service between
Guangzhou, Guangdong Province and Wuhan, Hubei Province debuted on
December 26, 2009 as the world's fastest long-distance passenger
train service. Ticket prices for the new service, however, are
beyond the grasp of most Chinese, according to online commentators.
Nevertheless, the high-speed service's pricing scheme has led
airlines in south China to slash airfares and launch new services in
response to the increased competition. End summary.

A Record Breaker
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2. (SBU) South China is now home to the world's fastest
long-distance passenger train service. Debuting on December 26,
2009, the Harmony Express travels between Guangzhou and Wuhan,
covering a distance of 1,068km in three hours, which is seven hours
less than traditional train services. As part of a larger
high-speed network that will link Guangzhou and Beijing, the
Guangzhou-Wuhan route includes 15 stops with trains leaving every
half hour. A first-class ticket from Guangzhou to Wuhan costs
RMB780 (US$115); a second-class ticket costs RMB490 (US$72). The
express line's construction took four and a half years, with total
investment estimated at over RMB100 billion (US$14.7 billion),
according to Chinese media reports.

Prices Too High?
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3. (SBU) Some online commentators have argued that the ticket prices
for the new high-speed train are too high for most Chinese to afford
even a second-class ticket. With average monthly income of migrant
workers in Guangzhou ranging between RMB1,000 and RMB1,500
(US$147-US$220),they speculated that the train would end up
servicing only the "elite" like officials and businessmen. Rumors
circulating online and in the Chinese media also suggested that once
the Guangzhou-Wuhan high-speed service is in place, traditional
train services will be reduced, leaving few options for those
traveling on this route. A true test for the new service will be
the upcoming Lunar New Year when millions of the migrant workers in
the Pearl River Delta travel inland to be with family. According to
media reports, Guangzhou Railway Group, which operates the new
service, does not rule out the possibility that there will be price
adjustments in the near future.

Airlines Cut Prices...
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4. (SBU) In anticipation of increased competition from the
Guangzhou-Wuhan high-speed service, airlines in south China began
implementing new market strategies prior to the Harmony Express's
debut. Guangzhou-based China Southern Airlines led the way with
cuts in airfare of up to 80% and the introduction of a new hourly
shuttle service between Guangzhou, Changsha in Hunan Province, and
Wuhan, according to information gathered from online travel
agencies. Other airlines that have reportedly entered the price war
include Air China, China Eastern Airlines, and Shenzhen Airlines.
Liao Weijia, director of China Southern's Foreign Affairs Office,
told ConGenOffs that in the current pricing scheme, China Southern
can still compete with the high-speed train on the Guangzhou-Wuhan
route, but if train ticket prices drop below China Southern's 50%
markdown for the route, then the airline will have to re-evaluate
the market.

And Enhance Services
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5. (SBU) China Southern cannot solely rely on price cuts, but must
also enhance service and speed to maintain its advantage, said Liao.
Other elements of the airline's new strategy reportedly include no
extra fees for changes between same-day shuttle flights; discounts
for certain international bound tickets originating in Wuhan or
Changsha and transiting Guangzhou; and improved in-flight food
service. China Southern has also worked closely with Guangzhou's
Baiyun Airport to offer shuttle passengers shortened check-in times;
multiple check-in methods; and designated shuttle service counters,
security screening areas, boarding gates, and baggage carousels.


JACOBSEN