Long before the coronavirus decimated travel to China, HNA Group was in trouble. It had overspent not just on airlines, but on a variety of companies all over the world. The coronavirus just made things worse for the teetering conglomerate, and now it appears that the end may be near. If reports are correct, HNA Group will be taken over by the government, and its airline assets will all be sold off. Today, I’ll take a look at the airline side of group in a little more detail with a focus on the US.
HNA’s structure makes Norwegian almost seem uncomplicated, but let’s see if I can untangle this. Here’s the best I can do for now with the ownership stake displayed in parentheses:
- Hainan Airlines (100 percent)
- Beijing Capital (73 percent)
- Fuzhou (60 percent)
- Grand China Air (23 percent)
- Changan (83 percent)
- Lucky Air (87 percent)
- Suparna Airlines (maybe 45 percent?)
- Tianjin (100 percent?)
- GX Airlines (70 percent)
- Urumqi (70 percent)
- West Air (?? percent)
- Guilin Aviation Tourism Group (100 percent?)
- Air Guilin (40 percent)
Let’s just call that close enough. I’m really not sure about some of those percentages, nor am I sure of how many still fall under Hainan Airlines versus under the HNA Group parent. It’s all confusing.
But wait, there’s more. Outside of mainland China, HNA has investments in Africa World Airlines, Azul,
Comair, Hong Kong Airlines, MyCargo, TAP Air Portugal, and Virgin Australia. It also had a stake in Aigle Azur until that airline failed. I’m going to ignore all of these for now as just ways to move money out of China. Let’s look at the Chinese operations in more detail. Update: HNA sold its stake in Comair in 2018.
Most of these airlines were started as joint ventures with provincial governments and private, outside investors. Those provincial governments wanted to get more air service, so they poured money into these little airlines that had their own names on them. Below, you’ll find scheduled daily flights by airline thanks to Diio by Cirium data.
Hainan is by far the largest with almost a third of the group’s operations. Tianjin is next, but it is largely regional with several hubs in China including Tianjin (obviously), Xi’an, Haikou, and Urumqi. Outside of Asia, it only serves Melbourne, Moscow, and London. Beijing Capital has a similar structure, but it has a slightly larger long-haul network which includes Vancouver and Male in addition to Europe and Australia. No other airline in the group flies outside of Asia. Here’s a long-haul map:
All those red routes are operated by Hainan, and that’s the only group airline that flies to the US, so that’s where I’ll drill down further. At least from a US perspective, Hainan does not perform well.
I looked into the ARC/BSP data via Diio by Cirium to take a look at average fares between the US and mainland China for all of 2019. Here’s what that looks like.
What’ll you’ll notice is that there is a wide disparity in performance, and it’s those airlines that serve Beijing and Shanghai most that do the best. Sichuan and Xiamen are awful performers, and that isn’t a surprise since all their US flights touch tertiary cities. China Southern does somewhat better, but that’s because it serves more secondary cities. It still doesn’t do well.
Side note: Look how poorly American does. That’s LA for you. Now back to our regular programming.
Now take a look at Hainan. You might be surprised to see that Hainan carries more passengers than China Eastern and China Southern. In fact, it’s in fourth place behind United, Air China, and Delta. You’d think that it would have grown its volume, because it was performing well, but that’s definitely not the case. Those fares are low.
A big part of the problem is that Hainan was late to the game. China has a policy of only allowing one of its airlines to fly each route, so that makes it tough for a newer entrant. With Air China and China Eastern snapping up all the good routes, Hainan was left with scraps. Here’s what it flies.
All those routes in red go to secondary or tertiary markets in China, and those are bound to do poorly as we discussed. Sure, there’s government money propping those up to some extent, but these routes will never survive on their own. The ones in green at least touch Shanghai and Beijing, but in the US they are not key markets. Those are already taken.
This is small snapshot of the HNA Group network, but it’s very telling. It shows an airline operation that grows at all costs, regardless of performance. So, the HNA airlines continue to flounder. The chaotic strategy of building up many partners and flying them regionally to take advantage of subsidies was bound to come crashing down at some point. It’s high debt and large number of seemingly-unrelated investments was never going to be sustainable. With coronavirus making travel to China disappear nearly overnight, it put the group of airlines that were already in bad shape into even worse shape.
Breaking up HNA’s airlines and divvying up the parts to existing players makes the most sense. The reality, however, is that many of these routes should just disappear along with the airlines that fly them.