First Free Story (1 of 3)

More travel executives get their mission-critical industry news from Skift than any other source on the planet.

Already a member?

Like its acquisitive parent HNA Group, Hainan Airlines Holding Co. is looking to bolster growth by buying assets on its own outside China, undeterred by potential headwinds posed by regulatory scrutiny of the parent’s overseas deals.

The nation’s fourth-largest carrier is exploring airlines and companies along the industry’s “value chain,” President Sun Jianfeng said in an interview, without elaborating. As part of its growth strategy, Hainan Air will double down on international flights from the nation’s second-tier cities where a travel boom is under way as it takes on bigger state-owned rivals, he said.

“We’ve gone past challenging, following and imitating others,” Sun said June 23 in his office overlooking the carrier’s base at a terminal of Beijing Capital International Airport. “We now want to build a new order and set new standards.”

Hainan Air is no stranger to acquisitions, though they were all backed by HNA in the past. It has stakes in a Brazilian and Portuguese carrier, Tianjin Airlines and Changan Air. The string of deals pursued by the parent since last year — HNA announced more than $30 billion in asset purchases, becoming shareholder in companies including Hilton Worldwide Holdings Inc. and Deutsche Bank AG — has attracted attention worldwide. And, lately, official scrutiny.

Wanda, Fosun

The China Banking Regulatory Commission has asked some banks to provide information on overseas loans made to five conglomerates — HNA, Dalian Wanda Group Co., Anbang Insurance Group Co., Fosun International Inc. and the owner of Italian soccer team AC Milan. Sun, who took the top job at the carrier in November after a six-year stint as the deputy chief of Hong Kong Airlines, said he is not aware of any impact such scrutiny may have on Hainan Air’s business and future investment plans.

Founded by billionaire Chen Feng more than two decades ago with George Soros among its early investors, Hainan Air is seeking to build on HNA’s deals spanning Europe to South America as it expands in a market forecast to be the world’s biggest around 2024. Standing in its way are Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp., the nation’s big three that corner most of the lucrative air rights in major hubs by virtue of being government owned.

As airlines globally sell small stakes to each other, forming alliances that help acquire more slots and air rights in major hubs, Sun is under pressure to embark on a similar strategy. Air China owns 30 percent of Cathay Pacific Airways Ltd.; China Eastern sold a minority stake to Delta Air Lines Inc. and China Southern to American Airlines Group Inc., enhancing each others’ networks around the world.

Earlier this month, the carrier changed its name to Hainan Airlines Holding Co., from Hainan Airlines Co., signaling preparations for its expansion.

“The new name is a better reflection of what we are doing,” Sun said. “We have already had stakes in other carriers and with this name, investors will know we have the capabilities and can live out our name.”

Headquartered in Haikou, the capital of the Chinese tropical island Hainan, the eponymous carrier started its first international route at the start of the century from the province to Seoul, ferrying tourists. In the decade and a half since, air travel has exploded in the world’s most populous country. About 487 million people few to, from and within China in 2015, and that is set to almost double by 2025, according to forecasts by the International Air Transport Association.

Air Rights

Leading an aggressive expansion, Hainan Air recorded a 57 percent increase in international capacity — the highest among the top four — with most of the new flights departing from second-tier cities. That’s because air rights to start direct services from the hubs of Beijing, Shanghai and Guangzhou to the U.S., Europe and Japan are running out as the airports operate close to capacity. Besides, the three state-owned carriers own most of those rights.

Still, smaller cities present great potential for non-stop flights to popular overseas destinations, backed by subsidies offered by local governments for the services, Sun said. Demand is “enormous” by international standards from what he calls “quasi-top-tier” cities such as Chengdu in Sichuan province and Kunming in Yunnan.

“Travelers prefer direct flights and we have concluded that it is worth exploring the market for direct flights from these cities,” Sun said.

Passenger traffic has grown as much as 20 percent annually in such places, while statistics from China’s aviation regulator show that around 70 percent of China’s newly added international flights in 2016 depart from second-tier cities.

Supporting Sun’s strategy is a 184-aircraft fleet that includes 21 Boeing 787 Dreamliners. The widebody jet, capable of seating up to 290 passengers, has been instrumental in executing Hainan Air’s global expansion, Sun said.

The carrier expects to take 14 more through 2018 and aims to increase widebodies to about 85 and expand the total fleet to about 285 by the end of this decade. Sun ruled out purchase of twin-engine widebodies such as Airbus SE’s A380, adding Hainan Air would be closely following China’s home-made C919 single-aisle jet. No decision would be taken before 2020.

Hainan Air is phasing out planes aged around 12 to 16 years to avoid maintenance costs, he said.

Sun sees an opportunity to grab more slots in Beijing vacated by China Eastern and China Southern, when they move to the new airport due to start in 2019. That will allow him to ramp up the frequency of some of the high-yielding flights and add more outbound services to western Asia and Europe from Beijing, he said.

“We are here to stay and we will surely get more slots,” Sun said.


©2017 Bloomberg L.P.

This article was written by Bloomberg News from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to

Photo Credit: A Hainan Airlines aircraft with the Kung Fu Panda livery at the China International Aviation & Aerospace Exhibition in Zhuhai in 2016. Qilai Shen / Bloomberg