AUTHORITIES in mainland China are encouraging domestic air cargo airlines to restructure and improve capacity before any merger in a bid to better compete against the multinational integrators in international markets, according to Lui Shaocheng, director of Policy at the Civil Aviation Administration of China.

    "We could see more consolidation, this has been proposed," he was quoted as saying in a report by London's International Freighting Weekly at Air Freight Asia 2011 in Hong Kong.

    "There are not many restrictions on mergers. We hope they [mergers] will be regulated by the market, not government initiatives," said Mr Lui.

    Solomon Cai Shenyu, CEO of Globelink China Logistics, urged the central government to avoid the development of domestic freight forwarders being hindered by global integrators and third party logistics providers, claiming that the multinationals already controlled around four-fifths of the air cargo market.

    "Although the pie is getting bigger, competition is also becoming more intense," said Mr Cai. "Many of the 30,000 small couriers will have to merge to stand up to these conglomerates, or go out of business."

    Further consolidation of China's air cargo sector was "unavoidable," BA World Cargo's regional commercial manager for the Asia Pacific region John Cheetham, was cited as saying.

    Consolidation is anticipated to give rise to "one or two mega cargo providers," according to CargoItalia's commercial director Roberto Gilardoni.

    But AirBridgeCargo Airlines' vice president for Asia and Pacific, Robert Song, warned that it may prove counterproductive to force the largest carriers to merge.

    "That's not good for anyone," Mr Song said, "they need competition. It's a huge market."

    The report attributed merger activity to boosting the profits in 2010 of China's top three carriers. It said China Eastern experienced a tenfold increase in profits after it took control of Shanghai Airlines, while Air China's net income soared 200 per cent after it took over Shenzhen Airlines. It noted the nation's third leading airline, China Southern, is the principal shareholder in Chongqing and Xiamen airlines.

(Source:http://www.schednet.com)