Rising demand pushes express companies to acquire more aviation assets

Updated 2018-05-04 13:43:04

There is already an intense race among Chinese express companies on the streets of Beijing and other major cities in China, where couriers on motorized tricycles try to beat the traffic each day to quickly reach their drop-off locations.

But recent signs suggest that the race might be extending beyond the streets to the vast skies of China, as firms compete for market shares in the burgeoning but increasingly competitive express delivery industry.

The latest move was made by Shanghai-based YTO Express Group, which recently acquired a piece of land for 304 million yuan (.82 million) at Hangzhou Xiaoshan International Airport in East China's Zhejiang Province to build a logistics hub, Chinese financial magazine The Time Weekly reported on Tuesday.

YTO has announced plans to invest as much as 5.5 billion yuan in the logistics hub, which will serve as the headquarters for its air cargo unit and distribution center, according to media reports.

The move to select Hangzhou Xiaoshan International Airport as its logistics hub also reflects the company's ties with Chinese e-commerce giant Alibaba Group, which is also headquartered in Hangzhou. Alibaba founder and chairman Jack Ma Yun holds a 17.5 percent stake in YTO through two of his companies.

Tough year

The move also represents a strategic shift and a remedy for "pains" YTO experienced in 2017, when the company saw its market share stagnate and profits shrink due to the company's overemphasis on expensive air lifting and insufficient ground support facilities.

"Last year was a low point. The company has adjusted management… In the future, the company will focus on improving services and quality," The Time Weekly quoted an unnamed YTO employee as saying.

In 2017, YTO's share in the Chinese market remain unchanged, while others, including Yunda Express, ZTO Express and SF Express, grabbed bigger shares. With a 12.6 percent share, YTO fell behind ZTO and Yunda, which held stakes of 16.5 percent and 12.7 percent, respectively, according to The Time Weekly report.

Recovery

But in the first quarter of 2018, YTO saw its revenue surge 52.88 percent year-on-year to 5.34 billion yuan and saw its profit rise 22.84 percent year-on-year to 299 million yuan, according to the company's filings released on April 25.

However, YTO's investment in air logistics will not go unchallenged by rivals and an air race is already in the making.

SF Express has been expanding its air cargo services in recent months. In February, the company announced that its fleet of cargo planes increased to 42, and in March, it announced a new cargo flight route would be established between Hangzhou and Qingdao in East China's Shandong Province.

YTO currently operates 11 cargo aircraft, way lower than that of SF Express.

Although no actions have been reported by ZTO and Yunda, the two companies have also announced plans to expand in the air cargo services sector.

ZTO signed a strategic partnership with Henan Province Airport Group in March 2017 to set up a distribution center in Zhengzhou, capital of Central China's Henan Province, according to media reports.

The interest in air cargo services among Chinese express companies also comes as demand for air cargo in China continues to rapidly grow.

In the first quarter of 2018, air cargo transport volume increased 8.3 percent year-on-year to 1.71 million tons, with rapid growth in cargo volume from express companies, according to data from the Civil Aviation Administration of China released on April 19.

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