CHINA’S AVIATION DEVELOPMENT
May 8, 2015
The Center for Asia Pacific Aviation has announced that for the first time ever, more Chinese airlines will be flying to the United States than American carriers heading to China. Last summer, Air China flew its first flight from Beijing to Washington DC, sharing the route with United Airlines. Given the simplification of the visa process, both the United States and China are trying to gain business opportunities from the boosted bilateral business and tourist markets.
For years, American airlines have been targeting China, and recent low fuel prices have helped them in squeezing out more profit from the usually costly long routes. United has added a route to the interior Chinese city of Chengdu and now connects Shanghai to Guam. This year, American Airlines will begin flying between Dallas and Beijing, and Delta will start a Shanghai-Los Angeles service. But Chinese airlines are expanding even more aggressively. Now, besides mega cities like Beijing and Shanghai, secondary cities like Nanjing, Wuhan, Shenyang, and Chengdu are open to international flights as well. China Eastern will begin flying between Nanjing and Los Angeles, while China Southern already carries passengers between the central Chinese city of Wuhan and San Francisco. Sichuan Airlines controls the Shenyang-Vancouver route. Meanwhile, in addition to coastal cities, Air China has added a new direct flight from Beijing to Houston, a transportation hub that has never before been reached by Chinese airlines, to expand its market to the U.S. south and South American countries.
China is also expanding its airport construction projects. According to the Time Magazine, China is undergoing an airport building-spree, with plans unveiled for nearly 70 new airports. Beijing, which expanded its current airport for the 2008 Olympics, is building a new airport that should be ready for business by the end of 2018. Chengdu’s new airport will have the capacity to handle 80 million passengers per year. Unfortunately, Chinese airlines have a bad reputation for flight delay problems, partially because the majority of China’s skies are under military control, leaving commercial airlines little space to operate. This arouses concerns about China’s capability to allow more new local airlines to take off in the already overcrowded sky.
Chinese airlines enjoy a larger domestic market than the U.S. airlines. Indeed, by 2034, the International Air Transport Association (IATA) estimates that one in five passengers worldwide will be traveling to, from or within China. Plus, with well populated and rich tourist destinations nearby in Asia , Chinese airlines are naturally keen to exploit this massive market. Chinese airlines also enjoy huge government subsidies, which make it hard for U.S. airlines to compete. For instance, in 2014 China’s international airlines received US$1.1 billion in government subsidies.
Despite the substantial domestic demand and ample government support, it is still too early to say that the Chinese carrier expansion is eroding the market share and the interest of the United States. Firstly, there are huge management efficiency gaps between Chinese and American airlines. Secondly, new domestic airlines put much pressure on the main airlines’ cash flow and profit accounts. Third, ample government subsidies to the main airlines may distract them from focusing on improving management efficiency. One thing with certainty is more business and tourist visit can be achieved by more flights flying between China and the United States.
For more information on this topic, consult the following sources:
McKinsey China – “China’s Airlines: Flying Higher”
Center for Asia Pacific Aviation – “Chinese airlines overtake US carriers across the Pacific. The big dilemma: US-China open skies?”
Center for Asia Pacific Aviation – “Hainan Airlines order for 30 787-9s underscores trans-pac growth. Partnerships will need to increase”
Center for Asia Pacific Aviation – “Air China and United Airlines vie for title of largest carrier between China and the United States”
Center for Asia Pacific Aviation – “China’s aviation reforms and a rush of airline start-ups boost growth prospects; and fleets recycle”
中国日报 – “国航深耕北美市场”
新浪新闻 – “国航开通华盛顿航线 美联航面临强势竞争”
Compiled and edited by Stella Ran Zheng