China’s airlines have shown clear indications that they will continue to expand their international networks. IATA has stated that an estimated one billion people in the Asia-Pacific region will travel by air by 2014. China, Japan and Hong Kong will be the biggest international passenger markets in the Asia-Pacific, with China contributing the most to new travellers.
The Chinese carriers have been expanding exponentially and have been especially aggressive with their international network expansion in recent years. Two major Chinese carriers are listed among the five largest airlines in the world by market capitalisation – Air China at $20 billion and China Southern Airlines at $11 billion. The strong economic growth in China, complemented by the strong financial fundamentals of its major carriers, augurs well for further development of China’s aviation market.
Domestic market growth
Domestically, the market in China has grown from 2.1 million weekly seats in Northern Winter (NW) 2000/01 season to 7.2 million weekly seats in NW2010/11 season. The strong growth on domestic sectors is expected to continue given the huge narrowbody aircraft orders that have been placed by the Chinese carriers. This is supported by reported plans to build an additional 97 new airports, bringing the total number of civil airports in China to 244 by year 2020.
International market growth
In comparison, China’s international passenger market is only a fraction of the domestic passenger market – translating to 8% of overall weekly frequency or 11% of weekly seats.
This is set to change as the Chinese carriers build on the momentum of their international network expansion.
Over 52 new destinations have been added to China’s international air passenger network over the past five years. However, this network expansion is due to a combination of Chinese carriers and foreign airlines operating to China adding new routes.
Beside the three biggest carriers in China, privately funded Chinese carriers, such as Hainan Airlines, have also managed to increase their presence in the international market. Hainan has boosted its international operations from Shanghai, Hangzhou and Shenzhen, as well as at its primary international hub in Beijing Capital International Airport.
Other Chinese carriers are also starting to expand internationally, such as Sichuan Airline’s application to the Federal Aviation Administration to operate a service four times a week to Saipan in the Commonwealth of the Northern Mariana Islands (CNMI). This will operate twice a week from both Guangzhou and Chengdu via Shanghai. Low-cost carrier Spring Airlines will also start its first ‘international’ service between Shanghai and Hong Kong in March 2011.
Alliance membership
2007 was a significant year for Chinese carriers in the airline alliance landscape. China Southern Airlines led the pack with full SkyTeam membership in November, while both Air China and Shanghai Airlines joined Star Alliance in December.
Shanghai Airlines subsequently pulled out of Star Alliance in 2010 following its merger with China Eastern Airlines, which should be a member of SkyTeam by mid-2011. Oneworld does not have a member in Mainland China, but it will be interested in monitoring the development of partnerships between Air China and Cathay Pacific following the carriers’ cross equity ownership exercise in 2008/09.
The Hong Kong-based carrier is a key member of oneworld and if both carriers continue to develop closer partnerships moving forward, inevitably at some point in the future it will make sense for them to belong to the same alliance.
Then there is the new breed of Chinese carrier, such as Hainan Airlines and Sichuan Airlines, who may pursue alliance membership to boost their international expansion efforts in the near future. Alliance membership would aid these carriers’ international expansion, as they could easily form partnerships at the other end of the route to drive demand for their services.
Alliance membership has also made China Southern Airlines focus its long-haul expansion on a hub-and-
spoke model. It is expanding its code-share partnerships with alliance member carrier KLM for services originating from each of their hubs in Amsterdam and Guangzhou, as well as expanding its European operations through a disciplined focus on SkyTeam’s hubs in Amsterdam and Paris.
Guangzhou–Paris services will be increased from four weekly to daily effective from Northern Summer (NS) 11 and new three times weekly Guangzhou–Amsterdam flights will be launched in June 2011 to complement the existing daily service via Beijing. Also, China Southern has also recently beefed up its operations in Australia and New Zealand.
The rush Down Under
In the last 18 months, Chinese carriers, particularly China Southern, have rushed to Australia.
China Southern has increased its Sydney services to double daily, while Melbourne has increased to daily frequency. The Melbourne services have also been retimed to strengthen its hub operations in Guangzhou, so that passengers arriving Guangzhou in the early morning can easily connect to most domestic Chinese destinations.
The new three times weekly Brisbane services have also proven to be popular with leisure travellers and students. Looking ahead, China Southern has confirmed Auckland as its fourth destination in the Oceania region with three times weekly non-stop services starting in April 2011 and it has indicated an interest in serving more cities in Australia in the future.
Hainan Airlines became the fourth Chinese carrier to serve Australia when it started its Hangzhou–Shenzhen–Sydney service in January 2011. This three times weekly A330-200 service could be a starting point for more Australian services, given that its parent company HNA Group announced in July 2010 that it was looking to invest up to $200 million in expanding its presence in the Australian market, especially in air transport, airport management and other tourism and hospitality operations.
As the Chinese carriers continue to grow their businesses, they will look to operate more international services. The demand for outbound travel in China is expected to continue to grow exponentially, supported by the country’s strong economic fundamentals.
China’s aviation market is poised for an exciting growth period in the immediate future, but the key question remains about whether its constrained aviation infrastructure – for instance, limited slot availability at major airports and congested air space – will prove to be a barrier for future growth.
This issue features in Routes News 2011 Issue 2
