Several fronts in battle for the skies

Foreign and chinese airlines try various strategies to accommodate increasing passenger numbers

Due to the weak economic recovery in Europe and the United States, China has become "the battleground" in the eyes of foreign airlines.

Since the beginning of 2009, the Asia-Pacific region has been the world's largest aviation market, with China crowned its star. In recent years, China's airlines have earned windfall profits from strong domestic demand alone.

The country is also witnessing rapid growth in international routes. Foreign airline companies naturally have seized this opportunity to increase capacity in the Chinese market, hoping to gain a greater share.

In the past few years, China's international aviation market increased by 22 percent in terms of transport capacity, and growth will continue. The International Air Transport Association estimates that by 2017, China will have an extra 227.4 million passenger trips, of which 32.4 million will be international travelers.

The common approach of foreign airlines in their strategy for the Chinese market is to have larger planes in first-tier cities such as Beijing and Shanghai. This is mainly because airport capacity is close to saturation and there is extremely limited availability of slots. The use of large planes is more likely to increase an airline's passenger numbers.

Emirates has been operating an Airbus A380 on the Beijing-Dubai and Shanghai-Dubai routes, and British Airways' old Boeing 777s have been replaced by Boeing 747-400 aircraft on the Beijing-London route.

In September last year, Lufthansa started using the A380 to fly the Shanghai-Frankfurt route five times a week. The A380 can provide 18 more business class seats and 178 more in economy compared with the 747.

In the same month, Air France started using the A380 on its Shanghai-Paris route, three times a week, and in October, Singapore Airlines followed suit, putting an A380 on the Shanghai-Singapore run.

Air France used to have two flights a day from Paris to Shanghai with medium-sized planes. Now there are three A380 flights, representing a substantial increase in capacity.

The moves will no doubt place greater pressure on Chinese airlines flying the same routes. China Eastern Airlines and Air China also have nonstop flights to Paris and Frankfurt from Shanghai, but European aviation firms have the advantage in attracting European passengers.

Another clear trend recently is the focus on second-tier cities such as Chengdu, Hangzhou, Chongqing, Shenyang, Nanjing and Wuhan. Foreign airlines have opened direct routes to these cities to further improve their networks in the Chinese market.

The long-term prospects for the aviation market in second-tier cities are very promising. The population of a Chinese second-tier city generally tops 10 million, and in some inland cities, the population is even more than that of many European or Southeast Asian countries. There is huge growth potential over the next five to 10 years, and foreign airlines are busy working out new strategies to get the upper hand.

With the growing demand for air travel, these second-tier cities have begun to renovate and expand their airports, extending runways to accommodate the Airbus A380, and constructing new terminals. They aspire to become new national aviation hubs, and this provides foreign airlines with a guarantee of infrastructure.

Compared with first-tier cities, second-tier cities are also rich in land and other resources. Airport charges, air traffic control and other related service fees are lower, and there is more room for negotiation, which can help airlines reduce costs.

Particularly worth mentioning is that in recent years, local governments have fully recognized the importance of civil aviation. They have introduced a variety of incentives, such as subsidies for foreign airlines that open international routes.

In 2012 alone, 18 Chinese provincial governments offered subsidies totaling more than $600 million (441 million euros) to 63 foreign airlines operating 107 international routes. Some international carriers can receive an annual 100 million yuan ($16.5 million; 12 million euros) subsidy for operating a Chinese route.

International routes increase tourism, business and investment and improve the regional economy, generating the GDP equivalent of three to four domestic routes. But as the amount and duration of such subsidies are limited, promoting investment through international routes won't exert a stable long-term effect.

Although local government also subsidizes domestic aviation companies, few carriers are willing to start international non-stop flights from second-tier cities, because in terms of international sales and network connections, they are not on an equal footing with foreign airlines.

Relying solely on local government subsidies cannot guarantee profits. Therefore, like the top three domestic airlines, companies are more inclined to build bases in Shanghai and Beijing, and connect to smaller hubs in second-tier cities for international passengers. Direct routes launched by foreign airlines in these cities definitely weaken Chinese airlines.

Foreign carriers are also actively wooing Chinese airlines to join international airline alliances, deepening cooperation through ways such as code-sharing and joint operations on certain profitable routes.

The author is a senior journalist at CAAC (Civil Aviation Administration of China) News.

(China Daily European Weekly 01/10/2014 page9)