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A New Era in Aviation

Special report: Chinese AviationChinese aviation has developed beyond all recognition but it is time to raise the bar even higher.

In 1421, before Magellan and Columbus, Chinese Admiral Zheng He is said to have circumnavigated the world, visiting the Americas on the way. If so, China failed to follow up this early exploration, and the prospect of a global trading network was lost.

While China may have lost sight of the potential of seafaring many hundreds of years ago, it is in no danger of repeating the mistake with aviation. Government policy has been very supportive of the industry and, unsurprisingly, it has yielded positive results.

In 2010, 296 million passengers and 11 million metric tons of freight traveled to, within and from China. Air transport, including its role in tourism, contributes around 1% of Chinese GDP. Passengers who arrive by air pump around $7.93 billion (CNY50 billion) into the Chinese economy every year.

Furthermore, 4.8 million Chinese jobs depend on the aviation value chain, with workers in the industry unusually productive—the $51,857 (CNY327,000) generated by the average air transport services employee is 6.4 times higher than the overall average.

The country’s aviation sector has made enormous strides, with rapid progress in e-ticketing and the improvement in safety obvious examples. This trend has continued. In 2011, there were no accidents involving Western-built jets in North Asia.

The government also saw the wisdom in consolidation, bringing major airlines together to rationalize and improve the service to the customer. The result is that the country now houses the biggest airline by market capitalization in the world. Chinese carriers made $22 billion last year, a figure that compares impressively with the overall industry figure for 2011 of $7.9 billion.

Airports galore

The infrastructure boom is touted as testimony to China’s great advance in aviation. According to the Civil Aviation Administration of China, there are plans for 56 new airports before year-end 2016. A further 16 airports will be relocated and 91 facilities will be expanded–numbers far beyond the realms of possibility in Europe or the United States.

Beijing Capital International Airport’s new terminal was delivered, as promised, in time for the 2008 Beijing Olympics. This contrasts with the UK government’s failure to approve a third runway for London Heathrow, which will be besieged by traffic when the 2012 Olympics begin in London. Beijing’s $3.5 billion Terminal 3 is larger than Heathrow’s five terminals combined and can comfortably handle more than 40 million passengers per year. For good measure, a new runway opened in 2007 to facilitate operations at the new terminal. Clearly, the Chinese government displays a different attitude than the UK government when it comes to the industry and the potential benefits of aviation.

Perhaps the most incredible fact about the Chinese airport boom, though, is that it’s still not enough. Far more airports and terminals are needed if China is to satisfy the projected growth figures and exploit the full social and economic potential of aviation. The assertion is mirrored in the figures. The largest airports—including Beijing, Guangzhou, Shanghai Pudong and Shanghai Hongqiao—handle the majority of the traffic. Of the 877 million additional passengers that will be accommodated by 2015 compared to 2010, 212 million are expected to fly on routes associated with China. The average person in the United States travels by air 1.8 times per year. In China, the average is 0.2 air trips per person per year. “Within the next decade China is expected to reach an average income level of $15,000 per capita,” notes Tony Tyler, IATA Director General and CEO. “Achieving that in China will generate an extra billion annual travelers.”

According to Zhang Baojian, IATA Regional Vice-President, North Asia, there is discussion about whether to allow more commercial aviation at second-tier airports. These are currently managed by the military, but would provide welcome relief in certain areas of the country. These facilities would also help to create further demand and enable smaller airlines to open niche markets. “In 2011, Dragonair recorded a promising performance on Beijing and Shanghai routes,” says Dragonair Chief Executive Officer Patrick Yeung. “There was also considerable growth in passenger numbers in secondary cities such as Hangzhou, Xiamen, and Nanjing.”

The western side of China is in particular need of development. The largest airport in the area is Chengdu Shuangliu, handling 29 million passengers and more than 477,000 tons of cargo in 2011. Its geographic location means East Asia, South East Asia, and South Asia are within four hours’ flight time, while the Middle East and Europe can be reached in 6–10 hours. With a population of 14 million in the airport’s catchment area, the regional government is working hard to improve international connections and, by the end of 2013, Chengdu could have service with the United States, Canada, Finland, France, Australia (Sydney and Melbourne), and the Middle East (United Arab Emirates and Qatar).

Overall, regional governments are pushing for greater international service. By 2025, 221 Chinese cities will have more than one million residents, according to management consultancy McKinsey. That compares with 35 European cities with populations of more than one million today.

Wherever the development, a level playing field is essential. IATA will monitor the situation regarding industry charges. “We are looking forward to action on previous commitments to close the gap between the airport charges paid by visiting airlines and Chinese airlines,” says Hemant Mistry, IATA Director for Industry Charges, Fuel, and Taxation. “We are also hoping to see jet-fuel prices in China brought down to levels that are more commensurate with that of airports in the region.”

Aviation for the people

Load factors for Chinese carriers are extremely high. The market has been buoyant in 2012, flights are almost always full, and seats can be quite hard to come by. This isn’t all down to numbers, however. Part of it is due to a very efficient distribution system that not only makes the airline product available to China’s vast market, but does it at a fraction of the cost of the western global distribution systems.

TravelSky estimates it is responsible for 94% of Chinese airline tickets, but that this represents just 0.5% of their cost base. One of its goals is to move from its national position to the international stage, embracing technological trends as it does so. TravelSky was the first global distribution system to support IATA’s Electronic Miscellaneous Document in June 2010 and is now looking closely at the mobile online market, which grew to 415 million users in China in 2011. Content as well as channels will be developed. Hotels and other services are already available through TravelSky and there are plans to add many other elements.

With travel becoming increasingly accessible, more aircraft will definitely be needed. Airbus orders are currently the subject of much speculation because of the ongoing row over the European Union Emissions Trading Scheme (EU ETS). Meanwhile, China has its own aircraft manufacturing plans. The C919 has so far received 235 orders. Wu Guanghui, Deputy General Manager of the Commercial Aircraft Corporation of China Ltd. has reported these are mostly from domestic users, but some are from the United States and southeast Asian countries.

The single-aisle passenger jet will be powered initially by advanced LEAP-X1C engines, which are installed in Boeing and Airbus aircraft, but Wu has revealed the Chinese are developing a bespoke engine too. “There will be a choice of two engines for the C919 in the future, and the plane will definitely have a Chinese heart,” says Wu.

As below, so above

Airspace traffic flows—performed by the military in China—could also change in the near future. The Pearl River Delta (PRD) is still the focus for improvements. “Dragonair is aware the authorities in Hong Kong, Beijing and Macau have agreed a plan to reorganize the airspace in the PRD area, and that this plan will be gradually put into effect from now until 2020,” says Yeung. “This reorganization is a vital step in ensuring the efficient growth of all airports in the area.”

Of course, there have been major developments already. IATA worked with the Chinese government to shave about 25 minutes off approaches over mainland China to the PRD. The routes, IATA-1 and IATA-2, save time, fuel, and emissions. Even so, delays can still be extensive for airlines in China, according to Yeung. “When this is viewed against the number of new airports being developed, it is clear future airspace and air traffic control infrastructure needs should not be underestimated,” he says.

IATA’s Zhang notes there is also a proposal to free up airspace below 3,000 meters. “The main beneficiary will be general aviation, but there should be a knock-on effect that will help commercial operations,” he says.

Airspace improvements will help airlines respond to a competitive market. The revolution in China’s high-speed railway could have a big impact on airline sales. China has 13 high-speed railway lines in operation, with another 23 under construction. A further 26 are at the planning stage. By 2020, there will be 10,000 miles of track.

The development of airspace will also enhance environmental mitigation efforts. China will be a leading player in talks about a Seamless Asian Sky and the country is pushing ahead with sustainable biofuels. Air China, Boeing, and Petro China are working on a project.

Connectivity benefits

Zhang also says the Chinese government has earmarked 2020 as a guideline year for beginning Open Sky negotiations. “It is a welcome move, but could be considered too conservative by some,” he adds. The concern about conservatism is based on an understanding of the major role improved connectivity could play in the Chinese economy. If China became truly integrated into the global network it would open up more markets to Chinese exports, lower transport costs, and thereby make its products even more competitive.

Aside from this, connectivity can increase the efficiency of labor supply, speed the adoption of new business practices, and raise productivity levels. For example, Chinese companies could improve in the face of competition from foreign producers and specialize in areas where they have comparative advantage. It is estimated a 10% improvement in connectivity would generate an additional $4.03 billion (CNY25.4 billion) for the Chinese economy.

Improved connectivity also encourages foreign direct investment. This is an area China is keen to encourage and in which it has already enjoyed considerable success. Airbus China, for example, has been investing in the country since the 1990s and employs 300 people. In September 2008, it opened an A320 Final Assembly Line and Delivery Center in conjunction with the Tianjin Free Trade Zone and Aviation Industry Corporation of China.

Improving service levels

With the world beckoning, Chinese carriers will have to adapt their image to embrace international norms in service. The Chinese carriers’ profits largely come from premium class domestic travel, a fantastically strong market segment. Significantly, they lose money on most international routes and certainly lose out to international rivals. For journeys from China, Chinese carriers have just 46% of the international and 35% of the cargo market.

“But they are closing the gap and this will allow them to compete on the international level in the near future,” says Zhang. “Creativity and innovation will be the key, and they must also benchmark themselves against competitors and try to replicate, and even improve on, the service levels on offer.”

Despite these challenges, there is no doubt China has made its mark on global aviation. Thanks to a supportive government policy framework China can no longer be bracketed with potential. The future has arrived. The country is already flexing its muscles on international policy, as can be seen in its stand against the EU ETS. Its effectiveness in helping to resolve other concerns, such as security, would then enable it to promote future concepts, such as e-visas.

Nearly 600 years after Admiral Zheng He, China has embraced the world beyond its borders. Air connectivity is helping to power its extraordinary economic expansion.


Cargo calling

China is a manufacturing powerhouse. But to get its goods to market, air freight must play a critical role. China is particularly strong in products that have a high value-to-weight ratio, such as electrical components. These are also the very items most companies feel are suited to a just-in-time delivery model. It is very difficult to justify holding expensive inventory in the current economic climate.

Thanks to air cargo, goods can be sent to Europe or the United States far quicker than the 30 days it takes by sea. The fastest growing cargo route in the world is between China and North America, which has grown at more than 10% per annum for more than 15 years. China is now the second-largest air freight market after the United States.


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