Fighting over China

The US is about to choose carriers for new US-China routes, stirring aggressive bidding, but this Transportation Department  competition is different than most: it has drawn airlines into innovative marketing campaigns to win public support for their proposals in a level of public activity not seen since the early US/China route selections or the anticipated US/UK breakthroughs of the late 1990s.

American has set up an attractive website, www.flytochinaonaa.com, which touts its proposal and invites viewers to sign an on-line petition that will go to the decision-makers, while Continental held a rally in New York City's Chinatown to enlist support and to stress the importance of the traffic base in the New York City area - which has no non-stop US/Shanghai service. Continental too is inviting electronic petition-signing on its website, although the American page is considerably richer in content.

The only US-flag airlines allowed to apply for the highly desirable routes to the Mainland are those airlines that already fly between the two nations. A 2004 US/Peoples' Republic agreement set that limitation, and no new carriers can be chosen before the middle of 2008 - making this competition all the more intense. As much as $100 million in annual airline incremental revenue is at stake, say analysts, while American has estimated an economic impact of as much as $200 million on the North Texas economy alone.

This competition, rather than based in the competition of hub and feeder-network strengths as in the past, involves considerable symbolism: for the first time non-stop service between the two nation's capital cities is at issue.

United Airlines, which has long served China, wants to add a route between Washington Dulles International Airport and Beijing, arguing that its route should win because of the growing importance of US/China relationships. It has won support from the powerful Speaker of the House, Rep. J. Dennis Hastert, who happens to represent a district in suburban Chicago, the city that is home to United's headquarters. Hastert says, "Capital-to-capital service will support the continuous dialogue that is critically needed between these two governments".

Against that symbolism is the argument that some regions of the US have no service at all to China; American wants to start serving between its Dallas/Fort Worth hub and Beijing, opening the first gateway to China from the US south. The China Daily quotes Marriott's John Northern, chairman of the travel and tourism committee of Shanghai's American Chamber of Commerce, as giving reserved backing to the United bid. "The most important thing is to have a balance of destinations so there is even coverage in both directions and that would lead me to favour Washington and then maybe the Dallas route," he is quoted as saying.

The third contender, Continental, which wants to fly between its Newark Liberty hub and Shanghai, argues that more local passengers fly from the New York area to Shanghai than from San Francisco, Chicago, or Los Angeles, all of which already have China service. The fourth contender, Northwest, would add Boeing 747-400 service between its Detroit hub and Shanghai. That is the largest aircraft size on offer, with the others offering equipment in the B777 size. Northwest argues that even though it already links Detroit with China, the addition of a new city on the mainland from Detroit makes sense because the 'Motor City' is the only US gateway with enough traffic to compete with service levels between China and Chicago O'Hare - four daily flights on United and one on American.

The Transportation Department has set a 31 October deadline for applications and supporting material, and will likely decide before Christmas, allowing the routes to new service to start in March of next year. You can read the arguments and counterarguments here: OST-2006-25275-1.