ANALYSIS: China-Thailand heads increased Asian capacity

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Hong Kong-based Ascend analyst Joanna Lu examines the recent rise in Asia-Pacific routes, as the region’s airlines march on with network development and airports develop to make the most of the growing demand

The global air travel market performed strongly in the first half of 2013. According to IATA statistics, global air passenger traffic – as measured in revenue passenger kilometres (RPKs) – grew around 5% during the first five months of 2013, compared with a year ago.

In the second quarter of 2013 over 5,000 scheduled passenger routes were recorded, with 2.73 million flights scheduled in the Asia-Pacific region. Compared with last year, the scope of the route network expanded by 5.5%, while the density increased by 8%. Routes within the Asia-Pacific region led this growth, with an increase of 9.8% in the number of routes and a rise of 9.2% in the number of flights.

Airports in the Asia-Pacific are developing rapidly to take advantage of the booming traffic demand, but challenges from the fragmentation of airspace between different countries are still to be resolved.

Routes between the Asia-Pacific and the Middle East recorded a strong increase in the second quarter compared with a year ago, with a net increase of 20 routes and 11% more flights. Total seat capacity was increased 14% year on year in the second quarter of 2013. This is attributable to both the increase in average aircraft seat capacity and number of flights offered.

Gulf hub carriers continued to seize opportunities from connecting passenger traffic, by adding more flights and seat capacity to major destinations in the Asia-Pacific from their main hubs. The three majors – Emirates, Qatar Airways and Etihad Airways – all increased their presence in the Asia-Pacific with increased frequencies. An extensive network of connections to Europe, Africa and the Americas is available from the Middle East hubs.

In the second quarter of 2013 there were 432,000 non-stop passenger flights on 1,199 routes within the Asia-Pacific. During the period, there was a net increase of 107 routes and a 9.2% increase in the number of flights. Some 89 million seats were offered, representing a net increase of 8.2% in capacity compared with the same period last year.

There was a dramatic increase on routes between China and Thailand. Year-on-year growth in seat capacity was 60%.

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Thai AirAsia played a key role in this growth. The carrier, which recorded a 58% year-on-year growth in seat capacity in the market, projects that it will carry 5 million Chinese passengers between China and Thailand over the next five years. Thai AirAsia operated over 96,000 flights between Thailand and China during the second quarter of 2013 – a year-on-year increase of over 57%. Its new routes include Bangkok to Wuhan and Xian.

The carrier currently serves seven destinations in China, including Hong Kong, Macau, Guangzhou, Shenzhen, Chongqing, Wuhan and Xian, from its hubs at Bangkok Don Mueang airport, Chiang Mai and Phuket. The airline moved its entire operation from Bangkok’s Suvarnabhumi airport to Don Mueang in October 2012.

Thai AirAsia continues to launch new services and increase frequencies to China. The airline, together with four Chinese carriers, accounted for two-third of the additional seat capacity in the second quarter. China Eastern Airlines lifted seat capacity 73% – the largest of any airline in the market. Subsidiary Shanghai Airlines’ increased its China-Thailand second quarter capacity by 47%, while capacity for China Southern Airlines and Air China was 38% and 35% higher than October 2012 respectively.

Three airlines entered the market in the second quarter of 2012 – Juneyao Airlines, Spring Airlines and Orient Thai Airlines. Juneyao now serves three Thai destinations from Shanghai Pudong – Bangkok, Chiang Mai and Phuket. Meanwhile, two airlines have quit the market since the second quarter of 2012 – Xiamen Airlines and Ethiopian Airlines, the latter having used Bangkok Suvarnabhumi as a stopover point for its services to China.

In terms of cities served in the China-Thailand market, five new Chinese cities were added, including Wenzhou, Hefei, Fuzhou and Jinan. These are all served by China Eastern and Shanghai Airlines.

The top three destination airports in Thailand – Bangkok Suvarnabhumi, Phuket and Bangkok Don Mueang, account for over 90% of the total year-on-year incremental seat capacity in the second quarter of 2013. Following the relocation of Thai AirAsia and other regional airlines, Don Mueang now ranks third-largest in terms of seat capacity. The number of seats offered between China and Suvarnabhumi and Phuket increased 27% and 62% respectively, compared with the second quarter of 2012.

Although Australia’s national carrier Qantas still dominates the non-stop international routes serving the country, competition is increasing, as Middle Eastern and Chinese airlines continue to lift capacity in the Australian market.

The most significant changes since the second quarter of 2012 have taken place in the Middle East-Australia market. Before the revised “Kangaroo route” was introduced by Qantas in October 2012, Emirates had the majority market share of routes between Australia and the Middle East. Qantas re-routed its Australia to London flights to fly via Dubai, and now has an 18% market share in the Australia-Middle East market. It means Emirates and Qantas now have a combined 72% market share in the market.

Asia-Pacific airlines have boosted their services to Australia to meet the demand for connecting traffic between Australia and Europe. China Southern Airlines is promoting its “Canton route”, using its hub in Guangzhou as a stopover point for Australia-Europe connections. The airline began deploying 506-seat Airbus A380s on one of its daily Sydney-Guangzhou flights in October.

Sichuan Airlines became the first Chinese regional carrier to offer non-stop flights to Australia. It launched thrice-weekly Airbus A330 flights between Melbourne and Chengdu in February, providing an additional 76,440 seats between the two cities every year.

In the Australia-North America market, Qantas’s market share fell 2.2 percentage points over October 2012 and now stands at 42%. United Airlines’ share in this market fell 1.4 percentage points to 16%. On the other hand, Hawaiian Airlines and Jetstar increased their market shares.

Now repositioned in the full-service market, Virgin Australia has built up international codeshare and frequent flyer alliances to win more long-haul traffic. Skywest Airlines, now known as Virgin Australia Regional Airlines, was also recently acquired for its high-yield mining “fly-in, fly-out” market in Western Australia and Queensland.

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Although Qantas lifted its long-haul seat capacity a third year on year in the second quarter, it cut its intra-Asia-Pacific seat capacity 16% during the same period. Virgin Australia increased the number of flights across its network around 2%, while seat growth was between 0.3% and 1.8%. The lower seat growth compared to the number of flights can be accounted for in view of the introduction of smaller aircraft to Virgin Australia’s network. Six new ATR 72 turboprops were delivered to the airline during the year.

This is an extract from the Route Focus quarterly review produced by Flightglobl's Ascend consultancy arm. Click for more details