China has emerged as Asia-Pacific's largest player in air transport over the past decade. But its growth ambitions for the next 10 years and beyond go further. Last year China revealed a strategic vision to build a powerful civil aviation industry, with internationalisation, mass air travel and safety as three pillars. The aim is to turn the country into a strong global competitor in the next 20 years.
This vision may be ambitious but is not unrealistic. China's civil aviation has already achieved success through two domestic industry reforms in 1987 and 2002. This has moved it from a government-controlled industry towards market liberalisation. It realised a total turnover of 41.2 billion tonne-kilometres in 2009, ranking it second in the world. This has laid a solid foundation for the industry to move on.
The new national strategy will accelerate air transport infrastructure development. Total investment in airport development, for example, hit a record high of 300 billion yuan ($45.5 billion) over the past five years. This upward trend will continue over the next five years, with an estimated 55 billion yuan investment planned for this year alone.
China's economy is set for robust growth over the next 20 years, which will drive the country's industrialisation and urbanisation. This will lead to changes in China's consumption structure, generating increasing demand for services - including air transport.
As China continues to liberalise its air transport industry, its major airlines, taking advantage of global alliance membership, will gradually shift their focus from domestic to international markets to become competent global competitors. Chinese airlines currently rely heavily on the domestic market. The 14.7 million international passengers carried in 2009 accounted for only 6.4% of the total passenger numbers of 230 million. China envisages this international share to reach 50% by the end of the decade, and 60% by 2030.
To achieve these goals, more mergers and acquisitions, following the China Eastern and Shanghai Airlines tie-up, are likely in the domestic market. This will create two to three large network carriers for international competition. China hopes at least one of these will be in the global top five in both domestic and international performance by 2030.
But the international expansion of Chinese airlines cannot be successful without the strong support of a sophisticated hub-and-spoke network, which did not begin to emerge in China until the early 2000s. Point-to-point is still the dominant route structure of Chinese airlines. For this to change, development in hub and spoke airports will need to be strengthened.
Hub development, with the rapid expansion of Beijing, Shanghai and Guangzhou airports, has made progress. Growth of 13% propelled Beijing Airport, the hub of Air China, to be the second busiest airport in passenger numbers, handling 73.9 million in 2010. As the next step, China's hub development at these airports will place quality before quantity, enhancing their ability to consolidate traffic, while improving service and efficiency. This aims to better position them to compete with major air hubs in neighbouring countries for international connecting traffic.
Spoke airports remain a weak point. Due to China's low airport density (1.6/100,000 square kilometres), there are not enough of them. Of the existing ones, many are under-used as a result of difficulties in forming and supporting regional air markets. For many years, air transport turnover in regional markets has accounted for only 3% of the country's total.
The government aims to address this by increasing airports from 175 today to 244 by 2020. Most of the new airports will be in the less-developed western regions. The government is also considering borrowing experience from the Essential Air Service Programme in the USA to foster regional market development for secondary airports.
By 2030, China expects to have at least three globally recognised international air hubs, 10 national and regional hubs, supported by an efficient spoke airport structure.
The growth of the Chinese air travel market is clear. Chinese airlines carried 138 million passengers in 2005. By 2009 it had reached 230 million. There are compelling reasons to believe that the growth will continue, bringing China into an era of mass air travel.
MASS AIR TRAVEL
Urbanisation and rising income will be the driving forces in shaping the mass air travel market. China's urban population is projected to grow from 622 million in 2009 to nearly one billion by 2025. Personal income, with average annual growth of 9% over the past five years, will continue to increase, providing a boost for China's tourism.
The World Tourism Organisation forecasts that China will become the world's largest inbound travel country and fourth largest for outbound tourists by 2015. Only 17% of the country's population travelled by air in 2009, leaving great potential to accommodate fast-growing travel demand.
As air travel becomes commonplace, China's low-cost airlines will be given a new lease of life, which, in turn, should further stimulate demand. At present, China's low-cost airlines have only 5% of the domestic market mainly due to policy barriers, such as high import aircraft tax, that prevent them from achieving the necessary cost-saving.
But in the coming years they could benefit from the repositioning of the major airlines to international markets, while new home-grown aircraft will provide opportunities to lower costs and enable them to thrive in the under-developed regional markets in the western provinces.
Customer service and safety also features as part of the aim to accommodate the needs of 700 million passengers by 2020, and 1.5 billion by 2030. The vision target a less than 0.15/million flight hours fatal accident rate by 2020, and falling to 0.10 by 2030.
OPENING THE AIRSPACE
Flight delays have in recent years hampered China's major hub airports, while China's general aviation has struggled to breakthrough. These two seemingly unrelated phenomena have one thing in common - China's long-restricted airspace has failed to keep pace with the development of civil aviation.
A long-awaited decision to open up low-altitude airspace below 1,000 metres came when China in August approved a 10-year guideline to reform low-altitude airspace management. Trials at select cities began in November and this is widely seen as the path to fast-track development of China's general aviation, which has barely grown in 30 years.
As a result of the plan, China's general aviation is expected to grow 15% annually over the next decade, and be capable of serving all domestic cities and towns by 2030.
The opening up of low-altitude airspace could also pave the way for high-altitude airspace to follow. Currently, this segment is mostly controlled by the military, leaving airlines with little flexibility in optimising route structure. This is a major reason for air route congestion near China's major hubs.
The conflict between China's growing air transport volume and limited civil airspace resources calls for a new airspace management policy. China's state ATC Commission is considering establishing a civil/military joint ATC operations mechanism, to promote civil/military co-ordination on airspace usage.
Although lacking a specific timetable, a reform in high-altitude airspace usage will be key if China is to ensure sustainable development of its commercial air transport sector.
China will, however, face challenges in turning its vision into reality. As market liberalisation progresses, foreign airlines will be given greater access to the Chinese market. The 2007 China-US air transport agreement has triggered enthusiasm for expansion. American Airlines, for example, opened a second direct route from Chicago to Beijing in 2010. Major European carriers are also seeking opportunities in China. Lufthansa's recent decision to fly an Airbus A380, bearing the name Peking, on its Frankfurt-Beijing routing is another sign of its ambitions in the region.
Foreign low-cost carriers also have the Chinese market ambitions. AirAsia and JetStar Airways have both made moves into China and Chinese airlines will also face more international competitors in the domestic market.
Competition in the domestic market will be further intensified by the construction of 16,000km (9,940 miles) of high-speed rail lines. This investment began in 2004 and is set for completion at the end of the decade.
The Wu-Guang high-speed railway, which entered service in 2009 with a world-record speed of 350km/h (217mph), has cut the journey time from Wuhan to Guangzhou from 11h to 3h. With such significantly shortened travel times, high-speed rail has become a strong competitor for airlines on shorter routes.
As airlines seek ways to counter high-speed rail impact, such as shifting to international markets, there will be a trend of air-rail co-operation. Shanghai Hongqiao airport has made a constructive attempt in developing such a partnership, but more policy support will be needed from the government.
An even greater challenge will lie in the international market, where Chinese airlines must broaden their limited experience to make the transition from big domestic players into leaders on an international stage. The Chinese government, realising the weakness, has adopted a "invite-in" and "go-out" strategy to help its airlines build such experience. Recent years have seen China attract increasing number of international airlines to the domestic market, which have brought in not only competition, but also valuable international experience.
At the same time, China has strived to develop a global perspective by getting actively involved in the international air transport business, leading to the signing of ICAO's Beijing Convention and Beijing Protocol of 2010 strengthening the global civil aviation counter-terrorism framework.
Chinese airlines have in turn started to become participating members in the global market. Air China and China Southern have joined Star Alliance and SkyTeam respectively, and China Eastern will follow into the latter. Joining the alliances gives Chinese airlines further opportunity to co-operate with strong international players at a global level and learn advanced international operation and management experience.
But it is by no means an easy opportunity. The late start in China's hub airport development means it lags behind major neighbouring countries. And air hub competition for international connecting traffic is escalating in the Asian markets. This may put China's hub development at disadvantage, while the weak international route network of Chinese airlines prevents them from better utilising network resources of other alliance members.
Undoubtedly, there is a new dawn in the development of China's civil aviation. The journey will see change and challenges ahead . But China can already point to building its civil aviation market from almost nothing to one of the biggest in the world over the past three decades. Now it starts the journey to develop into a confident global competitor.
ABOUT THE AUTHOR: Jane Pan is a Vancouver-based Chinese air transport specialist. She was formerly with Lufthansa and IATA in Beijing, becoming training manager at IATA's China Training Centre in 2001