ANALYSIS: How China is unlocking international growth

Asia-Pacific has some of the fastest-growing air travel markets in the world, with China – and the increasingly international ambitions of its airports – playing a central part in this growth.

According to IATA’s 20-year passenger growth forecast, routes to, from and within Asia-Pacific will see an extra 1.8 billion annual passengers by 2034, for an overall market size of 2.9 billion.

Analysis of FlightGlobal schedules data for the year ending February 2017 shows China-Thailand, Japan-South Korea, Japan-Taiwan and China-South Korea leading the immediate capacity growth in absolute terms. More than 10 million seats will be added across these four markets by the year ending February 2017, compared with the previous 12 months.

That includes airlines lifting capacity by more than 20% between China and Thailand. Double-digit capacity growth is being seen in a number of other Asian markets.

Airlines will increase capacity by 41% between South Korea and Taiwan. That pairing includes the route between Seoul Incheon and Taipei, which is set to see the highest growth in terms of total seat volume of any market. Schedules data shows an additional 46% capacity – representing more than 800,000 seats – to be added during the year ending February 2017.

This growth is driven mainly by low-cost carriers, notably from South Korea. Jeju Air, Jin Air and Eastar Jet are among Korean operators to increase capacity, alongside other budget carriers Scoot and Mandarin Airlines. The growth from LCCs has seen market shares fall for the five incumbent network carriers – EVA Air, China Airlines, Asiana Airlines, Korean Air and Cathay Pacific. This is down almost 10 percentage points to 70.9% as of September 2016 compared with the previous year.

Taiwan’s transport ministry aims to improve the quality of the country’s tourism product and reduce the sector’s reliance on tourists from Greater China. The plans are intended to attract more high-end tourists from Southeast Asia and China, by developing a more friendly tourism environment and themed travel packages.

Connections linking Tokyo Haneda and China’s major hubs have also been expanding. Airlines will add 658,923 seats to Shanghai Pudong (up 178%), 402,638 to Beijing (47%) and 338,375 (164%) to Guangzhou. This is mainly driven by Japan Airlines, which is operating new nonstop daytime flights to Pudong and Guangzhou, and has increased frequency on the Beijing route.

Another interesting phenomenon is the continuously improving connection between Taiwan and secondary destinations in Japan. For example, airlines are scheduled to raise seat capacity to Okinawa and Nagoya by 30% and 36%, respectively, for the year ending February 2017. Japan has always been a popular destination for Taiwanese tourists. Now, however, a more diverse product is being developed to draw them to other Japanese cities.

The forward-looking schedules data also shows a clear trend of fast-improving connections between North Asia, particularly China, and Southeast Asia. Notably, the secondary cities in China, most of which are regional hubs, are gearing up to develop more international connections, and to the Asia-Pacific region in particular.

The high growth of international services will help airports such as Chongqing, Changsha, Wuhan, Tianjin and Qingdao catch up quickly with Chengdu and Kunming, which were among the first cities to move into this market.

Air travel has continued to see growth across China, well beyond the big three hubs, which had dominated air traffic in the country. The combined market share by annual passengers for Beijing, Shanghai Pudong and Guangzhou has fallen over the past decade from 31% in 2006 to 22% last year – despite those three airports still growing rapidly.

This growth means there are nine airports in China handling more than 30 million passengers annually: alongside Beijing, Shanghai Pudong and Guangzhou, Chengdu, Shenzhen, Shanghai Hongqiao, Kunming, Xi’an and Chongqing all topped that passenger throughput last year.

Some of these airports have enjoyed a double-digit 10-year compound growth rate, with Chengdu being the pioneer in route development and international branding. Second-tier airports in China have developed even faster over the past decade. The number of airports with annual passenger traffic between 10 million and 30 million increased from six in 2006 to 17 last year.

The traffic market share at these airports has increased from 27% in 2006 to 31% in 2015. Their 10-year traffic compound growth rate is quite staggering, with the majority of them averaging growth of 15% or above.

One of the major trends in evidence is their continuous efforts to build international markets. There are two linked drivers that are considered key to the growth of second-tier airports in China – urban population scale and the strength of the local economy. These are fundamental factors that support international network growth. There are more than 120 cities in China with more than one million inhabitants, and second-tier airports in provincial capital cities will benefit from the growth of these cities.

Location is also vital, as many of these airports, such as Wuhan, Changsha and Zhengzhou, are in central provinces, which positions them well as international gateways, connecting to destinations across China.

Other gateway cities such as Tianjin, Urumqi in the far northwest, and Nanning in the south supplement connections to northeast Asia, Central Asia and Europe, and the ASEAN countries.

In addition, the difficulties in adding new services at crowded major hub airports in China create an opportunity for the second-tier airports. United Airlines has added frequencies to San Francisco, for example, but from Hangzhou instead of Shanghai.

Support from provincial or local governments – whether financial subsidies or promotion and public relations – also encourages these airports to be more proactive in their international ambitions.

The bright growth outlook for second-tier airports will of course not halt the major hub airports’ development. But it will mean a pause for reflection for the three leading airports as to their future strategies.

Joanna Lu is a Hong Kong-based consultant with Flight Ascend Consultancy

Source: Cirium Dashboard