Airports in China are undergoing an unprecedented level of growth thanks to a booming economy and a stringent reform agenda.
The surge in civil aviation in china is putting the current airport infrastructure under increasing strain. But while some are struggling to keep pace today, the country has embarked on a centrally planned building frenzy to meet anticipated demand.
The figures speak for themselves. Over the last 25 years the number of airports in China has doubled to reach 133, of which a third now handle more than 1 million passengers a year. And according to the Civil Aviation Administration of China (CAAC) the number of hubs is due to grow by another 55 over the next 15 years to hit 185 by 2020. Growth is still roaring along, with latest CAAC statistics showing a 38% growth in traffic last year around 120 million passengers, of which roughly 100 million were domestic.
If such growth rates continue, China could overtake Japan within five years to become the world's second largest national air market behind the USA, calculates Zheng Xing Wu, associate professor at the Civil Aviation University of China in Tianjin. He forecasts that Chinese passenger numbers could hit 950 million by 2020.
The CAAC's director of airports Zhang Guanghui says in terms of domestic passenger traffic there are still 10 times more people travelling by train in China than by air. Most air travel is for business, he says, with 68% paid for by companies, but he adds that "as disposable incomes increase, we expect more people will pay for air tickets". There is also huge potential for growing China's underdeveloped international passenger market, says Zhang. It currently only just makes it into the world's top 20 international markets.
Infrastructure programmes
The CAAC expects that on average three airports will be built each year through to 2020 and Zhang predicts that by then the country will need an extra 10 million m2 (107 million ft2) of terminal space. At present, he notes, only 18 hubs were working to full capacity. Although attention has tended to focus on China's densely populated and prosperous eastern provinces, central government is keen to develop infrastructure in the more remote and relatively poorer areas to the west.
Airports are seen as a catalyst for economic development and a way of promoting national integration. It is no coincidence that some of the new airports earmarked for the autonomous regions in the west, such as Xinjiang province and Tibet, are areas where some of China's ethnic minorities are concentrated.
The airports being built in eastern China are in response to massive increases in passenger and cargo traffic. A stark example is Beijing Capital International airport. Since 2000 the number of passengers has swelled by nearly 60% to reach close to 35 million in 2004 and cargo tonnages have risen by close to a third to hit around 670,000t. Five years ago the airport had only a single passenger terminal but now has two with a third already under construction, along with a third runway.
Olympic preparations
This latest expansion will be completed in time for the 2008 Beijing Olympics, doubling the airport's annual capacity to 60 million passengers. But seems still more amazing is that even though the authorities are spending about $2 billion to expand Beijing Capital, they also plan to develop a new airport for the city that will be opened by 2015. Details remain under wraps, but the authorities are looking at potential sites south of the Chinese capital. Also under consideration is a site near the village of Lang Fang, strategically located between Beijing and the port city of Tianjin further east.
Not to be outdone by Beijing, the Shanghai Airport Authority is planning a massive expansion of the city's Pudong International, currently the second largest passenger hub in China (see ranking table over page). This futuristic airport, which only opened five years ago, handled around 21 million passengers last year, a rise of 40%. Pudong is already a clear leader in cargo, handling 1.6 million tonnes last year after a 38% growth. Shanghai Airport Authority chairman Wu Nianzu says he expects construction on a second passenger terminal to start by year-end and go into operation in 2008 in time for the Olympics.
Construction of a second cargo area will also begin this year, says Wu, adding that the current cargo area has two terminals with total annual capacity of 2.5 million tonnes and that the new cargo area will increase annual capacity to nearly 7 million tonnes.Shanghai also has another major airport, Hongqiao, which until recently handled some international flights but now only serves domestic traffic.
This older airport is still one of the country's busiest and last year posted 40-50% growth to take passenger numbers close to 15 million and cargo above 294,000t. Wu says Hongqiao's passenger terminal and runways will be renovated this year.
Meanwhile, Guangzhou, China's third largest city and home to the country's largest carrier China Southern Airlines, saw the opening of a major new hub in August last year in the form of New Baiyun International. The airport has two runways, one 3,800m (12,460ft) and the other 3,600m, as well as apron space for 66 aircraft. The passenger terminal building has been designed to handle more than 25 million passengers and 1 million tonnes of cargo annually.
There is plenty of other airport development also planned for the south of the country. Sichuan Airport Group, for example, earlier this year approved a masterplan for the development of China's sixth largest airport Chengdu Shuangliu International. Group general manager Pan Xiaojun says that the plan calls for capacity to increase to 145 million passengers and 800,000t of cargo by 2020. That is a dramatic rise from the 12 million passengers and 213,000t of cargo that it handled last year. To achieve this stellar growth, the aim is to build two more runways and to expand the existing 30,000m2 passenger terminal to 260,000m2, he says.
But Chengdu and other airports with development projects in mind have to consider where the money is going to come from to fund it. Chengdu is hoping to overcome this problem with a stockmarket listing. "On 1 November last year the company became a shareholding company and we plan to become a listed company within three years," says Pan.
He says they are starting to search for strategic investors. "We are open to foreign investment and foreigner participation in financing and management. In the past, airports in China operated as part of a regulatory body but in future airports will operate more like a commercial body," he adds.
CAAC deputy director general policies, laws and regulations Sha Hong Jiang says Xiamen airport was the first in China to list on the stock exchange and since then others have followed suit (see box below). He says that when it comes to investment and financing systems for airports, the CAAC is "applying international standards and encouraging diversified investment sources".
Ownership caps relaxed
To help make airports more attractive to foreign investors, the Chinese authorities have reduced ownership caps. Foreign ownership of Chinese airports, by different foreign companies when combined, is allowed to exceed 50% as long as the largest single shareholder is a Chinese national.
Foreign investors that have done just that include France's Aeroports de Paris, which has a 9.9% stake in Beijing Capital, and Denmark's Copenhagen Airport with a 20% stake in Hainan Meilan International.
There is also Hong Kong's Airport Authority which in mid-April announced it had firmed up a deal to buy a 35% stake in Hangzhou's Xiaoshan International. Singapore's Changi Airport Managers and Partners, the consulting arm of the Singaporean CAA, is also doing due diligence on Nanjing Lukou International with a view to buying a stake.
In another major reform the central government has handed control of the country's airports to the respective provincial governments with some exceptions, such as Beijing airport and some airports in Tibet.
"Currently in China, airports report to the local [provincial] municipality. Those airports with the necessary business conditions can rely more on foreign investment," says Sha at the CAAC. "Foreign institutions and foreign government loans can also be put into building airports. For those medium-sized airports it is difficult to be completely business operated, but they could split business operations from social welfare operations," he says, adding that airports that "are small and not profitable… will [continue to] rely on local government subsidies."
Liberalisation efforts
While there are more opportunities to invest in airports, the authorities are introducing reforms that will also help airports get more traffic. China's southern province of Hainan Island has been used to test market some of the reforms, namely the liberalisation of air services.
Last year the CAAC abolished restrictions on the frequency of flights to Hainan Island by foreign carriers and also allowed for fifth freedom rights. Now some airport groups, particularly those in western China, are also pushing for this. Yunnan Airport Group president Liu Ming says his company is talking to authorities and is "confident the issue [of fifth freedom rights] will be settled soon".
Pan Xiaojun of Sichuan Airport Group was expecting the reform to come through in February "but for some reason it wasn't approved" although the authorities are likely "to reach a conclusion this year". He adds: "We want to get it approved so more domestic and international carriers will come to Chengdu. It is only a matter of time before fifth freedom rights come to Shuangliu airport."
Another major reform is that new airlines from the private sector are starting to emerge. This is significant because Chinese airlines have traditionally been from the public sector. The newcomers are United Eagle Airlines based at Chengdu Shuangliu, Air Spring based at Shanghai Hongqiao and Jetwin Air Cargo and Jade Cargo International based at Shenzhen Baoan.Airports have been competing to win over these new players, although there has been little talk of providing discounts to win their business.
The first private airline to launch was Tianjin Binhai-based Okay Airways, which started operations in March. The carrier has discussed publicly the problem of high airport landing fees and charges.
Okay Airways is pitched to consumers as a low-cost carrier, but local reports say there is little difference in the price of an air ticket from Okay and are from the legacy carriers. Okay's president Liu Jieyin says this is partly due to high airport fees and charges. In China the CAAC is still entitled to set standards for airport charges.
Zheng at the Civil Aviation University of China says the CAAC and respective provincial governments still have control over aeronautical charges. Under the present regulatory regime the airports have little flexibility when it comes to setting fees for airport landing and take-off, he says.
On the issue of airline discounts, airports in China generally respond by arguing they have to follow the CAAC's pricing guidelines. Shenzhen Baoan president Chen Hong, for example, said in March at a China Airports conference in Shanghai organised by Airports Council International: "I think airports need to abide by the pricing principles of the CAAC and we need to take into account our cost base. Our air traffic is very busy and we can't have a lot of space to accommodate low-cost carriers. We want to engage big carriers." He added that low-cost airlines are encouraged to use the airport during off-peak periods.
Another explanation for the reluctance of airports in China to lower fees and charges is because – unlike in Europe and the USA – there are relatively few secondary airports in China open to commercial operations. And even if an airline locates a desirable secondary airport, there is no certainty it will be cheap to operate there.
Shanghai Airlines is currently facing this issue because it is trying to negotiate lower fees and charges at Beijing's secondary airport Nan Yuan airport. The carrier recently bought China United Airlines, which is based at that airport and is toying with idea of relaunching the airline as a low-cost carrier. Turning China United into a low-cost carrier "is a possibility. [But] it all depends on airport fees and costs," says the chairman and chief executive of Shanghai Airlines Zhou Chi.
While Shanghai Airlines is able to establish a hub in Beijing because it bought an airline based there, the CAAC is making it easier for airlines to establish hubs in other cities without going to such lengths.
Shanghai, for example, is being opened up, with airlines from around China being permitted to establish hubs at Shanghai Pudong and Hongqiao airports. Wu at the Shanghai Airport Authority says that they are negotiating with Guangzhou-based China Southern, which is establishing a hub at Shanghai Pudong. CAAC deputy director general of international affairs and co-operation Wang Rong Hua says that the authority opened up Shanghai to meet the huge demand in that market.
Guangzhou hub
There is also an expectation that the CAAC will soon be opening up Guangzhou in the Guandong province to greater competition. Already China Eastern, Shanghai and Shenzhen Airlines have applied to the Guangdong Airport Group for permission to establish hubs there, says the group's president Zhang Chulin.
Zhou at Shanghai Airlines says the CAAC has yet to open the Guangzhou market, but Shanghai Airlines and others have applied in anticipation of the law being changed. "I hope Beijing and Guangzhou airports will open up to other airlines or else it would not be equal," he says.
It seems the reforms so far have worked to heighten expectations from industry players in China that there will be even more changes ahead and if the bold infrastructure plans come even close to meeting their targets then there will be plenty of growth to go round.
China's publicly listed airports
1996 Xiamen International Airport Group lists on the Shanghai stock exchange
1998 Hongqiao International Airport Group lists on the Shanghai stock exchange
2000 Beijing Capital International Airport Group lists on Hong Kong stock exchange and Aeroports de Paris takes 9.9% stake
2002 Hainan Meilan Airport Company lists on Hong Kong stock exchange and Copenhagen Airports takes 20% stake
2003 Guangzhou Baiyun International Airport Company lists on the Shanghai stock exchange
Source: Civil Aviation University of China
Source: Airline Business
