US regulators favoured competitive challenges over network power in choosing new US entrants that will shake the long-held United and Northwest Airlines duopoly on traffic to the fast growing mainland of China. The US-China market has been growing at 23% on an average annual rate and the new routes could yield $100 million each in first-year passenger revenue.

Acting under a June 2004 bilateral that gave the Transportation Department (DoT) rights to choose two passenger entrants, the agency cited the value of new competition in picking Continental for service between its Newark Liberty hub and Beijing, and in picking American Airlines to serve Shanghai from Chicago O'Hare.

New York City is the largest US metropolitan area without direct China US-flag service, the DoT said in rejecting a bid by Delta Air Lines to link Atlanta and Beijing. Delta had lobbied ­heavily for the award, but the power of its Atlanta hub was not enough to overcome the small size of the local Atlanta-China market.

By contrast, Chicago is a major source of local China traffic, the regulators said, and, as importantly, American would provide rivalry to United's China routes, including the O'Hare-Shanghai service United began last year. American starts service next year while Continental's service is scheduled to start in mid-June. The new routes will represent nearly a 20% increase in capacity between the two countries.

The agency also divided rights for 12 weekly air freight flights among FedEx, Northwest, Polar Air Cargo, and UPS, all of them US-China incumbents. Although United sought new route rights, the DoT did not choose it. United did say it would nevertheless expand China services this year with more Chicago-Hong Kong flights, larger aircraft on the Chicago-Beijing route, and new service between Nagoya, Japan and Taipei in Taiwan.

Separately FedEx has launched the first direct cargo flights between mainland China and Europe with daily Frankfurt-Shanghai MD-11 service.

China has yet to grant any route authorities for its carriers under the new bilateral. Hainan Airlines has applied to the Civil Aviation Administration of China to serve New York Newark from Beijing. At the moment, only Air China provides scheduled passenger services between the two cities, with four weekly non-stop Boeing 747 flights.

Source: Airline Business