Reaching Out: China's Outbound Love Story

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Reaching out: China’s outbound love story

1 China reaches out: shifting the balance

Contents

Shifting the balance 3

New routes to where? 4

China’s International connectivity by region 7

On their doorstep – China’s Asian connections 7

China and Europe – Chinese carriers lead the way 8

Leading the way in North America 10

Southwest Pacific 12

Middle East 14

To Africa and beyond 14

Bilateral agreements - time to renegotiate? 17

Where next for the Chinese big four? 18

China Eastern 19

Air China 20

China Southern Airlines 21

Hainan Airlines 22

This is just the beginning 23

Shifting the balance

As World Routes heads to Chengdu in September, OAG takes a timely look at where China’s international capacity is headed. Strong growth is taking place in China’s international market, largely driven by Chinese carriers. We analyse the past five years of capacity growth, explore key features of the market today and then speculate where these trends may lead us.

Historically the Chinese domestic market has dwarfed international services. It still does, but the balance is shifting. Although still considerably smaller than the domestic market, international capacity to and from China is growing faster. Back in 2011 there were 92m international seats to and from China, but this year we are already expecting capacity to exceed 164m scheduled airline seats. 2016 will be the first year in which carriers have added more capacity in international markets than domestically, with OAG data for 2016 showing an additional 19m international seats compared to 13m extra domestic seats. International capacity growth has averaged 12% each year for the last five years while the domestic market has grown by an average of 8% per annum.

CHINA CAPACITY GROWTH RATES

15%

International

10%

Domestic 0%

2011 2012 2013 2014 2015 2016 schedules analyser Source:

With Boeing estimating that there will be 100m overseas visitors from China by 2020, it is no surprise that the past five years have seen carriers from outside China wake up to the potential of this market. Chinese aviation policy has also been instrumental in creating this shift in the balance between international and domestic services. China’s aviation policy has enabled Chinese carriers to more than double international capacity to 79 million seats in 2016 and they now operate 49% of all international capacity to and from China.

3 China reaches out: shifting the balance

New routes to where?

In 2011, there were 592 international airport pairs operated from China; today this has almost doubled to 1,055 pairs. The arrival of new generation, more efficient aircraft such as the B787 and A350 has been fortuitous timing for carriers seeking to serve secondary Chinese markets to international destinations. Being able to operate a cost-efficient long-haul service that is not predicated on daily flights to any one destination is undoubtedly a contributing factor in this growth.

Other parts of Asia account for the vast majority of air services to and from China, with 80% of all international routes to destinations within Asia. On average, airlines have added 69 new routes each year for the past five years between China and other parts of Asia, although it may be that this pattern of growth may be tapering off in 2016. Chinese airlines operate just under half – 49% - of all seats between China and the rest of Asia.

Air services to the rest of the world make up the remaining 20% of China’s international routes and these routes have grown, on average, with 19 new city pairs being added each year since 2011.

CHINA INTERNATIONAL ROUTES BY REGION

1200

1000

800

600

400

200

0 2011 2012 2013 2014 2015 2016

Asia Europe North America Southwest Pacific Middle East Africa Latin America

CHINA INTERNATIONAL ROUTES EXCLUDING ASIA

250

200

150

100

0 2011 2012 2013 2014 2015 2016

Europe North America Southwest Pacific Middle East Africa Latin America schedules analyser Source:

4 © 2016 OAG Aviation Worldwide Limited. All rights reserved Drawing on data for the full year of 2016, there are already 24 new international routes to regions beyond Asia. European destinations make up the largest share of routes, with a total of 83 services in place between China and Europe. Relatively, Africa is growing the number of services to China fastest of all the regions outside Asia, with 11 more routes than it had in 2011, a 19% increase.

The only region not to see any significant growth to and from China in terms of routes is Latin America, but the range involved means it is unlikely to be a target market until the next breakthrough in aircraft payload and distance technology.

CHINESE CARRIERS CAPACITY SHARE BY REGION

88%

57% 49% 50% 44%

17% 11% 0%

2011 2016 2011 2016 2011 2016 2011 2016 2011 2016 2011 2016 2011 2016 Asia Europe N. America Southwest Middle East Africa Latin America Pacific schedules analyser Source:

For Chinese carriers there have been clear priorities for growth. The consequence of this is that in two regions – Southwest Pacific and North America – these Chinese carriers effectively “punch above their weight” and now operate over half of all capacity.

This represents a considerable shift in services to North America over the last five years. Back in 2011 Chinese carriers operated 38% of seats; today they operate 57%.

The Australian market makes up most of Southwest Pacific capacity and Chinese carriers were already a force in these markets five years ago. Since then they have increased their share of capacity from 82% in 2011 to 88% today.

5 China reaches out: shifting the balance

China International Routes go from strength to strength

241

New routes operated in August 2016 compared to August 2015

These services operated from

different arports in China

schedules analyser Source:

We now look at each region and consider China’s international connectivity in more detail.

On their doorstep – China’s Asian connections

The market between China and the rest of Asia is by far China’s largest international market, with 127 million seats in 2016, up considerably from 71m just five years ago. China – Asia capacity has grown at an average annual rate of 12% since 2011, with Chinese carriers growing at 15% each year. Within Asia, almost two-thirds of capacity to and from China operates to destinations in North East Asia, including Hong Kong, South Korea and Japan.

Making up a third of China-Asia capacity, South East Asia has seen the fastest growth in capacity with seats growing at an average of 21% each year.

While intra-Asia routes make up 80% of all international routes from China, they contribute around half of all international seats. On those routes China’s carriers operate about 50% of capacity except to and from South Asia where they have a greater proportion of capacity, and particularly between China and India where they operate 85% of seats. Four Chinese carriers (Air China, China Eastern, China Southern and Shangdong Airlines) operate in this market, versus just one Indian carrier, Air India. Partly the protection offered by the Indian government to carriers such as Air India, through preventing international operations by carriers without five years’ experience of operating in India’s domestic market, has thwarted the country’s ability to compete internationally.

CHINA TO ASIA CAPACITY BY REGION CHINA – JAPAN CAPACITY

CHINA’S TOP 10 INTERNATIONAL COUNTRY MARKETS IN 2016

CHINA – THAILAND CAPACITY

7 China reaches out: shifting the balance

Looking at the Top 10 Asian country markets from China shows that in the Top 3 markets, Chinese carriers operate the greatest share of capacity. These are also some of the fastest growing markets, with China-Thailand growing at an average annual rate of 36% since 2011, South Korea at 13% and Japan at 10%. On China-Thailand, Chinese carriers started to operate the dominant share of capacity in 2013, and now operate 11.5m seats. They have been growing capacity at an average annual rate of 44%.

A similar picture emerges on China-Japan routes where Chinese carriers are operating 69% of capacity in 2016 and have grown at an average rate of 14% each year since 2011, overtaking Japanese carriers in 2013.

China and Europe - Chinese carriers lead the way

European countries top the list of overseas destinations for Chinese visitors to travel to, after places in Asia. France, Italy, Switzerland and Germany have all featured among the Top 10 foreign destinations in Chinese Outbound Tourism statistics. Unsurprisingly, airlines have responded to demand and between Europe and China, carriers have added on average just under half a million additional seats every year for the last five years. 66% of this additional capacity has been on services between new destinations while the remainder has been the result of carriers adding capacity on existing routes.

34 19 Chinese carriers

2011 2016 2011 2016

33 64 Routes operated between China & Europe

European carriers

2016 CAPACITY SHARE BY TOP 10 CARRIERS 2016 CAPACITY GROWTH BY TYPE OF ROUTE & CARRIER ORIGIN

1.8 2.5 1.6 1.4 2.0 1.2 1.0 1.5 0.8 0.6 Seats (m) 1.0 0.4 0.2 0.5 0.0

KLM 0.0 Finnair Aeroflot 2011 2012 2013 2014 2015 Air China Lufthansa Air France China Eastern China Southern Turkish AirlinesHainan Airlines Chinese existing Chinese new Other existing Other new

Since 2014, Chinese carriers have been adding significant capacity onto their existing, as well as new, routes. In contrast, non-Chinese carriers have typically added more to existing routes than new ones, undoubtedly as it’s easier to add capacity to an established route and there’s less familiarity of secondary Chinese cities by European carriers.

In the last five years, Chinese carriers have been growing faster on average each year, with 10.1% more seats annually since 2011 on Western European routes than European carriers.

On routes between China and Western Europe, Chinese carriers have been increasing their capacity share, raising it from 39% in 2011 to 46% in 2016.

Air China has the largest share of capacity with 22% of all seats between Europe and China. In five years Air China has almost doubled the number of outesr served from 12 in 2011 to 20 in 2016, adding destinations such as Vienna, Dusseldorf, Munich and Geneva to its route network. Significant growth in capacity has gone onto some of its core routes with Beijing-London Heathrow more than doubling in size in just 5 years, and strong growth also on Beijing-Paris. Air China has also started to develop European services away from its Beijing and Shanghai hubs, opening European routes from Chengdu in 2013 and from Shenzhen in 2016.

Similarly, China Eastern has added significant capacity on its Shanghai-Paris route over the last five years, almost doubling capacity. It has gone from operating just six routes in 2011 to 13 in 2016, with six of these starting in 2016.

China Southern has also expanded at a similar rate, from eight routes in 2011 to 15 in 2016, although the development of these routes has been spread more evenly over the last five years.

From European carriers, growth has been more concentrated on existing routes. Lufthansa has increased its routes to China by one route in the last five years, with the addition of service from Frankfurt to Shenyang in 2012 and Qingdao in 2016, but stopping operation to Guangzhou. Air France has also focused on existing routes, adding just one new route to Wuhan from Paris in 2012. It has, however, nearly doubled capacity on its Paris-Shanghai route since 2011.

KLM has added no new routes in the last five years. With the exception of their Amsterdam–Shanghai route which has increased in capacity by 12% since 2011, most of their other routes remain unchanged in terms of capacity.

9 China reaches out: shifting the balance

Leading the way in North America

The North America-China market is the next largest international market from China. It too has experienced considerable growth with the number of city pairs served in 2016 double the number five years earlier. It’s clear that Chinese carriers have maximised the bilateral opportunities available to them on North American routes, with annual growth rates averaging 26% for the last five years, versus 8% annual growth rates from North American carriers.

CHINA–NORTH AMERICA CAPACITY BY CARRIER ORIGIN

3.5 Chinese carriers

3.0

2.5

North America 2.0

Seats (m) 1.5

1.0

0.5

0.0

2011 2012 2013 2014 2015 2016 schedules analyser Source:

CHINA–NORTH AMERICA 2016 CAPACITY SHARE BY TOP 10 CARRIERS

1.2

1.0

0.8

0.6 Seats (m)

0.4

0.2

0.0

Delta United Sichuan Air China American Hawaiian Air Canada China Eastern China Southern Hainan Airlines Xiamen Airlines schedules analyser Source:

10 © 2016 OAG Aviation Worldwide Limited. All rights reserved Chinese carriers overtook the North American carrier capacity share in 2015 when in a single year the Chinese carriers added over half a million seats and took their share of overall North America-China capacity to 52%. In the last year alone this has grown even more, with Chinese carriers now accounting for 57% of seats and 0.8m new seats.

As with Europe, Air China also has the largest share of capacity in this market, operating aircraft that carry 20% of seats on all China-North American markets. It has added six new routes in the last four years, increasing the routes they serve from four to ten and expanding beyond the West Coast cities of Los Angeles, San Francisco and Vancouver. New services include Beijing to Houston, Newark, Washington, Montreal and San Jose.

China Eastern has also been in expansion mode. The total number of routes it operated grew from four in 2011 to nine in 2016. Whilst mostly operating from Shanghai to the West Coast of the United States, in recent years it has added routes from Nanking and Qingdao.

Hainan Airlines has seen the greatest change. Having operated just two North American routes five years ago, in 2016 it operates nine, with six of these commencing operations in the last three years. Recent new routes include Changsha to Los Angeles and Beijing to Calgary.

Despite a slower growth rate, North American carriers have been adding routes to China. In 2011, United Airlines operated six routes, whilst in 2016 it operates 11. Its strategy appears to be to operate from a US city to both Beijing and Shanghai which it now does from San Francisco, Chicago and Newark. More recently it has launched new routes from San Francisco to Hangzhou and Xian.

Meanwhile, Delta Air Lines operates just five routes to China, all to either Shanghai or Beijing. Recent routes include Los Angeles and Seattle to Shanghai. American Airlines also has a smaller number of routes with five, also all to either Shanghai or Beijing.

So it’s clear that growth to Chinese cities other than Beijing and Shanghai from North American cities is mostly being driven by Chinese carriers, which also seem keen to develop air services beyond the primary North American West Coast airports.

11 China reaches out: shifting the balance

Southwest Pacific

The China to Southwest Pacific market is dominated by China’s major airlines. Between them, three Chinese carriers - China Southern, China Eastern and Air China - operate 77% of capacity. The six Chinese airlines that operate to Southwest Pacific collectively have an 88% share of capacity in this market, having steadily increased from 82% in 2011.

CHINA – SOUTHWEST PACIFIC CAPACITY BY CARRIER ORIGIN

CHINA – SOUTHWEST PACIFIC 2016 CAPACITY SHARE BY TOP 10 CARRIERS

schedules analyser Source:

Chinese carriers have averaged annual growth of 17% since 2011 whilst others have grown at just 5% each year.

China Southern dominates in this region with 42% of all seats. Five years ago it operated five routes from Guangzhou to Sydney and Melbourne, whilst in 2016 it operates seven routes in total, with five to Australia’s main cities and two routes to New Zealand, and have more than doubled total capacity. The story for China Eastern is similar, with two routes from Shanghai to Sydney and Melbourne in 2011 growing to seven routes in 2016, one of which is to Auckland and one to Saipan.

Air New Zealand will operate more capacity to China in 2016 than Qantas. With just one route between Auckland and Shanghai, Air New Zealand has significantly increased capacity in recent years; however it has faced stiff competition from China Eastern who now operates 44% of capacity on the route.

Qantas also operates just one route between Sydney and Shanghai, a route it has to share with China Eastern and Air China. Qantas operates just 28% of capacity on this route with China Eastern operating nearly half of all seats.

13 China reaches out: shifting the balance

Middle East

Capacity between China and the Middle East has grown significantly in the last five years, reaching 4.8m seats in 2016 and edging ahead of the China–Southwest Pacific market in volume. This is a market where Chinese carriers do not dominate. Although growing, they currently have a 17% share of capacity. Chinese carriers have added just 200,000 seats in the last five years, compared to 1.6m seats by Middle Eastern carriers over the same time period.

In 2016, Air China added one new service to DXB from Chongqing, taking its total to two.

CHINA – MIDDLE EAST CAPACITY BY CARRIER ORIGIN

2.5

2.0 Other carriers

1.5 Seats (m) 1.0

0.5

Chinese carriers 0.0

2011 2012 2013 2014 2015 2016 schedules analyser Source:

To Africa and beyond

Most of China’s international capacity operates to destinations in Asia, Europe, North America and the Southwest Pacific, with the focus of Chinese carriers of late being on growing capacity to these markets.

0.9

0.8

0.7 African carriers 0.6

0.5

Seats (m) 0.4

0.3

0.2

0.1 Chinese carriers

0.0

2011 2012 2013 2014 2015 2016 schedules analyser Source:

By these measures, air services between China and Africa contribute a small part to overall Chinese international air services. Having said that, capacity to Africa is growing at a healthy rate, averaging 27% per annum over five years but there are still just 19 routes in 2016, with almost all routes operated by African carriers which have 90% of capacity in this market.

Bookings data from OAG’s Traffic Analyser tells us that in the last 12 months (July 2015-June 2016). there were just over 850,000 indirect bookings between China and Africa in addition to a further 250,000 direct bookings, making the market size over 1m. This has grown significantly in the last five years, up from 628,000 bookings. Popular routing points for China-Africa indirect bookings include Addis Ababa, which handles 29%, and the three main Middle Eastern airports (Dubai, Doha and Abu Dhabi) which account for a further 36%.

There are no direct services between China and West Africa and yet there are over 300,000 indirect bookings between the two, suggesting there is more than enough of a market to support direct international services. Over 110,000 of these indirect bookings are between China and Nigeria. This market will be one to watch.

CHINA O&D MARKETS

Jul11-Jun12

Latin America Jul15-Jun16

Jul11-Jun12 Africa

Jul15-Jun16

0 200,000 400,000 600,000 800,000 1,000,000 1,200,000

Indirect Non-stop

15 China reaches out: shifting the balance

CHINA – AFRICA O&D BY REGION

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0 Central / Western Africa North Africa Eastern Africa Southern Africa

Indirect Non-stop

CHINA – LATIN AMERICA O&D BY REGION

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0 Lower South America Central America Upper South America Caribbean

Indirect Non-stop schedules analyser Source:

Latin America is the other region of the world where there is very little connectivity with China. There is just one route from China to Latin America, operated by Aeromexico from Mexico City via Tijuana to Shanghai. OAG’s Traffic Analyser data shows that in the 12 months to June 2016 there were 309,000 bookings between China and Latin America, with almost all of those (291,000) travelling indirectly given the lack of direct services. Although relatively small, the market is growing strong with 76% more bookings compared to five years ago. The biggest flow is between China and lower South America, an area which includes Brazil, Argentina and Chile. There were 86,000 indirect bookings between China and Brazil but with over 10,700 miles between Beijing and Rio de Janeiro, routes like this are mostly out of range for the aircraft in service today.

There are also considerable markets between China and Central America as well as China and upper South America. Specifically, it appears that nearly 40,000 travellers flew indirectly between China and Mexico in the 12 months to June 2016, suggesting substantial demand for this market.

Clearly market demand has been shaping the development of air service to and from China, driven in large part by the booming Chinese outbound market. However, the way that air services are being developed has a fair amount to do with aviation policy and the response of carriers to those policies, especially for Chinese carriers.

In many of China’s main markets, bilateral air service agreements have failed to add capacity in line with market demand and so the agreements are themselves becoming a constraint on growth as the number of operations comes close to permitted limits. The other factor is that it appears in recent years that Chinese carriers have caught up with overseas operators as they have begun to focus more on international growth. There is now a greater appetite from China to renegotiate bilateral agreements to facilitate more growth but whether this is reciprocated is as yet unclear.

The US is one such market. Last year the US and China also discussed the need for more capacity between their respective countries but failed to agree over issues of slot allocation at China’s major airports despite the fact that airlines are brushing up against the permitted capacity limits. Could we be seeing reluctance from US carriers to enter into markets in China’s interior that they are unfamiliar with?

In contrast, the Australia-China air service agreement has been regularly modified to enable additional capacity. The last time was in 2015 when it allowed an immediate increase in the seats that could be operated between Beijing, Shanghai and Guangzhou to the major gateway cities of Sydney, Melbourne, Brisbane and Perth, adding 26,500 seats a week, equivalent to an 18% increase. Chinese carriers have maximised this opportunity, as is evident by their 88% share of capacity.

The UK is another key market where capacity could grow and new air service discussions are due to commence in October, with greater access to London Heathrow likely to be top of the wish-list for Chinese carriers.

While the ability to add capacity where it is needed is one aspect of policy, the de facto policy of the Chinese to have only one airline operating each route is contributing to the pattern of air service development described above. Chinese carriers appear to be in a rush to claim routes as theirs, effectively excluding their Chinese competitors from operations. Hence, the trend for Chinese carriers to add capacity on new routes to a much greater extent than other airlines which are typically consolidating capacity on routes they already operate.

Equally, this explains the way carriers such as Hainan Airlines has developed services to and from secondary airports as a consequence of being shut out of the primary markets already operated by the three major Chinese carriers. However, given the strength of market demand and clear strategic thinking, this is not necessarily a problem.

Looking at how Hainan Airlines has approached the China-US market, the carrier started operating to the US in 2008 and until 2013 just operated one route. This was PEK-SEA which began as a four-per-week operation but was increased to a daily service in 2012. With the exception of 2014, where it dropped to 5 times per week, PEK-SEA has remained a daily service.

17 China reaches out: shifting the balance

HAINAN AIRLINES CHINA–US ROUTE EVOLUTION

20 Flights per week 15

0 2011 2012 2013 2014 2015 2016

PEK-SEA PEK-BOS PEK-ORD PEK-SJC PVG-SEA PVG-BOS CSX-LAX

Hainan’s expansion of US services began in late 2013 but really took off in 2015 when it added two B787s to its existing fleet of 8 Dreamliners, allowing it to add three new routes in a single year, thus increasing the frequency on its 2014 new routes to daily services. The routes they operate are not the largest US-China routes, but include somewhat smaller markets at one end or the other of each route – such as Boston and San Jose in the US and Changsha in China. Hainan has grown its services to the point where it now operates to SEA, BOS and ORD on a daily basis, and a lower frequency to its newer routes. If it follows this pattern, these newer routes seem likely to become daily services in a year or two.

Where next for the Chinese

big four?

In this final section we consider where next on the international stage for China’s biggest carriers, Air China, China Southern, China Eastern and Hainan Airlines. With 120 wide body aircraft on order between them coming into their fleets in the next five years, there is considerable room to grow. Most of the aircraft on order are B787’s (54) and A350-XWBs (45) which offer a range of around 9,000 miles, allowing them to continue to pursue better international connectivity.

CHINA EASTERN NEW INTERNATIONAL ROUTES SINCE 2011

schedules analyser Source:

China’s second largest carrier, China Eastern, operates the largest individual share of international capacity to and from China with 12% of seats. This is undoubtedly due to the geographic position of its main base in Shanghai which affords it a massive home market and a perfect position to reach much of Asia. That may be why, with 80% of its international network serving Asia, China Eastern has perhaps been the slowest of the majors to look beyond Asia for opportunities.

There are signs that this is shifting; the Asian share of overall China Eastern capacity has fallen from 85% in 2011 and the last few years have seen new destinations served in North America and Australasia. Points beyond the primary US West Coast airports and Chinese hubs have been introduced, such as Shanghai to Toronto, Shanghai to Chicago and Nanjing to Los Angeles. Destinations served in Australia have increased from two in 2011 to seven today.

China Eastern has a smaller wide body fleet than the two other majors, with 60 aircraft, but does have a further 40 (a mix of 787’s and A350’s) on order.

The airline is also pursuing growth in Europe with new routes to Amsterdam, Madrid, Prague and St Petersburg commencing in 2016 from Shanghai. China Eastern, a member of the Skyteam Alliance, is also developing a relationship with British Airways which may be a sign of things to come for China Eastern in pursuing better connectivity with Europe.

19 China reaches out: shifting the balance

Air China

With 11% of China’s international capacity, Air China has made considerable inroads into Europe and the US in the last five years. Air China has the largest wide body fleet of the Chinese majors, with 93 aircraft, over half of which are A330s. It also has a considerable order book, with 39 aircraft across a range of B787s, A330s and A350s due to join its fleet in the coming years.

AIR CHINA NEW INTERNATIONAL ROUTES SINCE 2011

schedules analyser Source:

Although Asia still receives the greatest share of Air China’s international capacity, the carrier has been growing capacity to other regions much faster. European growth has centred on serving not only European capital cities but also secondary destinations, including Milan, Munich, Dusseldorf and Minsk, from the carrier’s home base of Beijing. 2016 has also seen European services launch from Chengdu and Shenzhen, reflecting the carrier’s strategy to broaden its reach beyond Beijing into Southern China. Its strategic partnership with Shenzhen Airlines is part of that approach.

Air China has also announced plans to launch a Chengdu-Sydney service this winter and is expected to announce a Shenzhen-Melbourne service soon. This will take its Australian route network to seven services, and it would be expected that there will be more to come to link up these Chinese cities with the rest of Australia if these routes succeed.

In the North American market, the focus has been more on East and West Coast US cities from Beijing, with 10 routes now operating. 2016 saw the launch of a Shanghai- San Jose service which may reflect a willingness to pursue new US routes beyond Beijing and its already established US bases.

Capacity on China Southern flights makes up 10% of all Chinese international seats this year. The airline has 77 aircraft which can operate long-haul routes, predominantly A330s but also B777 and B787 aircraft. There are also a further 13 A330 on order.

One of the primary international route development strategies has been its reach into Australia and New Zealand, aided by the fairly liberal approach to air service development in Australia.

CHINA SOUTHERN NEW INTERNATIONAL ROUTES SINCE 2011

schedules analyser Source:

The Canton hub (Guangzhou – CAN) has been the focus for this with its handy position as a transfer point for leisure tourism flows from China to the South West Pacific. CAN-SYD and CAN-MEL are the carriers’ second and fourth largest international routes for capacity.

With several of China Southern’s SkyTeam partners based in Europe, it would be logical for the airline to look to expand services to Europe next. With aspirations to create an international transfer hub at Guangzhou, there is even potential to create an alternate hub for long haul Europe-South West Pacific traffic. However, with China outbound travel the primary driver of growth, it is more likely that CAN will be used to channel traffic to and from China itself.

21 China reaches out: shifting the balance

Hainan Airlines

The rapid growth of Hainan Airlines, especially into North America, demonstrates that there is room for ambitious private airlines in China and that aviation policy need be no deterrent to expansion for a strategically savvy airline.

HAINAN AIRLINES NEW INTERNATIONAL ROUTES SINCE 2011

schedules analyser Source:

As a relative newcomer to the Chinese market Hainan Airlines is establishing itself as the fourth major player in the Chinese market. It may only operate 2% of international seats to and from China, but orders for 28 B787 aircraft are a potent sign of its future plans, as this will triple the size of its long-haul fleet.

The carrier has made its mark on what might have been considered secondary routes, with PEK-SEA, BOS-PEK, PEK-YYZ and BRU-PEK the largest international of the 37 international routes it operates this year. A new addition will be the Beijing-Las Vegas route due to start at the end of the year. It is not clear what other secondary markets in North America offer scope for services by Hainan and it may be that, for the moment at least, there are a few other unserved opportunities.

A look at schedule data over five years shows that market entry in secondary markets may not have been plain sailing for Hainan Airlines. Since 2011 the total number of international routes operated has remained largely unchanged but the airline has tried and tested a total of 79 such routes. Seven Nanning routes lasted only a year or two, as did a number of routes from larger Chinese hubs such as DPS-PEK and GVA-PEK. There are numerous others that Hainan no longer operates.

While a route map for Hainan Airlines shows no services to Australia and New Zealand, HNA subsidiary Hong Kong Airlines flies there and HNA itself has acquired a stake in Virgin Australia and has plans to serve Beijing from Australia. This demonstrates that any analysis of Hainan Airlines needs to take into consideration the wider group strategy.

What emerges from the detailed look at Chinese international air services is a sense that the Chinese carriers have only just scratched the surface of what is possible. There are 27 cities in China with a population in excess of 3 million; four of them still have no international air services.

The strength of Chinese carriers lies in the sheer scale of the domestic market and the desire to venture beyond borders, the local market knowledge and the significant fleet orders.

The political landscape has clearly played its part in shaping recent development and the ‘one airline, one route’ strategy has made a land grab inevitable, but it can’t be long before the inherent constraints will leave the major Chinese players asking for more.

There can surely be no doubt that where US major players dominated the early years of aviation, and European and Middle East carriers have moulded international expansion, the future of aviation will be carved out by these large Chinese airlines.

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