Thoughts and insights on China’s future in the Aviation Industry
“China is due to become the world’s largest aviation market in the next seven years"
Earlier this year I had the pleasure of being invited to the 9th China Airport Passenger Experience Summit in Shenzhen in China to speak on topic of the Next Evolution of Airport Customer Experience and be the chairman of the panel discussion on the topic of what will smart airports bring to the passenger experience.
I been following the Chinese Aviation Industry for many years, so of course it was a great honor and with humility I accepted the invitation to be one of the key persons at such an important event in the Chinese Aviation Industry with all the key stakeholders – such as Hong Kong Airport, Beijing Airport, Shenzhen Airport, Guangzhou Airport, Chongqing Airport Group, Fujian Airport Group and most of the Chinese Airlines as well such as Cathay Pacific Airways, Air China, China Eastern Airlines, Spring Airlines, West Air etc.
Intrigued and inspired by all the great presentations, discussions and networking within the Chinese Airport Sector it was very clear that all is ready in China except the East Wind.
Over the last decade China has been investing heavily and building the airport infrastructure of the future in many cities 3-5-10 times larger than the current need. There is of course a reason for this.
THE CHINESE OUTBOUND TRAVEL MARKET IS GROWING PHENOMENALLY
The disposable personal income in China has grown to a historical level meaning that Chinese people have more money to spend on traveling than ever. Forecasts predict that already by 2020 Chinese travelers will make more than 200 million outbound travels pr. year, which is a 100% increase from number of travels in 2016. This and other factors stated below strongly indicates that there is great potential in increasing the share of Chinese people traveling by air significantly.
During the next two decades, over 300 million more people are expected to move from rural to urban areas in China, representing a rate and scale of migration unprecedented in history. This urban wealth will lead to continuous growth in outbound travelling.
Chinese outbound tourists are anticipated to spend US$264 billion in 2019, according to a forecast made by Bank of America Merrill Lynch, and 25 to 34-year-olds are expected to represent 35% of these travelers.
China’s aviation story is one of phenomenal growth. The market is currently the second largest in the world but is on course to surpass the US as the biggest by 2022, two years earlier than previously predicted. Historically the domestic market has dwarfed international services, but airlines have been rapidly spreading their wings in recent years. New routes in 2018 include Madrid–Shenzhen, Chengdu–London Gatwick and Guangzhou–Wuhan–San Francisco.
The Civil Aviation Administration of China plans to ease its “one route, one airline” policy on long-haul routes, saying the move will help to “adapt to the new stage of development” of its aviation industry. It also hopes a relaxing of the rule will help to promote Beijing’s new $12bn Daxing International Airport, due to open in 2019. Once operational, the airport expects to handle 72 million passengers each year by 2025. But Beijing is not alone in increasing capacity, with airports across China readying for further sharp growth. In Guangzhou, the host city of World Routes 2018, Baiyun International Airport has opened its second terminal building as it targets 100 million passengers by 2025. The terminal, anchored by China Southern Airlines, is likely to help Guangzhou overtake Hong Kong as the main air hub in the Pearl River Delta.
THE CHINA MARKET IS GROWING ACROSS THE BOARD
China’s capacity growth is enviable. The total number of two-way available seats jumped 11.9% in 2017 to almost 800 million, driven by the country’s burgeoning domestic market. Its international market is expanding too, with the number of available seats rising 5.3% last year and exceeding the capacity growth rate of other major markets like the US, Turkey, France and Germany. In 2018 we can expect that Indonesia will be among the largest international growth markets for China, boosted by new services launched by Citilink Indonesia, Xiamen Airlines and Sriwijaya Air. The booming Thai market is also expected to deliver significant growth, with China Southern adding flights to Bangkok from Shenyang and Ürümqi Diwopu, as well as Wuhan – Phuket. According to Sabre Market Intelligence data, growth in long-haul demand this year will mainly come from Western Europe. New routes launched include China Southern’s three-weekly Wuhan – London Heathrow and Tianjin Airlines to London Gatwick from Xi’an twice weekly. Given that the Civil Aviation Administration of China has recently introduced a series of domestic airfare reforms, and unveiled plans to ease its “one route, one airline” policy for Chinese airlines on international routes, there is every expectation that the country’s aviation market will continue its rapid growth.
AIRPORTS ARE DRIVING THE GROWTH
Routes to, from and within Asia-Pacific are forecast to grow by an extra 2.1 billion annual passengers by 2036, for an overall market size of 3.5 billion. China is the fastest-growing market within the region and will add 921 million new passengers over the next 20 years. Given the growth of the market it is therefore unsurprising that the country’s airports are experiencing a passenger boom, fueled by rising outbound tourists, a strong economy, the opening of new routes, and a growing middle-class with a desire to travel. According to research by Routes, seven of the top ten fastest-growing major airports in the world by passenger numbers in 2017 were in China, based on figures provided by Sabre. The list ranked the busiest in the world by passenger numbers (with more than five million pax) and then by percentage annual growth when compared with 2016.
In total, seven of the top eight fastest-growing major airports in the world are in Chinese regional cities, highlighting the extent to which the country is leading the global growth in the industry. A combination of new airlines launching, in addition to aggressive growth from established airlines, is having a phenomenal impact on the growth of traffic, particularly the domestic market as air travel becomes easier and cheaper.
INTERNATIONAL GROWTH IS IN FOCUS
China enjoyed a 4.9% increase in available international seats in 2017 driven by the launch of new routes and airlines entering the market. There were 458,033 scheduled flights leaving Chinese airports for destinations overseas, according to OAG Schedules Analyzer. In total, that equates to more than 7.8 million international departure seats per month. In terms of overall capacity, China’s international market accounted for 12.2% of the 710.8 million departure seats in the country’s market in 2017. However, at 86.6 million, the market has almost 50 million more available seats than a decade earlier.
In 2017, China’s top ten markets by capacity accounted for 73% of the total international seats. Thailand remains as its largest market with 10.8 million departure seats, with Japan (9.9 million) second and South Korea (9.4 million) third.
Looking at data over the past five years, Indonesia, Cambodia and Vietnam are among the markets driving the international growth. The number of departure seats to Indonesia increased by 1.1 million from 2013 to 2017, while Cambodia added 948,000 departure seats and Vietnam 1.8 million.
WAITING FOR THE EAST WIND
Some are maybe familiar with the Chinese saying 万事俱备,只 – Everything is ready except the East wind.
The saying goes all the way back to the period of the Three Kingdoms. Once Cao Cao from Wei led a 200,000-man strong army down to the south to wipe out the kingdoms of Wu and Shu. Therefore, Wu and Shu united to defend his attack. Cao ordered his men to link up the boats by iron chains to form a bridge for the Cao’s passing from the north bank of Yangtze River to the south bank. The General Commander of the allied army was Zhou Yu. He analyzed the situation carefully. Then he got a good idea. He decided to attack the enemy with fire. So, he began to prepare for the coming battle. Suddenly he thought of the direction of wind. He needed the east wind to blow strongly to accomplish his scheme. However, the wind did not come for days. Thus Zhou Yu was worried about it. At that time, he got a note from Zhuge Liang, the military adviser of the State of Shu, which reads: “To fight Cao Cao, fire will help you win. Everything is ready, except the east wind”. Quickly he turned to Zhuge Liang for help. Zhuge told him not to worry and there would be an east wind in a couple of days. Two days later, the east wind helped Zhou accomplish his scheme. At last, the allied army won the war. Later, people use it to say: ”all is ready except what is crucial”.
In China the growth potential is inevitable and the infrastructure in place, but what the Civil Aviation Administration of China also is aware is the need of emphasizing the passenger experience at all costs. It became very clear during my days at the conference, that the top priority of preparing and building the infrastructure for the future has been completed, now the Civil Aviation Administration of China established a 5/10 year plan putting passenger experience as number one focus.
This is in its very early beginning with everyone talking about the investments they made or are making in passenger experience, but most focus was on small gadgets and some sort of digitalization but with an almost total lack broader perspective and strategy – and what was most surprising - with no focus on documented effect. It seemed a little like the same great engineers behind building the airports were now in the management of the next wave but without the tools and experience.
I was placed at dinner with the management from several of the large airports, and boldly (and perhaps a bit blue-eyed) I put my view out in the open for discussion. Apparently, this was the next evolution awaiting in China and indeed the knowledge and knowhow within service and experience were lacking in the Chinese market, which was the reason for my invitation to speak about customer centricity. There is a huge need in the decade(-s) to come for building up this expertise, as this is the crucial competitive element for the future of the Chinese Airports to become the preferred gateway and international mega hub in Asia. As Zhou Yu said “Everything is ready, except the east wind”.
I would like to thank Summit Asia for being so kind to invite me. From my personal and Epinion Aviation’s perspective it is not “goodbye” but “see you later” as we look forward to exploring the opportunities of making the Eastern wind blow in the future!