As the Chinese government becomes increasingly open-minded in managing domestic aviation industry, the country's budget airline market might expect a boom within the next three years, according to Feng Ke, Vice President of Great China, Roland Berger Strategy Consultants.
Currently, China's budget airline market is underdeveloped, taking up merely 6.7% of the total domestic air capacity and benefiting only 360 million people. However, by 2030, the share is expected to climb to 20% to 30%, covering as many as 1.5 billion people. The key to break through the current bottleneck, as far as Mr. Ke concerned, is to shift the focus from major hubs such as Beijing, Shanghai, and Guangzhou to second-tier cities in the country.
According to statistics offered by Embraer S.A., about 200 to 300 second-tier cities in China are now capable of developing regional air routes and setting up budge carriers. Each city has a fixed group of about 20-30 people traveling back and forth between these places on a daily basis, said Wang Fengming, who is in charge of Embraer S.A.'s commercial aviation market in China. "With appropriate incentives as well as natural growth, these second-tier cities can develop into busy traffic hubs."On the other hand, to accommodate such an increase in budget airline flights, China will have to build at least 200 more airports, said Hu Qinghua, deputy director with the Civil Aviation Development Institute under China Academy of Civil Aviation Science and Technology, when addressing a conference on low-cost airline market Thursday.
Referring to the common concern that over 80% of the domestic airports are in deficits, Hu said that local governments take airports as a kind of public infrastructure, rather than a source of income. Therefore, the losses are normally filled by government subsidies. What's more, as they strive to expand budget airline services, they might also be able to reverse the losses.
Statistics shows that more than 68% of the airports in China handle less than two landings daily, while as much as 26% see only three takeoffs in a week. Given such a low utilization rate, losses are inevitable. The demand for air travel in China is greater than what airlines are offering, said Wang. The high costs, along with a lack of initiative, have become the main reasons to prevent airlines from exploiting the market.
Furthermore, it is learned that 76% of domestic airlines carry less than 120 passengers on a one-way flight, while 51% carry less than 100. Thus, behind the losses of airports lies the poor performance of full-service airlines. The only way to change the status quo, therefore, is to develop budget carriers.
This can be best illustrated by the current situation where although most domestic flights to Southeast and Northeast Asia are operating with a loss, many low-cost routes are in full swing. According to Hu, among the 60 low-cost flights between China to Southeast/Northeast Asia, only a few are run by Spring Airlines (9C), while all of the rest are operated by foreign airlines. Since countries in Southeast and Northeast Asia are popular destinations for Chinese tourists, it reinforces the view that the aviation markets in China's second-tier and third-tier cities will be driven by low-cost aviation business.