We keep being told that the Chinese economy is slowing – with economic growth forecast to reach just 6.5%-7% in 2016, according to the Chinese government. Yet there are a number of new city pairs being connected between China and Europe. Studying the scheduled data (Sabre Market Intelligence and Innovata) for June 2016 compared with the same month over the past five years, it is interesting to note the continued rise in the number of city pairs connected.
In June 2015, there were 62 city pairs connected between Europe and China (including Hong Kong). One year later, this number is set to rise to 75. Of the 13 new services, nine will be operated by Chinese carriers: three by China Eastern; three by Hainan Airlines; two by Cathay Pacific; and one each by Air China and Beijing Capital Airlines (a subsidiary of HNA Group). Only three services will be operated by European carriers: Lufthansa, SAS and Finnair.
The majority of the flights are feeding a Chinese hub to a greater or lesser extent, and the Chinese have been proactively promoting their 72-hour visa-free programme, available in 18 cities. The main driver behind the flights, however, is the vast number of new outbound Chinese visitors, standing at 120 million and forecast to reach 150 million in the next two years.
The 30 million incremental visitors are equivalent to the population of Greece and the Netherlands combined. In fact, the number of Chinese tourists has doubled since 2010 and we are now in the 12th consecutive year of double-digit growth.
The outbound tourist market has been driven by the rise of the middle-class population and their increased incomes. According to a Credit Suisse report released in September 2015, the number of Chinese citizens with personal wealth of between US$28,000 and US$280,000 has reached 109 million, accounting for 10% of the entire Chinese population. This has surpassed the 92 million in that bracket in the US, making it the world’s largest middle-class group.
The disposable income of Chinese citizens has been rising steadily not only in the first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen, but also in western and inland Chinese cities such as Kunming and Chengdu. The “belt and road” strategy of President Xi’s government starts from Xi’an, which means that the west of China will be the next engine for China’s economy – and for the Chinese aviation market.
Chinese citizens are attracted to south-east Asian tourist destinations for the tropical weather, island experience, tranquillity and the relatively low cost compared with domestic destinations such as Haikou and Sanya.
There has been tremendous growth in outbound travel to Thailand, South Korea and Japan in the past two years, especially in the peak season of “golden week” and Chinese New Year. Chinese tourists have also been flocking to Australia, New Zealand, UK, France, Germany, US and Canada, among others.
There are 25 large tour operators operating across China that are “5A class”, meaning that they are reliable and professional. One of those, Caissa Touristic, a subsidiary of HNA group, works closely with Beijing Capital Airlines to operate charter flights to the popular destinations in Europe, America, Asia and other key areas.
Of the 13 new city pairs between Europe and China, it is interesting to note that five of these connect regional cities outside the big four Chinese hubs of Beijing, Hong Kong, Shanghai and Guangzhou. Rather, they connect Europe to the regional cities of Xi’an, Wuhan, Qingdao, Hangzhou and Chengdu.
In 2012, there were only six connections between Europe and regional Chinese cities (12% of total connections), whereas the total city pairs connecting a regional Chinese city is now 20 (27% of total connections).
These regional routes may appear surprising, but the cities in question are huge in population and ambition. Though less recognised in the western market, these cities are either provincial capitals such as Chengdu or ancient cities with tremendous cultural and tourism resources, such as Xi’an.
These regional cities are developing fast as they can offer competitive living costs, lower manpower costs and more opportunities for companies and individuals. The development of manufacturing plants in Chengdu, Chongqing and Zhengzhou is impressive and will continue to drive the population in these cities beyond the existing 14 million, 29 million and 9 million, respectively (administrative areas).
It is not only the big four Chinese carriers, Air China, China Eastern, China Southern and Cathay Pacific, that are launching European services, but also other carriers such as Hainan Airlines, Beijing Capital Airlines and Xiamen Airlines.
Hainan Airlines has been proactive in developing its services internationally, both from Beijing and Xi’an. Often, the strategy is to obtain the traffic rights from the Civil Aviation Administration of China to operate these city pairs ahead of its competitors.
Meanwhile, Beijing Capital Airlines successfully initiated its first route into Europe from Hangzhou to Copenhagen, with the joint support of its tourism partner Caissa in September 2015.
Although not operating a new city pair, Xiamen Airlines launched Xiamen-Amsterdam (already served by KLM) from July 2015. The carrier is using a new Boeing 787-8 on the route thrice weekly with a three-class product. The carrier has six Boeing 787s in its 135 aircraft fleet, with four more on order. It is also launching flights to Melbourne and Vancouver in 2016, giving it enhanced coverage in Europe, Australia and North America.
So, with China slowing to 6.5% growth, we shouldn’t expect network opportunities in the country to slow down. More and more city pairs are being evaluated by more and more carriers.
China is planning to build 66 more airports, giving it a total of 272 airports by 2020. More than 20 airports have achieved passenger volumes of more than 10 million, although the international market is much less developed.