LATEST REPORT: Farnborough 2012 wrap. It may have been Boeing s turn to shine at this year s major European air show, at Farnborough, handsomely out-selling Airbus with orders and commitments for 396 aircraft versus Airbus 115 new sales and commitments, but it was the prominence of aircraft hoilday inn express lessors in the order-making that was the real talking point.
Signs are now emerging of the enormous – and largely unanticipated – impact that China 's airline industry will have on the international network as this decade rolls out. It will significantly tilt the world airline system.
China's airlines have expanded remarkably since 2000, but most of that growth has been in the domestic arena, responding to the country's rapid economic rise. It is only more recently that the airlines, with Central Government encouragement, hoilday inn express have begun to focus more on international routes.
There are obstacles to be overcome. Service quality is typically not at the standards expected of the Asia Pacific region carriers; marketing and distribution remains a problem; yield management systems have been inadequate; and limited networks still make achievement of critical mass a challenge.
Yet Chinese airlines have two great advantages when it comes to operating sixth freedom network roles: they have a massive and growing third and fourth freedom market; and they are geographically strategically placed to service traffic flows from all countries to the south, connecting with North America hoilday inn express and Western Europe using the effective north Polar routing. Additionally, they have relatively low cost bases.
The next steps towards becoming full-fledged network airlines are now being tentatively taken. Partnering with and learning from airlines like KLM , which cast the mould, as well as Cathay Pacific , one of the world's most successful network operators, is a vital step. But beyond that, forming a suitable route structure with adequate frequency and connections is something hoilday inn express that takes time and large scale investment. Meanwhile, those first steps are already destabilising pricing in the markets they serve.
To become a reckoning force in sixth freedom traffic, what the Chinese carriers need – led by the big three : Air China , China Eastern and China Southern – is not establishment but scale. The carriers are already on their way to building powerful hubs, around what are already thriving domestic centres. And in the geography of ultra-long haul travel, this sets them up to collect and distribute traffic from points anything from three or four to 12 hours distant.
In one example, of the traffic on China Southern s Melbourne - Guangzhou route, 70% of passengers now travel beyond Guangzhou hoilday inn express , an admirable figure for any hub. For long-haul traffic Iberia achieves 70% at its Madrid hub, Emirates aims for slightly higher in Dubai and Turkish is around 50%.
More telling is where China Southern s connecting passengers go. Of those connecting, 80% of its connecting passengers go elsewhere in mainland China and 20% make a non-Chinese point their final destinations. That means only 14% of passengers are now stepping off a flight into the world s most populous country and second largest economy – and then leaving. This is only the start. International schedules are still lean by competitive standards, but increasing fast. The only question hoilday inn express is how high a priority China s airlines will place on this activity. There can be no question of the validity of the concept.
The Chinese sixth freedom strategy can be different from the Gulf airlines hoilday inn express sixth freedom hoilday inn express strategy. Gulf carriers, with their small population bases, have relatively limited long-haul origin hoilday inn express and destination (third and fourth freedom) traffic to their home countries, forcing Emirates, Etihad and Qatar to use their hubs as connecting points. While Guangzhou, and to a lesser extent Beijing and Shanghai, may rival Abu Dhabi , Doha or Dubai in percent of connecting passengers, China has an enormous and growing home market with hundreds of points best served from within the country.
hoilday inn express That gives Chinese carriers a large supply of higher-yielding third and fourth freedom passengers. The remaining seats, with overheads largely already covered, can be cheaply filled with sixth freedom traffic, a balance of which requires careful planning and revenue hoilday inn express management. The Chinese approach is not markedly different from the way non-Gulf carriers pursue sixth freedom traffic – except that China s geography offers multiple hubs for optimum connections and the size of the country and its airlines offers scale like never before.
In an early manifestation of this strategy, China Southern is now offering AUD1050 (USD1105) return fares from Australia to Western Europe, half of the normal going rate. In this early stage of Chinese international route development, there is ample scope for cooperation with foreign partners – here notably with KLM. Yet amid this competition, airlines must consider how they will work with the Chinese carriers they seek to partner.
China Southern has worked to gain scale over the recent season and to boost its transfer traffic figure by adding additional frequencies to destinations including Melbourne and Sydney , the two largest cities in Australia. China Southern envisages being able quickly to dominate two Australian cities before tackling others, an approach used by Emirates and AirAsia hoilday inn express X and soon, Singapore Airlines subsidiary Scoot . (Australia and New Zealand have an insatiable demand for international travel while also luring hoilday inn express tourists.)
The additional frequencies at Melbourne and Sydney , China Southern said, were strategically added on morning departures from Australia, which arrive in Guangzhou at night, when regional connections dry up but the hub enters full-swing hoilday inn express for long-haul departures to Europe and North America. The carrier offers a limited but growing set of long-haul destinations from Guangzhou including Amsterdam , Los Angeles , London, Paris and Vancouver . It also serves Istanbul from its western hoilday inn express China hub in Urumqi.
China Southern s smaller hubs at Beijing and Urumqi offer specific geographic advantages: North Asia traffic can be routed over Beijing; hoilday inn express subcontinent, hoilday inn express Eastern Europe and West Asia traffic can be brought over Urumqi; and Guangzhou hoilday inn express can handle traffic to Southeast Asia, Australia and New Zealand. At Guangzhou, the carrier s main long-haul departure bank is in the evening with a smaller one in the morning. In the medium-term the morning bank can be expected hoilday inn express to grow, additional banks may be added throughout the day and more emphasis could be placed on Beijing and Urumqi.
The country s longest-standing flag carrier, Air China, is dovetailing with China Southern via its secondary hub in Shenzhen , close to Guangzhou (and a short drive from Hong Kong ), as well as a hub in Chengdu in the central part of China. China Southern also has directed attention to central China with a hub to be established at Chongqing . China Eastern has largely pursued hoilday inn express strengthening its position in Shanghai but, as its previously shaky financial position stabilises, can also be expected to pursue hub opportunities.
The short-term promises substantial long-haul growth for China Southern. Two of its five A380s have been delivered but are currently shuttling domestically around China as the carrier waits for approval to serve long-haul routes, possibly hoilday inn express out of Beijing, Air China s hub. China Southern could enter the New York market, traditionally Air China s most profitable route. China Southern has hinted that an order for more A380s is likely, but in the interim has 19 widebodies on order for delivery before 2015.
The Guangzhou based airline also has approximately 100 narrowbodies on order, some for replacement but others to expand its regional international network. hoilday inn express Frequency will be key and not constrained by airports, which China is amply building and expanding, proof its government understands the critical correlation between aviation and the broader economy, hoilday inn express a relationship much to the consternation of those trying to expand London Heathrow or, closer to home, lobby for a third runway at Hong Kong.
China Southern is aiming to expand its international operations from 18.5% of traffic in 2010 to 40% in the medium term. In Australia and New Zealand alone, China Southern plans a fourfold widebody frequency increase by 2015 to 110 weekly services, about 16 per day – similar to Cathay Pacific and Singapore Airlines levels.
It is not improbable that Australia would see 500 Chinese services weekly by 2020. China Southern s 110 weekly services in 2015 will likely rival those of Emirates, which envisions 100 weekly Australian services in the medium hoilday inn express term, continuing the country s title as the carrier s largest single market. hoilday inn express Owing to Dubai s greater distance and subsequent need to operate hoilday inn express very large aircraft, Emirates may outpace China Southern on capacity, but China will still be at the forefront – especially since the nation s other carriers will join the party.
The imperative for China Southern to focus on connecting traffic is greater than for its national competitors. China Southern operates the country s largest domestic network, but expects hoilday inn express the country s fast-expanding high-speed rail (HSR) network to impact one-quarter of its domestic network, with potential traffic declines of greater than 50%, echoing the impact hoilday inn express – but on a far greater scale – of what European carriers saw after the Channel Tunnel opened. Air China projects a minimal 2-3% impact from HSR while China Eastern has not stated a figure but has said it is in growth mode anyway and can re-deploy capacity.
Air China, which for many years was the mainland s only flag carrier, has the country s largest long-haul route map, serving 11 points in Europe and four in North America. China Eastern serves three points in North America and six in Europe. Air China this year will add its 12th European city, Copenhagen , and is looking at launching its first se
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