China’s Aviation Industry

Published on Author granruth

China’s aviation industry is experiencing high levels of growth, at rates higher than GDP growth. This is a relatively young industry in the country compared to more developed nations. With the removal of regulations in 1997, airlines have become more competitive, servicing more airports and routes than before. There are four major state run airlines: Air China, China Eastern Airlines, China Southern Airlines, and Hainan Airlines. These carriers maintain a fleet of 2500 aircraft, which is speculated to grow to about 4500 by 2016. While the majority of aircraft operated are Boeing 737 and Airbus A320, China is developing a rival, the C919 to compete as domestic airlines grow. This, in addition to the dramatic expansion in the airport network that has started positions the industry for a significant amount of growth. Currently, the International Air Transport Association (IATA) has cited growth of 10.8% per annum of air passengers until 2014, and 12.2% growth per annum of cargo volume until. An estimated 800 million passengers are expected to fly globally by 2014, more than a quarter would be Chinese. This growth is driven by large economic growth in the Asia-Pacific region as business grows, and the already booming import/export sector of the economy scales up. However, cargo is not the only driver of growth. The market for low-cost carriers, already booming in the US, is growing extremely fast in China. Airlines have lobbied to legalize “standing room seats” in an effort to drive down currently high relative ticket prices. Regulatory approval remains the key constraint however in the growth of low cost carriers, and any substantial growth would require liberalization of the market. With competition high between air carriers and high-speed train networks, Airlines are competing to differentiate and maintain their high level of growth domestically.

3 Responses to China’s Aviation Industry

  1. There have been an increasing amount of international airlines creating new routes to and from China. I wonder if this increase will drive the prices down for the domestic Chinese airlines or if it will have no impact on the domestic product. Even as the presence of international airlines continues to grow, will the domestic airlines still reign supreme within China? I wonder if the well oiled large airline companies can offer a better product than the domestic airlines. It will definitely be something to keep an eye on as numerous signs point to the Chinese aviation industry drastically changing in the coming years.

  2. It is a simple result of such a booming economy to have a commensurate booming airline travel. More business needs more travel but with even greater growth than GDP, as well as high relative ticket prices, goes to show the lack of the airline industry to properly judge demand. Increased the amount of aircraft by close to 40 percent by 2016 should prove to help the industry increase sales and volume of travel more equal to the amount needed. Still they will need to be more judicious in decision making and scrutinize growth in a more proficient manner in the future. Liberalization will be requisite to a more competitive market, and as we know in many instances, China can be reluctant to accept full liberalization, but if this continues to be a market which the government can keep their hands clean on, airline companies may see increases in FDI, decreases in ticket prices, increased travelers, and higher profits. By 2016, we will know if this bolstering will be a positive use of funds for capital.

  3. Remember that China is continental in size, while Urumqi in Xinjiang is not a huge destination, it is 54 hours by train vs 4 hours by plane from Shanghai. The trip is even longer if you wanted to go to Guangzhou from Liaoning in Manchuria. And the tropical island of Hainan (literally “South Ocean”) replete with beaches requires a plane trip. Ditto if you wanted to visit the (comparatively) pristine beaches of the Philippines…