Is China the Answer for Struggling Airlines?

Published on Author caplan

In the past week, the WSJ has had articles (here and here) on the emergence of new airline routes to China.  The first is airline, Qantas, is a global airline that is trying to cater to business travelers all over the world.  The airline industry has slowly reacted to the emergence of a strong Chinese economy.  In the competitive markets of the US and Continental Europe, the airlines see relatively little room for growth.  China, however, has given them a new opportunity for expansion.  The increasing Chinese middle class now demands more transportation as well as international business men going to and from China.  

In addition to Qantas, SpiceJet a budget Indian airline is beginning more service between India and China.  While China and India have disputed in the past, the businessmen of each respective country understand prospective gains by strengthening the ties between the two countries.  Due to these poor relations very little transportation has been set up to connect the two countries.  SpiceJet intends to take advantage of the relative lack of competition.  It’s interesting how China is opening up not only for business, but for tourism and deep seeded conflicts have been minimized in order for the economy to prosper.

4 Responses to Is China the Answer for Struggling Airlines?

  1. Transpacific routes have long been critical to airline profits (Delta etc) and plane sales in Asia to Boeing. It’s interesting to see China allowing in new airlines. The US was openly protectionist on that front, prohibiting foreign ownership of US airlines and strictly limiting the ability of international carriers to finesse the issue, they might have an international flight originating in Texas with a stop in LA but could not allow passengers who got on in Texas to get off in LA…

    Maybe this was a clause in WTO rules, and so China is actually obliged to be more open than we, and is actually carrying through on it?! Plus they may have shortages of pilots, this is a way to offset that.

  2. Very interesting angle to look into the issue professor. I haven’t thought about the policy aspect of such phenomenon. However, one thing I would add into this is definitely demand. Demand is up because: due to increase in income level as a country, more and more citizens have savings and sometimes leisure money to take vacations overseas; more business have international interactions among each other. In terms of growth, I agree with the article that there is tremendous growth in airline business in China because nowadays, Chinese citizens (at least from the urban areas, not just metropolitan cities like Beijing or Shanghai) no longer see “flying” as a status marker. Instead, more and more people accept that by paying a few hundred Yuan more (less than 100 USD), people will get to the destination so much faster. Thus, instead of saving the money, people rather spend the time on sightseeing (leisure) or making money (increase productivity and output).

  3. I think that China absolutely could be the answer for struggling airlines. You’re talking about the world’s “second largest economy”(bloomberg) with the world’s largest population. Given these statistics, there is obviously a huge market to be tapped in China. The one clear problem is that much of the Chinese population cannot afford to purchase an airline ticket, at least for the prices that they generally sell for in the U.S. Furthermore the airline ticket is only part of the cost, as people will be spending more money wherever the destination is that they are traveling. However, China’s economy has come a long way and is continuing to improve. Airlines may want to slowly implement this change and over time I could see China as being the biggest market in the world for airlines. Given the rise in imports and exports, people worldwide will have reason to go to China, and people in China will have reason to leave.

  4. As to Chinese incomes, the average remains low, but the upper 20% of the income distribution … means 260 million people. We need to think about the entire (statistical) distribution, not just the mean.