Clear skies ahead for aviation firms

Strong growth prospects in China to help companies override global slowdown, turbulence

It is hard to gauge the exact long-term potential of the aviation market in China, as there are no previous reference points to base any growth profile.

But there is no doubt that the nation's aviation market will offer immense growth opportunities over the next 20 years notwithstanding the short-term freight weaknesses and slowing global passenger growth.

Most of the Chinese airports are already struggling to cope with the explosive growth in traffic, especially domestic and regional services.

Delays centered around air traffic flow management continue to be a problem, with bottlenecks and airspace and infrastructure saturation points already developing in key markets like Beijing.

These pressures are likely to continue as China's main gateways are likely to remain the focus of international expansion, limited only by the availability of landing slots at conducive times.

However, the real potential in China will come from the second-tier markets as economic development spreads and aircraft types capable of serving thinner markets profitably enter the fleets of international airlines.

China has over 100 cities with population of more than 1 million and will have twice that number in a decade, highlighting the continued opportunities for regional expansion and also the need to develop airport infrastructure to match the expected increase in air passenger traffic in coming years and decades.

With more aggressive low-cost carriers planning to enter the market and gradual easing of the restrictions on cards, China could see a passenger traffic growth of over 200 million every year, with the overall numbers set to exceed 1.5 billion by 2030 or around 4.1 million passengers every day.

Such numbers clearly highlight the huge potential that China's aviation market offers for overseas companies.

But such growth is not without its pangs. Most of the Chinese carriers are facing structural challenges such as airspace constraints, a growing shortage of pilots and maintenance personnel, and concerns over the entry of private airlines in the market.

Domestically, Chinese airlines are also witnessing increased competition from high-speed rail (HSR) networks and also from within as the large numbers of carriers expand their network reach and profiles.

China's big three airliners along with Hainan Airlines are now increasingly looking abroad for growth. However, this international expansion poses a new set of challenges on how to compete against well-established and internationally recognized and competitive carriers.

Most of the Chinese carriers are still relatively small by global standards, thanks to their predominant domestic focus.

None of the "Big Three" carriers rank among the top airlines in the world in terms of international capacity measured by available seat kilometers. China Eastern is ranked 29th in the list, followed by Air China (30) and China Southern (40).

China was ranked the eighth-largest international aviation market in the world last year. But the market leaders UK, US and Germany are more than twice the size of China in terms of international seat capacity.

The continued strengthening of the Chinese economy will help offset most of these weaknesses and make the aviation market an increasingly attractive sector to invest in.

The author is head of research at the Centre for Aviation (CAPA), which provides worldwide aviation news and analysis services at www.centreforaviation.com.

(China Daily 10/14/2011 page7)