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A crowded route
A crowded route
Miao San

BEIJING — That the profitability of a single U.S.-to-China airline route is equivalent to that of three domestic routes and seven times that of transatlantic flights is an open secret within the airline industry. And until recently, U.S. airlines executives could more or less count on this lucrative segment of the business.

But for the last two years, Chinese airlines have been more competitive than American airline companies in adding new routes and flight frequency, so that what used to be absolute dominance by American companies is slowly being eroded.

From January to September 2013, American airlines accounted for 47% of the market share while China accounted for 35%. The rest, 18%, was shared by Japanese, South Korean and Hong Kong airlines, says Liu Jichun, vice general manager of Hainan Airlines, citing data from the International Air Transport Association. “Meanwhile, in terms of transport capacity increase, Chinese airlines have gone up from 36.8% last year to 41.5% this year — a good 4.7%.”

Counteroffensive

From just 15 routes in 2008, there are now 26 routes between China and the United States, and it’s still not enough to meet the market demand, says Lin Zhijie, financial manager of Xiamen Air. “The number and speed of new China-U.S. flights are showing a strong momentum — never seen before.”

For instance, China Eastern Airlines joined the Shanghai-San Francisco competition in April. The Chinese airline flies the route once a day, while United Airlines and Air China provide the same service. This is the fourth route that China Eastern Airlines has explored after that of Shanghai to New York, Los Angeles and Hawaii. “San Francisco makes up one of the three major destinations in terms of Chinese passenger traffic,” says one marketing official for China Eastern Airlines.

Chinese airlines are actually forced to “go outside” thanks to China’s fast high-speed rail development and a particularly competitive domestic aviation market. “China’s civil aviation market is facing a downturn this year,” says Lin Zhijie. “Overall profit has declined, so the airlines are obliged to find new growth points.”

While America and Europe have both been hit hard by the global financial crisis and have seen assets shrink dramatically, China is being buoyed by a $586 billion stimulus program that has allowed it to escape the financial crisis virtually unscathed. China’s household income has continued to grow.

U.S. policymakers are reacting fast to this. To attract Chinese tourists, they have been formulating a looser and more convenient visa policy for Chinese visitors. “The easing of visa applications helped to increase Chinese passenger traffic to America by 22% last year,” Hainan Airlines’ Liu Jichun says. “This year the growth is estimated at around 40%, meaning 1.7 million Chinese tourists.”

Whereas the choice of airlines was very limited before, “Chinese customers now have better choices and prefer Chinese airlines because of the convenience in language and services.”

Surpassing the U.S. in two years

It was in 2012 that China’s tourism market underwent a dramatic change — when its outbound tourists outnumbered the inbound for the first time. The large number of outgoing Chinese tourists and the fact that they prefer taking their own local airlines provides a strong growing basis for the Chinese companies.

“In my opinion, in just over two years Chinese airlines will overtake the American ones for trans-Pacific flights,” Liu predicts.

But Liu is convinced that American airlines won’t sit idly by as Chinese airlines become more competitive. “They will also take an appropriate capacity growth plan. After all, the American airlines still hold a competitive advantage on this route.”

Peng Qiulin, American Airlines general manager for China, says that in terms of expansion, “American airlines are competing with a more extensive global network and a strong financial basis.”

Insiders also point out that American airlines still have a competitive advantage over Chinese ones when the flights are coming from the United States and involve Americans and business travelers from major American companies.

“In this sense, American airlines know better the Americans’ needs and share the same culture as well as the feelings of their customers,” Peng says. “It’s hard for Chinese companies to grab them.”

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