Vienna may not be the first city an average Chinese person thinks of when planning a vacation in Europe. However, Chinese business and governmental travel to Central and Eastern Europe have picked up in recent years. Travelers from Beijing can make connections in Vienna to Eastern European cities that do not yet have direct flights from China. Heinz Goetz, who has been Austrian Airlines’ general manager of China for two and a half years, sat down with CHINA ECONOMIC REVIEW to discuss the difference between Western and Chinese business travelers as well as next year’s prospects for China’s aviation industry.
Q: What trends are you seeing among China’s business travelers?
A: For traffic out of China, 65% are Chinese customers, 35% are international. We’re mostly seeing delegation and government traffic for things like international meetings. There is not so much individual business travel. [Chinese travelers] are flying everywhere within Europe. We of course have a high proportion going to Vienna, where there is a lot of distribution to Central and Eastern European countries that have no direct connections with China. There has been strong traffic volume growth to Central and Eastern Europe. As we all know, 2008 was a different year and a lot of this kind of travel was reduced. So, the trend now is for people not to fly as much and only fly when really necessary. This looks like it will continue into 2009 as well.
Q: What were the main reasons for the slowdown?
A: The winter storms and the earthquake hit the travel industry because all government departments and offices were supposed to cut their budgets. And then of course came the Olympic period, where government personel officially did not travel. This continued until the end of September. Now, all government officials are busy working on their plans for 2009 and how to deal with the financial crisis. Even international companies that would like [to come to China] to form joint ventures also know things are shaky now. No decisions are being made and everybody’s thinking about what to do next year. If you take the present exchange rate between the euro and yuan, travel to China is now 20% more expensive [than a few years ago]. This has a big impact on European travel and businesses coming here. [Previously], everybody in the industry was hoping global business in 2009 would be at the same level as 2007, but now the situation is that they think it will be 15-20% less than 2007.
Q: What in-flight services are most popular with Chinese passengers?
A: Chinese delegation travelers or Chinese VIPs are not so concerned about the price of the tickets but are very much interested in the services. They want to have special treatment when they check in. They want to be allowed to take on extra baggage. In-flight, they also want something special; they want to be served. We serve food the same way you would be served in a restaurant – you get to choose whatever you like, how much you like. We also offer Austrian products on board, like coffee, and a real chef that can prepare Austrian food.
Q: What route expansion plans do you have for China?
A: We don’t have any at the moment. There is an overcapacity in Shanghai and there will soon be an overcapacity in Beijing as well. A lot of Chinese carriers are growing very quickly. I read two days ago that China Southern is planning to have more international routes than Air China within two years. Chinese carriers’ expansion will be a big problem for everyone next year. They think [international route expansion] is the same as [route expansion] in China, but international travel is quite different.
Q: What are the big challenges for Chinese carriers as they internationalize?
A: For service on the flights, it’s not enough that [flight attendants] can make an announcement in English. Internationalization is a challenge for Chinese carriers. And then, their success depends on what kind of sales they can do. It’s not enough to attract only passengers who want to fly cheap, there are also the ones who are flying on business. For Chinese carriers, the higher the percentage of revenues from international traffic, the more they will have to concentrate on being profitable in this segment. Right now, domestic carriers get about 96% of their revenue from the domestic travel market. If they have a loss on the other 4%, it doesn’t really affect the overall revenue of the company. But the more international flights become a share of their business – China Southern, for example, has said it wants international business to be about 20% of total business in the future – the more they must be careful.
Q: Does government support for Chinese carriers give them an unfair advantage?
A: On the one side, they are all government-owned and the government controls everything. You could say that the government gives them a kind of protection, which is natural, which happens everywhere you have a regulated system. But just as you see in other industries where there are government-owned companies – they close them [if they are unprofitable]. It’s difficult to say how much influence the government has. China’s biggest three airlines are always competing to prove they are the biggest or most international.
Q: How does the process of securing time slots work?
A: It works like everywhere else. You have grandfather rights, so once you have a certain frequency and a certain time, you have the right next year as well. But if you’re flying five times a week and would like to increase to seven times, problems start to emerge. It becomes a question of which airlines have grandfather rights, and whether or not flight schedules should be rearranged. It’s not easy for China Civil Aviation to make this kind of decision.
Q: Do Chinese carriers always have priority?
A: From my experience, international flights have priority over domestic. So, if you have a new international flight, it would get an open slot, even over a Chinese carrier [offering a domestic flight]. They will also move domestic flights in order to make room for international flights. This policy is not written down, but it has been my experience.
Q: Is China developing its infrastructure fast enough to keep pace with growth?
A: It is always lagging behind, but they are developing airports and infrastructure very quickly. If China wants to do something, it is very fast compared to other places.