Up and away

To avoid Olympics congestion, the International Air Transport Association (IATA) is working with the Civil Aviation Administration of China to prepare for the influx of more than 50 million foreign tourists expected to visit the country in 2008. But so far it hasn’t announced any success stories.

Athens tightly controlled expansion of its airport and flight schedules for the 2004 Olympics, fearing overcapacity. For the Beijing Olympics, China faces similar challenges of airspace inefficiencies. A shining new terminal at Beijing’s Capital Airport will handle 68 million passengers a year. Currently, the airport is able to handle 26 million passengers yearly.

The Chinese government has been keen to build airports and buy aircraft, and CAAC promised last year that the number of airports in China will increase from 142 to 190 by 2010.

Efficiency issues

Yet airspace isn’t used efficiently. “Aircraft approaching Hong Kong from the North waste up to 25 minutes of flying time,” said IATA Director General and CEO Giovanni Bisignani.  “The situation is critical. Better coordination with the military is essential.”

On top of that, there is limited flexibility in the product offerings of local flights.

“China’s airlines don’t distinguish themselves enough from each other in their product offerings,” Bisignani said.

Tight government control over the country’s three big carriers, Air China, China Eastern and China Southern, makes rationalization harder. China’s system of highly centralized fleet purchasing and management delays reform. “While it has the advantage of stability, it can also limit management flexibility,” Bisignani said.

As in other industries, China is using foreign partnerships to improve its carriers. Air China’s strategic cooperation with Cathay Pacific benefits the company through higher international sales and enhances its management skills.

Meanwhile, Continental Airlines and China Southern Airlines entered into a code sharing and frequent flyer partnership. The deal enlists China Southern into Continental’s SkyTeam, one of three global airline alliances, and will allow China Southern to significantly improve its reservations systems, lounges and retrain its staff to meet the obligations of SkyTeam membership, said Jeff Ruffolo, a spokesman for the airline.

China Southern hopes to be a full alliance member by the end of this year, just in time for the Olympics.

Beijing has also shown a willingness to attempt deregulation of the aviation sector. It designated the southern airport of Hainan as a free port for aviation services and earlier this year signed a bilateral aviation agreement with the US Department of Transportation, repealing an agreement that allowed only one new air route to China from the US each year until 2010.

Six new China-US daily routes will be added over the next three years, with United Airlines winning the rights to nonstop service from Washington, DC to Beijing,  and a daily flight between the US and Guangzhou.

China would be allowed the same number of daily roundtrips to the US, a US Department of Transportation official said. This increased service is estimated to be worth US$5 billion, an incentive for US airlines to capitalize on Olympics growth.

Limited access

Yet, there are still challenges for foreign airlines to obtain new routes in China’s skies, as the Chinese military controls 80% of the airspace.

“The sky is limited, China is one of the few countries in the world that civil aviation and the air force both control the sky,” said Mikko Rautio, general manager of Finnair’s China operations.

Finnair wants to double its daily Beijing-Helsinki flights to two, but tight slots at both airports means the company must wait until next year.

“There is very limited access to add flights from Beijing or Shanghai to fly to Europe, at most two slots per airline per day,” Rautio said.

Last year, China surpassed the UK to become the world’s fourth most popular tourist destination in terms of arrivals, welcoming 49.6 million visitors according to the United Nations World Tourism Organization (UNWTO). That figure, says the organization, will rise to 55 million by 2010.

Opening up

In 2006, an IATA-coordinated deal between Chinese civil and military authorities opened more airspace and shaved 30 minutes off a roundtrip airfare to Europe. The deal took six years to finalize, and eliminated 2,860 hours of flight time, saving the airlines US$30 million in fuel bills every year.

A similar deal for the Olympics would allow for more airspace and capacity for airlines.

“The airspace design is inefficient, congestion delays in southern Chinese airspace can be measured in hours, not minutes,” said Bisignani, who oversaw negotiations on the 2006 deal.

Hong Kong-based Xinhua Far East Credit Ratings has forecast that the Chinese aviation market will grow 13% from 2006 to 2010, compared to an expected global growth of 6%.

Last year, Chinese airlines carried 138 million passengers. In five years, CAAC forecasts loads will nearly double to 270 million passengers.

On the international front, routes are not opening up fast enough to fulfill capacity for long-term growth – particularly among China-Asia routes – where traffic will be most congested.

The IATA predicts that by 2010, the world’s largest single market for aviation will be intra-Asia, accounting for nearly a third of all air travel – with China at the center.

The Beijing Olympics may be a blip on the overall skyward trajectory of China’s aviation industry, but it gives Beijing a golden opportunity to sort out its skies.