Singapore Air Show

China Continues with Ambitious Air Transport Growth Plans

 - February 12, 2016, 12:15 PM
Headquartered in Shanghai, China Eastern Airlines launched in 1988.

Compared to the U.S., China could be seen like a late bloomer when it comes to the development of its aviation industry. For the last several years, the country has been playing catch-up, especially since committing to a series of reforms in 2013 to bring greater liberalization to the sector. It was during this time that President Xi Jinping unveiled the “One Belt and One Road” initiative–an ambitious plan to unlock massive trade potential and extend China’s influence with central, west and south Asia as well as Africa and Europe through a series of projects ranging from oil and gas pipelines to roads, air routes and railways.

Since then, new airlines have cropped up, visa requirements have been relaxed, infrastructure has expanded and countries across the world have rolled out the red carpet for Chinese officials, welcoming hefty investments and new bilateral air service agreements.

These efforts are now coming with a tremendous pay-off. According to the Civil Aviation Administration of China (CAAC), the industry turned in a record-high profit of $8.5 billion in the first 11 months of 2015, representing an increase of 76.2 percent from the same period a year before.

In terms of passenger growth, the CAAC announced that traffic had grown by an average of 10.4 percent annually for the past five years, with the industry’s accumulated total profit for the five years reaching $27.3 billion. According to the CAAC, this is more than triple the amount than in the previous five-year period.

Meanwhile, China’s commercial fleet has more than doubled from 1,047 airplanes to 2,645 in the past five years, while the number of airlines has increased from 45 to 54.

Looking ahead to 2016, the CAAC is targeting a 10.7 percent growth in passengers to 485 million. To help achieve this, several start-ups formed in 2015 are expected to start flying this year including Colorful Guizhou Airlines and Yunnan Hongtu Air.

In late December, Colorful Guizhou took delivery of two E190 aircraft from Brazilian jet maker Embraer as part of a larger order inked at the Paris Air Show last June. The deal includes seven firm orders and 10 options for the E190 in a transaction valued at $834 million. The airline’s long-term fleet plans call for 30 aircraft by 2020 and 120 to 140 in the ensuing years.

Chinese start-up Hongtu Air also took delivery of its first aircraft in December, an Airbus A321. The airline has three A320s on order and will compete against five other carriers from its base at Kunming Changshui International Airport.

Overall, the end of 2015 marked an auspicious time for jet makers. On December 17th, China Southern Airlines, Asia’s largest carrier by passenger volume, signed a $10 billion deal with Boeing to buy 110 aircraft, including thirty 737 Next Generation jets and 50 upgraded 737 Max aircraft. Its subsidiary Xiamen Airlines will receive 30 Max models that were previously logged as unidentified orders.

According to a statement filed on the Hong Kong stock exchange, the airline will take delivery of the current model 737s between 2017 and 2018, and the Max jets from 2017 to 2021. Xiamen will take delivery of its aircraft between 2018 and 2021.

Less than a week later, China Southern signed another deal, this time with Airbus for 10 A330-300s, valued at $2.3 billion at list prices.  According to a company statement, the widebodies are set to be delivered between 2017 and 2019.

December also saw China’s largest low-cost carrier, Spring Airlines, announce plans to buy 60 aircraft from Airbus worth $6.3 billion at list prices. The order includes 45 A320s and 15 A321s, which will be delivered from 2019 to 2030.

Beyond fleet expansions, China’s airlines are looking to add at least 200 international routes this year, with the intention of strengthening air links among countries that fall under the Belt and Road initiative. In line with this strategy is China’s Thirteen Five-Year Plan–a series of economic, political and social development goals for 2016-2020.

While details of the plan won’t be released until March, industry officials have already drawn up a blueprint to accelerate aviation infrastructure development and new medium- and long-haul routes linking core Chinese cities such as Urumqi, Kunming and Guangzhou for the purpose of connecting to the Middle East along with central, east and west Asia. By 2020, China aims to have 260 airports and more than 20 aviation hubs that will serve 91 percent of the national population who fall within a radius of 62 miles of each airport.

Other issues on China’s agenda for 2016 include tackling flight delays, enhancing safety and security measures, addressing environmental concerns and building an open and transparent market for full-service and low-cost carriers. Industry officials are also vying to obtain an airworthiness certificate for China’s first large passenger aircraft, the C919, which made its worldwide debut last November.