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United Airlines aims to open secondary Chinese cities with the 787

1st November, 2012

European and Middle Eastern carriers are slowly opening services to China's secondary cities that may be overshadowed by Beijing and Shanghai but still boast of populations well into the millions. Now United Airlines looks set to be the first North American carrier to introduce non-stop service to secondary cities, with CEO Jeff Smisek telling local media that its Boeing 787s will open cities like Chengdu, Chongqing, Xi'an and Wuhan.

Such services will bring the China-North America market to a new stage of development, critical since from the Chinese perspective it is expected to be the healthiest and most stable long-haul market. Yet the balance for the long-term will be weighted towards US carriers, which not only will have a larger domestic market than China for at least a decade, but also have regional traffic around Latin America to feed to long-haul routes, whereas Chinese carriers' regional traffic around Asia is more hotly contested.

North American carriers still confined to Beijing and Shanghai

Air Canada, American Airlines, Delta and United serve mainland China, but only to Beijing and Shanghai. Delta had planned a Tokyo Narita-Guangzhou service but this has been repeatedly postponed.

European carriers have been more ambitious in opening secondary Chinese services, with Air France, Finnair, KLM and Lufthansa all operating to points other than Beijing and Shanghai. Noticeably absent is British Airways, but it has now placed secondary cities on its agenda.

European carriers' passenger routes to China, excluding Beijing and Shanghai: 20-Aug-2012 to 26-Aug-2012

Carrier Chinese city European city Frequency Equipment Commencement
Air France Guangzhou Paris CDG 4 x weekly 777-200 2004
  Wuhan Paris CDG 3 x weekly 777-200 2012
Finnair Chongqing Helsinki 4 x weekly A330-300 2012
KLM Chengdu Amsterdam 4 x weekly 747-400 2006
  Hangzhou Amsterdam 4 x weekly 777-200 2010
  Xiamen Amsterdam 3 x weekly 777-200 2011
Lufthansa Nanjing (Nanking) Frankfurt 3 x weekly A340-300 2008
  Shenyang-Qingdao Frankfurt 3 x weekly A340-300 2012
Turkish Airlines Guangzhou Istanbul 3 x weekly A340-300 2011

See related article: British Airways considers secondary Chinese cities, possible codeshare with China Southern

Middle East network carriers are also operating to secondary Chinese cities, with Emirates serving Guangzhou, Etihad serving Chengdu, and Qatar serving Chongqing.

While North American carriers have lagged behind in serving secondary Chinese cities, the development from European carriers is still recent. Inhibiting US-China traffic growth are political and network restrictions. Stringent visa procedures for Chinese nationals have restricted US-China traffic growth, although gradual loosening is occurring and showing benefits; Air China says its business has picked up after waiting times were reduced and visa grants increased 40%.

China's secondary cities, aside from growing Liaoning province in the northeast, are typically more inland, giving less operational freedom to North American carriers whereas for European carriers the cities are closer than Beijing and Shanghai and can be reached with medium-range aircraft, as Finnair does Chonging-Helsinki with an A330.

China's inland cities are operationally accessible to North American carriers today, but United's selection of using the 787 for such services can be more ideal. Besides the significant operating cost reductions afforded by the twin, its long range but medium capacity opens cities carriers would not have been able to sustainably serve or would have had to serve with larger-capacity aircraft and so have to offer less than daily frequency.

In addition to opening possible new thin long-haul routes, United plans to use its 787s for "counter-seasonal" missions, allowing it to down-gauge long-haul routes during the off season that previously had no suitable smaller aircraft. 

See related article: First tranche of United 787 routes to put aircraft’s mission to the test

Mr Smisek's reference of possible secondary routes like Chengdu, Chongqing, Xi'an and Wuhan is understandably a generic medley. All are not served from North America, and there are of course other candidates, a list that will grow as China grows too.

United will undoubtedly be interested, although not exclusively, in serving the hubs of fellow Star Alliance carriers Air China and, soon, Shenzhen Airlines. Air China has a base at Chengdu while Shenzhen Airlines uses Chongqing and Xi'an as focus cities. Air China and its partners also have ownership interests in other carriers including Dalian Airlines, Kunming Airlines and Shandong Airlines. Air China typically codeshares extensively on its subsidiaries, potentially allowing United access in the future.

Air China targets more US cities while other carriers have more concentrated ambitions

Chinese carriers serve North American cities from their main hub: Beijing for Air China, Shanghai for China Eastern and Guangzhou for China Southern. Sichuan Airlines' service to Vancouver, introduced in 2012, routes from its hub at Chengdu to Vancouver via Shenyang. Chinese carriers' services to Europe are slightly more diverse, with China Southern operating routes from its secondary hub at Beijing (and from Urumqi to Istanbul and Moscow) and Air China from Shanghai, with consideration to launch a Frankfurt service from its other hub at Chengdu.

China's so-called Big Three – Air China, China Eastern and China Southern – are planning further US expansion, but so far entirely from their main hubs. Air China's plans are the most ambitious as it seeks to use 787s to open additional US cities beyond its current mainland destinations of Los Angeles, New York and San Francisco.

China Eastern has a lighter network, only serving Los Angeles and New York (as well as Toronto in Canada), and with 777-300ERs due from 2014 will first seek to boost those services to double daily, a process Air China is already embarking on. China Eastern may look to add a few points in North America, but likely less than what Air China will serve. China Eastern cancelled its order for 787s due to insufficient payload capability to operate from Shanghai to the east coast of the US, giving it no options to reach smaller US cities with lighter aircraft the way Air China will. China Southern has been coy about specifics but is interested in further reach.

Carriers operating between China and the United States ranked on seats: 29-Oct-2012 to 04-Nov-2012

Rank Airline Total Seats
1 UA United Airlines 15,995
2 CA Air China 7,425
3 AA American Airlines 5,439
4 MU China Eastern Airlines 5,061
5 DL Delta Air Lines 4,349
6 CZ China Southern Airlines 3,542
7 HU Hainan Airlines 1,016

US carriers have larger networks to work with – and this will not change soon

While the China-US market will undergo expansion from both sides, US carriers will retain a network advantage (product-wise, the experience will vary considerably). The US domestic market is twice the size of China's. While China will surpass the US by 2031 according to Airbus projections, the US carriers will still hold advantages.

Top 10 largest domestic markets ranked on seats: 29-Oct-2012 to 04-Nov-2012

Country Seats Available Seat Kilometres GDP (Billions) Population (Millions)
United States 14,968,152 19,845,469,341 15609.7 314.7
China 7,583,179 8,509,694,679 7991.7 1354.9
Japan 2,540,275 1,907,015,955 5981 127.3
Brazil 2,521,685 2,205,219,015 2449.8 196.5
Indonesia 1,771,565 1,485,476,819 928.3 244.5
India 1,743,653 1,504,160,547 1779.3 1223.2
Australia 1,507,104 1,701,929,179 1586 23
Canada 928,796 945,772,542 1804.6 34.9
Russian Federation 842,672 1,596,402,462 2021.9 141.9
Spain and Canary Islands 763,545 493,722,207 1397.8 46.4

US carriers have expansive networks into Latin America that are often dominating compared to local carriers. This will facilitate Asia-Latin America connections, an objective many carriers are seeking to realise, with Africa, Australia/New Zealand, Europe, the Middle East and North America all positioning themselves as a transit hub. Direct flights for the fast-growing Asia-Latin America market are largely out of the question due to aircraft range limitations.

While Chinese carriers have their own large backyard – Asia in every direction: north Asia, southeast Asia, the Indian subcontinent, west Asia – it is far more developed with intercontinental links, from Cathay Pacific to Singapore Airlines, All Nippon Airways to Korean Air. Chinese carriers' ability to pull from this catchment area will be more difficult than US carriers pulling from Latin America. US carriers are at a disadvantage in that the US requires visas for passengers transiting to other countries but the lifting or easing of visa restrictions for Chinese citizens should help US carriers grow in the China-Latin America market.

Deeper partnerships will be welcomed but will not come easily as market evolves

Another looming development for the China-US market is the formation of deeper partnerships beyond the existing and somewhat extensive codeshare partnerships between Air China and United, and Delta with SkyTeam partners China Eastern and China Southern. American Airlines and unaligned Hainan Airlines have a small codeshare that will likely grow following Hainan's 2013 entry into the Beijing-Chicago market.

See related article: Hainan Airlines to enter under-served Beijing-Chicago market with 787 service

China Southern has expressed interest in a deeper alliance with Delta, holding the view that the alliance could persuade China to an open skies agreement, which it currently has reservations about since its carriers are under-represented in the market. But the US view is firmly that open skies must be a prerequisite, not corollary, for an anti-trust type partnership.

There may be pressure from the US side for trans-Pacific partnerships to be more expansive. China currently typically blocks third-country codeshares, which does not permit, for example, American Airlines from codesharing on Japan Airlines' Japan-China flights. Japan Airlines, All Nippon Airways, Korean Air and Asiana all have extensive networks in mainland China, allowing these carriers to offer an impressive array of connections between the US and secondary cities in China and be the leading carriers on many of the small but fast-growing US-secondary China city pairs.

Korean Air in particular is increasingly targeting sixth-freedom traffic from China (that helped it swing to a profit in 3Q2012) and that undoubtedly comes at some expense to China Southern and China Eastern. With Delta and Korean Air now considering a trans-Pacific partnership (SkyTeam does not have one across the Pacific), a Delta-China Southern arrangement will be another to manage – and possibly cause contention. A more expansive partnership could be in everyone's best interest but they face significant regulatory hurdles.

Chinese aviation is one of catch-up. With United considering secondary cities, and Delta looking to join American and United in having a trans-Pacific ATI arrangement, pressure will mount on Chinese carriers to make greater leaps.

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