BAA stated that London Heathrow Airport has “no long-term future as a major hub airport” (The Sunday Times, 01-May-2011). The airport operator believes it can maintain Heathrow’s position as the world’s busiest international airport for 15 years “at the very best”, before the government’s refusal to increase runway capacity will result in growth moving to the competing hubs of Paris CDG, Frankfurt, Amsterdam and Madrid Barajas. London Heathrow fell to the fourth busiest airport in the world in 2010 from second in 2009, falling behind Beijing Capital and Chicago O'Hare.
BAA concedes: Heathrow is in decline
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Chinese long haul secondary city air routes: BA's Chengdu exit does not reflect the broader market
The fastest long haul airline growth is not occurring with Gulf airlines but rather, with services to and from secondary Chinese cities. It is not a secret that local incentives and subsidies, generally common in any market, are especially large in price and duration for secondary Chinese cities. An airline might expect over a third of revenues to be subsidised. This drastically alters the business case in a low-margin industry, hence the proliferation of secondary city services. This extreme dependence on subsidies raises the question of how long governments are willing to issue generous subsidies, and how many routes can be sustainable without them.
British Airways' decision to exit its only secondary Chinese route to Chengdu, in Jan-2017, might suggest the music is ending and the secondary long haul bubble is popping. There is added colour given the recent UK-China air service agreement expansion, and Brexit/British pound depreciation overhangs.
BA's exit does confirm market fundamentals: secondary city yields are low, and some routes are ahead of their time. Yet a number of factors unique to British Airways suggest caution in concluding that BA's Chengdu exit could foreshadow other withdrawals.
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