China’s Airlines: Turn their attention to Europe routes

Summary

• China Southern and Hainan Airlines have each applied for four new routes to Europe; Air China, Shanghai Airlines and Sichuan Airlines for one each.
• China-Western Europe seat growth has averaged 8.5% pa over five years; it will accelerate to 10.6% in 12M to Jul-2019 even before these newly sought routes.
• Air China is the largest of 23 airlines operating between China and Western/Central Europe. There were only 14 five years ago.
• The number of routes between China and Western/Central Europe has more than doubled over five years.

China Southern and Hainan Airlines have each applied for four new routes to Europe
Details of the airlines and routes in these applications to CAAC are shown in the table below.
Two airlines have applied for the same new route (both Hainan Airlines and China Southern have applied for Shenzhen-Rome), so a total of 10 completely new nonstop Europe routes are being sought by airlines from China.
China Southern has applied for four new routes and one extra frequency on an existing route. Hainan Airlines has also applied for four new routes. Air China, Shanghai Airlines and Sichuan Airlines have each applied for one new route.

China's airlines route applications from Beijing Daxing

Source: CAPA - Centre for Aviation, CAAC

China-Western Europe seat growth has averaged 8.5% pa over five years
The market between China and Western Europe has experienced considerable growth over the past five years.
According to data from OAG, seat numbers in the 12 months ending Jul-2019 will be 7.0 million (one way), representing a five year compound average growth rate of 8.5% pa.
Growth from the same period one year previously is set to be 10.6%, not including any of the additional services applied for by Chinese airlines.
The additional services will push this growth rate even higher.
Air China is the largest of 23 airlines operating between China and Western/Central Europe
Based on existing schedules for the week of 08-Jul-2019, i.e. before adding any of the additionally applied for services, there will be 23 airlines operating between China and Western/Central Europe (excluding CIS and Turkey), compared with 20 in the same week of Jul-2018.

China's airlines route applications to Europe

Source: CAPA - Centre for Aviation, CAAC

New entrants since last summer are Shenzhen Airlines (Shenzhen-London Heathrow, Oct-2018), Aigle Azur (Beijing-Paris Orly, Sep-2018) and Sichuan Airlines (Chengdu-Copenhagen, Dec-2018).
The 23 airlines currently scheduled to operate routes between China and Western/Central Europe in the week of 08-Jul-2019 are shown in the chart on page 8, ranked in order of their share of seats in this market for that week.
Air China is by far the leading airline with 29% of seats - nearly three times larger than Lufthansa and China Eastern. Airlines from China have a 58% seat share, while airlines from Europe have 42% in this market.
LCCs have only a very small presence in this market, with only HNA Group's Beijing Capital representing this business model (and with just 0.6% of seats). HNA Group also owns LCCs Lucky Air and Urumqi Air, which have entered the China-Russia market in the past two years but so far do not operate to Western/Central Europe.

There were only 14 Chinese airlines in this market five years ago
The total of 23 airlines in Jul-2019 compares with 14 in Jul-2014 - an increase of 64% over five years. In addition to the three new entrants mentioned above, Xiamen Airlines, Tianjin Airlines, Beijing Capital Airlines, Iberia, Neos and XL Airways France have all entered since Jul-2014.
If Shanghai Airlines is granted rights to launch Shanghai-Budapest, the total will reach 24 airlines.
The number of routes between China and Western/Central Europe has more than doubled over five years.
There has also been considerable growth in the number of routes between China and Western/Central Europe, from 43 in Jul-2018 to 88 in Jul-2019, which is an increase of 105%.
There are currently scheduled to be eight more routes in Jul-2019 compared with Jul-2018, before the possible addition of the 10 new routes applied for, which could take the total number of routes to 98 by Aug-2019.

11 new routes are already in the schedules
The net increase by eight routes currently scheduled for the week of 08-Jul-2019 compared with the same week of 2018 is the result of 11 new routes and three route closures.
The routes that have been terminated are Beijing to Lisbon (which was operated by Beijing Capital Airlines), Chongqing to London Gatwick (which was operated by Tianjin Airlines) and Chengdu to London Gatwick (the latter replaced by Chengdu to Heathrow, operated by Air China).
The 11 new routes for Jul-2019 relative to Jul-2018 that are already scheduled between China and Western Europe are shown in the table above. Three of these are scheduled to launch during northern summer 2019 and eight have started since Jul-2018.

China to Western Europe: new routes in the week of 8-Jul-2019 compared with a year earlier

Source: CAPA - Centre for Aviation and OAG

China-Europe growth is set to continue
China is the world's largest country by population but is only the third largest long haul market from Europe, some way behind the US and Canada in terms of seat numbers. However, growth on China-Western Europe is stronger.
The five year CAGR of 8.5% in seat numbers for China-Western Europe compares with 6.0% for US-Western Europe and growth is accelerating this year to double digit rates.
The prevalence of second tier Chinese cities in the new route applications points to the vast potential for aviation.
China has five cities with populations of 10 million or more (Shanghai, Beijing, Shenzhen, Guangzhou and Tianjin) and more than 100 cities with over one million people.
The weight of Italian routes among the Jan-2019 applications may be a sign of growing economic and trade links between the two nations. Italy is seeking to be the leading EU partner in China's Belt and Road Initiative (BRI).
More broadly: driven by China's enormous population, the country's relatively under-penetrated aviation market and negotiations towards a new EU-China air transport bilateral, robust growth in this market looks set to endure.
Meanwhile, the growth market remains largely the domain of Chinese airlines, partly supported by provincial subsidies, but more generally due to the difficulties faced by European airlines in the market, with low yields and challenging behind-gateway penetration.