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China and India: The world's two largest countries but only 5 daily flights link 2.6 billion people

China and India are the world’s two largest countries with a combined 2.6 billion people – more than one third of the world’s population. Yet there are on average only five flights a day between the two nations. Much of the small market has inevitably been carried via intermediary hubs in Bangkok, Hong Kong and Singapore. Despite being economic powerhouses and sharing a common border, China and India’s historically frosty relationship has limited travel demand between them.

This is changing as China and India recently reciprocated state visits, with leaders making the unusual but symbolically important step of visiting each other’s home cities far from their respective capitals. Demand is starting to grow not only for local traffic but also as Chinese carriers see an opportunity to carry US-India passengers over their hubs. India has also streamlined the visa application process for Chinese nationals. Chinese airlines are being urged into India and surrounds as part of the government’s "One Belt, One Road" policy. However in order to support further growth India will need to grant Chinese carriers more traffic rights. 

Six routes between China and India. Only two have daily service.

Non-stop capacity between China and India in 2015 is up approximately 35% since 2008, with about 970 seats a day compared to 700 seven years ago. The market peaked in 2013 with 1,400 daily seats.

Three Chinese carriers (all state-owned: Air China, China Eastern and China Southern) and one Indian carrier (Air India) serve the market. There are six routes, only one of which – Shanghai to Delhi – has overlapping service (from Air India and China Eastern). All other routes see one operator. Only two have daily or more service: China Eastern’s Kunming-Kolkata is daily while China Southern’s Guangzhou-Delhi is double daily.

Four Chinese cities have flights to India (Beijing, Guangzhou, Kunming and Shanghai) while three Indian cities have service to China (Delhi, Kolkata and Mumbai). Australia, the most popular long haul market for Chinese airlines, is further from India than China, but receives service from almost every long haul Chinese operator and from seven Chinese cities.

See related report: Australia is most popular long-haul market for Chinese airlines while USA is the largest

Non-stop flights between China and India: 25-Oct-2015 to 31-Oct-2015

Carrier

Routing

Weekly Frequency

Aircraft Type

Air China

Beijing-Delhi

4

 A330-300

Air China

Beijing-Mumbai

4

A330-300 

Air India

Shanghai-Delhi

4

 787-8

China Eastern

Shanghai-Delhi

5

 A330-200

China Eastern

Kunming-Kolkata

7

737-800 

China Southern

Guangzhou-Delhi

14

737-700, A330-300 

2015 sees the introduction of Air China’s Beijing-Mumbai service. The service replaces Air China's flight from Mumbai to Chengdu, its western hub (and thereby closer to India, allowing traffic to funnel from various parts of China to Chengdu). Moving the Mumbai service to Beijing likely has political undertones. Air China has also linked Beijing with Delhi, connecting the two capitals. Air India and China Eastern serve the Delhi-Shanghai route which carries more business traffic.

At the peak of the market in 2013, Air China served Bangalore from Chengdu. (There is now no service to Bangalore.) Ethiopian had local uplift rights between India and China (this flight is no longer offered either) while Indian LCC SpiceJet had a short lived service between Delhi and Guangzhou, pushing the operating envelope of the aircraft type.

Jet Airways served the market in 2008 and 2009 with a Mumbai-Shanghai-San Francisco routing. Jet has not returned to the mainland Chinese market, although it does have a larger presence in Hong Kong than Air India.

Relations are warming between China and India. This will spur demand

The size and might of China and India has meant the two have seen each other as rivals, limiting business opportunities between them. Visa processing in both countries has been strict but this is now changing as the two are adopting more streamlined policies.  Earlier this year India extended electronic visa facilitation to Chinese nationals, a move that was not entirely expected. Warming relations between China and India have been helped by high profile reciprocal state visits.

India-China trade has grown significantly, increasing from approximately USD2 billion in FY2001 to USD70 billion in FY2015. The government of India is pushing a "Make in India" strategy that is intended to encourage manufacturing in-country. Given China’s prowess in manufacturing it is expected that there will be increasing foreign direct investment.

India's trade (imports/exports) with China, and total value (numbered): FY2005-FY2015

The previously tight visa regime did not help to generate outbound travel demand from China. What little reputation India had in China was generally not positive. China’s outbound market is heavily shaped by VFR traffic, of which there is little of size in India. Non-VFR travel tends to be to major holiday markets: Australia, Japan, Korea and Europe.

Chinese visitors to India jumped from 29,000 in 2008 to 100,000 in 2009. Since then growth has been slower. 175,000 Chinese visited India in 2013 (latest year available), comprising 2.5% of all of India's 7m visitor arrivals. Indian visitors to China are significantly larger, with 676,000 in 2013 but only 348,000 arriving by air (the balance likely arrived via the ground borders with Hong Kong).

The total annual air market is approximately 530,000 per direction.

Chinese visitors to India and share of India's total visitor arrivals: 2008-2014

India has not implemented a strategy for leveraging the outbound traffic potential from China. India is receiving a negligible share of China's approximately 40 million outbound departures (to parts of the world excluding Hong Kong and Macau).

In 2015 Sri Lanka is expected to receive almost as many Chinese tourists as India does. The Maldives receives around twice as many as India. Sri Lanka and the Maldives are destinations with a similar stage length, but better direct connectivity (and the Maldives well marketed and aspirational). India has the potential to promote the Buddhist circuit in China but has not done so effectively.

The disproportionate scale is further evident in long haul markets. The 175,000 Chinese visitors India received in 2013 is less than the 229,000 who visited New Zealand (population 4.5million). 709,000 visited in Australia, 200,000 to the UK and 1.8m to the US.

Chinese visitors to select medium/long haul markets: 2013

The China-India market is mostly served by intermediate carriers, but they are at bilateral limits

Although a small market, the China-India segment has been ripe for savvy intermediate carriers. Chinese and Indian carriers have lacked strong international networks, although Chinese carriers in recent times have been asserting themselves. Air India is growing but still faces challenges. Non-stop options between the two countries have been limited, as have city pair combinations.

This has made for easy pickings from the likes of Cathay Pacific, Malaysia Airlines, Singapore Airlines and Thai Airways. Cathay Pacific (with Dragonair) serves five Indian cities, more than all mainland Chinese carriers combined.

Singapore Airlines (with SilkAir) serve nine Indian cities, but Singapore Airlines like Malaysia Airlines suffers from a high degree of circuitous routings between China and India over their Southeast Asian hubs. Thai Airways is more direct but still adds significantly to the total distance flow. The more inland (west) the Chinese destination, the more circuitous it is to backtrack through a foreign hub.

Chinese airlines are largely relying on their eastern hubs (Beijing, Guangzhou and Shanghai), reflecting demand and political ties. Despite the geographical strength of western hubs (funnelling traffic through them using narrowbody aircraft), Chinese carriers have a limited presence. China Eastern flies from Kunming while Air China moved its Chengdu-Mumbai flight to depart from Beijing. The aspiration of these western hubs to be part of a larger connecting strategy is still some time away.

China-India non-stop vs connecting itinerary distances

City-Pair

Route

Distance

Shanghai-Delhi

Non-Stop

4,299km

Shanghai-Delhi

via Bangkok

5,841km

Shanghai-Delhi

via Hong Kong

5,005km

Shanghai-Delhi

via Singapore

7,943km

Chengdu-Mumbai

Non-Stop

3,375km

Chengdu-Mumbai

via Bangkok

4,932km

Chengdu-Mumbai

via Hong Kong

5,629km

Chengdu-Mumbai

via Singapore

7,153km

Map of Shanghai-Delhi routings

The Southeast Asian carriers target their local catchment areas; Malaysia and Singapore for example have large ethnic Indian populations. China connections are filler – but welcome, with appetite for more. The challenge for them is that they have generally reached their capacity allocations in India and may also face slot challenges in China.

The China-India bilateral has been unchanged for a decade

Chinese carriers are joining Northeast/Southeast Asian airline peers in reaching their bilateral limit. From summer 2006, airlines from each country were allowed 42 weekly flights and 16,800 seats to each other. This was an increase from winter 2005’s 28 weekly flights and 11,200 seats. 2005’s allotment was, in turn, a double of summer 2005’s 14 weekly flights and 5,600 seats. But since then there has been no change in the bilateral of 42 weekly flights and 16,800 seats. 

China-India bilateral agreement: as at 11-Mar-2005

The Indian side, as is often the case, is significantly under utilising its allotment as there is only Air India’s four weekly service to Shanghai. In comparison, the Chinese side with 34 weekly flights is approaching its limit of 42.

There is ample seat capacity left if they wish to up-gauge, but Chinese carriers are unlikely to deploy aircraft bigger than A330s for now. In any event, frequency growth would typically be more important to grow network reach and connections. 

Chinese airlines expanding around South Asia as part of "one belt, one road" policy

While economic (and perhaps modest tourism) drives may generate Chinese carrier growth, for now the main impetus for new services is political motivations. Growth should occur under China's One Belt, One Road policy, which comprises the land based Silk Road Economic Belt and sea based Maritime Silk Road. Both link China with primarily Eurasia (but also parts of Africa) to expand China's reach, especially in its backyard, and grow exports.

The policy meshes with China's long-standing aim of establishing aviation hubs in China’s west and southwest to be centres for Southeast Asia and South Asia. Kunming for example envisions being a hub for Southeast Asia, where it has favourable geography but (for now) low local demand. Chengdu is being built up with services to Colombo, Karachi and Kathmandu in addition to Mumbai (all on Air China, which has a hub in Chengdu).

Kunming has services to Colombo, Dhaka, Kathmandu and Kolkata (all on China Eastern, which has a hub in Kunming, in addition to Sri Lankan’s Colombo-Kunming service). 

See related report: China's Kunming Airport aims for a hub role from Europe and North America to Southeast Asia

Chinese airlines see opportunities to link India with their growing North American network. Will Indians like Chinese airline service?

There is also opportunity for Chinese carriers to grow in India to provide connections from their North American network. North America has become the pre-eminent long haul market for Chinese carriers, offering leisure and business traffic (other long haul markets like Australia are almost entirely leisure), fewer direct competitors (Europe-China is more fragmented) and no Gulf carrier competition.

In announcing its new Beijing-Mumbai service, Air China said in a statement: "Air China will also offer good and seamless connectivity to all destinations in Mainland China, USA, Canada, Korea, Japan and Far East Asia".

India is a price sensitive market so if Chinese carriers can offer competitive fares to North America they will pick up traffic. However this VFR market can be sensitive to having their local needs accommodated, namely food and language. This is especially the case with the sizeable segment of senior Indians visiting their children working in the US.

They may be less comfortable transiting in China compared to Dubai, which has established a reputation for accommodating Indian language needs. Gulf carriers will typically offer Indian cuisine and Indian in-flight entertainment content on their Gulf-North American flights whereas the options on Chinese carriers will be more limited.

It is these soft touches that can sway the market. Besides Gulf carriers, European carriers generally have a good reputation for reliability but have had to highlight their ability to deliver on hospitality.

Lufthansa had an entire campaign in the Indian market about being "more Indian than you think”.

Lufthansa TVC - An Indian heart?

Longer range narrowbody aircraft could help the China-India market

One development that could help open up the India-China market is the introduction of re-engined narrowbody aircraft. These – particularly the A321LR – could increase the sweet spot of operations to up to six hours or more.

As noted earlier, SpiceJet’s Delhi-Guangzhou service was too long for favourable economics. Re-engined narrowbodies could allow LCCs to launch services between the two countries, which should help stimulate the market and provoke a competitive response from full service carriers. 

Outlook: North American connections interesting but local demand will drive growth for now 

The entry of Chinese airlines into playing a notable role in the North America-India (and wider South Asia) market is strategically interesting, occurring as North American carriers fight Gulf carriers in the space while other Asian carriers look to grow in India in order to link North America. EVA Air has announced its intent to enter Delhi in 2016 while All Nippon Airways, on a North American growth streak, wants to expand in India but finds local Japan-India traffic too low yielding to justify even lower yielding sixth freedom connections.

The Asian carriers that are strong in India – typically with a base in Southeast Asia – are ironically weak in North America. Conversely, Asian carriers strong in North America – typically with a base in Northeast Asia – are weak in India. The exception is Cathay Pacific, and in this period of large trans-Pacific growth, Cathay says it is Indian connections that are propping up its North American market. Further competition – from Asian or Gulf carriers – would be unwelcome. 

While Chinese airlines have the potential to develop sixth freedom traffic, it is the local India-China market that will have to define success. There is a political will to grow ties between the two nations – and the relationship has moved quickly in recent times. While it may be some time before business and later tourism drive organic growth, the first growth will be the result of political imperatives to send Chinese carriers to India and elsewhere in the region.

Chinese carriers will need increased traffic rights, and significantly ahead of Indian carrier demand. India has historically been tight on liberalisation, but will likely show flexibility with China given the political relationship. An expanded China-India air services agreement is expected to be agreed before the end of 2015 and despite the likely continued dominance of Chinese carriers in the market. It could help that Chinese carriers will focus more on the local market than beyond traffic, which (as with European and Gulf carriers and the likes of Singapore Airlines) introduces wider competitive concerns than just a single bilateral market.

India could grant Chinese carriers fifth freedom rights. If this occurred, there is a potential for India to develop as a hub for China-Africa services, or even for travel to other points in South Asia such as the Maldives or Sri Lanka. Not only is China-Africa engagement growing but so is India-Africa.

In addition to Air China’s new Mumbai service, Shandong Airlines plans to link its namesake province with India by the end of the year. The city pairs are unspecified but there will need to be a transit stop for Shandong’s all-narrowbody fleet; this may be Kunming, which is looking to build its South Asian reach.

Elsewhere in the region, China Eastern’s Colombo service started in Sep-2015, while Air China will grow in Pakistan, which of course has a long-running rivalry with India. Wider geopolitical concerns will continue to link China with the Indian Subcontinent and wider South Asia.

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