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Thailand-China LCC expansion drives enormous growth

Thailand-China has emerged as one the largest and fastest growing air travel markets in the world. There are currently close to 1,300 weekly flights from Thailand to China, generating 250,000 one-way seats. Seven years ago there were 200 weekly flights, generating only 40,000 one-way seats.

Thailand has become the most popular destination for Chinese travellers outside Greater China. Chinese visitor numbers to Thailand are on pace to exceed 11 million in 2018, compared to less than two million in 2011. 

Airlines of all types from both countries have benefitted from the rapid growth in Thailand-China travel. However, LCCs in particular have grown rapidly. The LCC penetration rate in the Thailand-China market has grown over the past seven years from only 7% to 44%, and is poised to increase further as all of Thailand’s LCCs are now banking heavily on China as they expand.

Summary

  • Chinese visitor numbers to Thailand have increased at a remarkable pace over the past decade - doubling in just three years.
  • Thailand-China seat capacity has increased more than fivefold in the past six years.
  • China now accounts for more than 25% of total international seat capacity from Thailand.
  • There are nine airports in Thailand with services to China; three of these airports have at least 30 Chinese destinations. 
  • Ten Thai airlines serve China; Thailand's LCCs are relying particularly heavily on China as they expand.

Inbound tourism to key ASEAN markets, including Thailand, and the fast growing outbound China market will be a topic of a panel discussion at the CAPA Asia Aviation Summit in Singapore on 8/9-Nov-2018. For more details on the summit click here

Chinese visitors to Thailand grow at an enormous rate 

Chinese visitor numbers to Thailand have increased more than tenfold over the past decade. There will be approximately 12 million Chinese visitors to Thailand this year, compared to less than 800,000 in 2009.

In the past three years Chinese visitor numbers to Thailand have more than doubled, from 4.6 million in 2014 to 9.8 million in 2017. Thailand reported another 26% increase in Chinese visitor numbers in 1H2018.

Chinese visitor numbers to Thailand and year-over-year growth: 2008 to 1H2018

China became the largest source market for Thailand’s tourism industry in 2012. China accounted for 27.7% of total visitors to Thailand in 2017 and 30.4% in 1H2018.

Back in 2009, China accounted for only 5.5% of total visitors and China was Thailand’s fourth largest source market – behind Malaysia, Japan and the UK.

China’s portion of total visitors to Thailand: 2008 to 1H2018

2009 2010 2011 2012 2013 2014 2015 2016 2018 1H2018
5.5% 7.0% 9.2% 12.5% 17.5% 18.7% 26.6% 26.9% 27.7% 30.4%

Thailand-China seat capacity has increased more than fivefold over the past six years. There are currently between 230,000 and 300,000 weekly one-way seats from Thailand to China, depending on the time of year (the market is relatively seasonal).

In 2012 there were between 40,000 and 60,000 seats, depending on the time of year.

Thailand-China total one-way weekly seat capacity:  Sep-2011 to Oct-2018

Chinese travellers drive rapid tourism growth in Thailand – and are huge spenders 

Total visitor numbers to Thailand will approach 40 million in 2018, compared to only 14 million in 2009. Of the additional 26 million visitors, China has accounted for nearly half.

Tours of Thailand are gigantic business for Chinese agents and their partners in Thailand (most Chinese travel to Thailand as part of packages). Chinese are also generally big shoppers, making their impact on the Thai economy even more significant. 

Travel and tourism overall accounts for nearly 10% of GDP in Thailand – or nearly 20% when indirect impact is included. Based on the indirect figure and China’s 30% share of visitors, Chinese visitors will generate approximately USD25 billion for Thailand’s economy this year. 

Nine airports in Thailand have services from China  

Not surprisingly, China has become the biggest market for all of Thailand’s main international airports.

China currently accounts for more than 25% of total international seat capacity from Thailand. The next largest markets – Singapore and Japan – account for only around 7% of total international seat capacity.

Nine airports in Thailand currently have fights to China. For eight of these nine airports China is the biggest market.

These are 11 international airports in all of Thailand. Hat Yai and Hua Hin are the only airports that currently have scheduled international services that do not have any links to China

Bangkok market dominates 

Bangkok’s two airports, Suvarnabhumi and Don Mueang, account for 65% of total Thailand-China seat capacity. In the current summer season there are up to 170,000 weekly return seats from Bangkok to China, including 100,000 from Suvarnabhumi and 70,000 from Don Mueang.

Phuket is the third Thai largest airport in the Thailand-China market and has more than 50,000 weekly seats to China, accounting for another 20% of total Thailand-China capacity. The six other Thai airports with services to ChinaChiang Mai, Chiang Rai, Krabi, Samui, Surat Thani and U-Tapao/Pattaya – all have less than 10,000 weekly seats to China and combined account for only a 15% share of the total.

For U-Tapao, Chiang Rai and Surat Thani, China accounts for at least 80% of their international seat capacity. Koh Samui is the only airport that does not count China as its largest international market. (Singapore is still a larger market from Koh Samui, but China is growing fast and will likely become the largest international market from Samui within the next year.)

Thailand to China weekly seat capacity by Thai airport: summer 2018

Rank Airport Code Weekly seats Capacity share China % of total international seats

Number of routes

to China

1 BKK 100,283 39% 16% 37
2 DMK 67,789 26% 35% 35
3 HKT 51,771 20% 46% 30
4 CNX 18,468 7% 55% 15
5
Utapao Rayong-Pattaya
UTP 7,250 3% 82% 10
6 KBV 6,978 3% 48% 10
7 CEI 2,765 1% 88% 5
8 USM 2,029 1% 24% 5
9 URT 1,675 1% 100% 3

China dominates the international operations at Phuket and Don Mueang 

Bangkok Suvarnabhumi is by far the largest international airport in Thailand, handling 26 million international passengers in 1H2018. China is the largest international market for Suvarnabhumi and accounts for 16% of the airport’s total international seat capacity. Of Suvarnabhumi’s 139 international passenger destinations, 37 or 28% are in China

Don Mueang is the second largest international airport in Thailand, handling 8 million international passengers in 1H2018, but is by far the largest domestic airport. Phuket is the third largest international airport in Thailand, handling 5.8 million international passengers in 2018. 

China dominates the international market at both Don Mueang and Phuket. China accounts for 46% of Phuket’s international seat capacity and 35% of Don Mueang’s international seat capacity. China accounts for 30 of Phuket’s 45 international destinations (67%) and accounts for 35 of Don Mueang’s 69 international destinations (51%).

Don Mueang is the world’s largest LCC airport and its ageing international terminal now resembles a Chinese bus terminal. Long queues filled with Chinese travellers are the norm in the departure hall, security, immigration and the tax refund counter. The terminal relies mainly on bus gates, with hold rooms packed full of Chinese passengers.

The chaotic scene these days at Don Mueang’s overcrowded international terminal is perhaps the best indicator of the rapid growth that the Thailand-China market has experienced.

Thailand’s LCCs pursue rapid expansion in Chinese market 

Don Mueang-China capacity has more than quadrupled over the past four years, from 13,000 to 15,000 weekly one-way seats in summer 2014 to more than 70,000 weekly one-way seats during peak periods this summer.

All five of the LCCs based at Don Mueang have pursued rapid expansion in ThailandNok Air, NokScoot, Thai AirAsia, Thai AirAsia X and Thai Lion Air. These LCCs currently have approximately 60,000 weekly one-way seats from Don Mueang to China, compared to only 13,000 seats four years ago.

Thai LCCs currently account for approximately 32% of total Thailand-China seat capacity, compared to only 10% three years ago.

Thai LCC one-way Thailand-China weekly seat capacity by airline: Sep-2011 to Oct-2018

Thai Lion becomes the largest foreign LCC in China

In particular, Thai Lion has expanded its Chinese network rapidly since launching flights to China in early 2016. Thai Lion is currently the largest airline in the Thailand-China market, accounting for approximately a 15% share of seat capacity. 

Thai Lion is also now the fourth largest foreign airline in the Chinese market by capacity – and the largest from Southeast Asia (based on weekly seat capacity). Thai Lion operated 28 routes to China this summer: 16 from Don Mueang, nine from Phuket, one from Chiang Mai, one from Chiang Rai and one from U-Tapao.

In early 2018 Thai Lion overtook Thai AirAsia, which launched services to China in 2005 and for more than 12 years was the largest LCC in the Thailand-China market. For nearly two years Thai AirAsia was also the largest airline overall in the Thailand-China market (after overtaking Thai Airways in 2016). 

AirAsia and Nok also have significant presences in the Thailand-China market 

Thai AirAsia is still the second largest airline in the Thailand-China market, with a 10% share. When its long haul sister airline Thai AirAsia X is included, the AirAsia brand has an 11% share of Thailand-China seat capacity. 

Thai AirAsia operated 18 routes to China this summer, those being 12 from Don Mueang, two from Chiang Mai, two from Phuket and two from U-Tapao. Thai AirAsia X has just one route to China (from Don Mueang) as it is primarily focused on the South Korea and Japan markets.

The Nok brand has approximately an 8% share of Thailand-China seat capacity, when both Nok Air and its sister airline NokScoot are included. Both airlines have only been serving China since 2015. Nok has 13 routes to China: four from Don Mueang, four from Phuket, four from U-Tapao and one from China Mai. NokScoot has six China routes, all from Don Mueang

In addition to the five Don Mueang-based LCCs, the Thai leisure/charter airline NewGen and Chinese regional airline China Express Airlines also compete in the Don Mueang-China market.

NewGen is based at Don Mueang and has expanded rapidly in China over the past two years. New Gen has 22 China routes: 13 from Don Mueang, four from Krabi, three from Phuket and two from Chiang Mai. New Gen has a 4% share of total Thailand-China seat capacity.

China Express Airlines has a tiny presence at Bangkok Don Mueang, operating three weekly services from Zhanjiang with CRJ900 regional jets. Of the 34 airlines currently serving the Thailand-China market, China Express is the smallest.

Spring is the largest Chinese airline in Thailand 

Chinese LCC Spring Airlines is the largest Chinese airline in the Thailand-China market, with a 9% share of seat capacity. Spring has 22 routes to Thailand: 11 to Bangkok Suvarnabhumi, six to Phuket, two to Chiang Mai, two to Krabi and one to Surat Thani.

Suvarnabhumi is the Bangkok airport for almost all foreign airlines, including foreign LCCs. China Express is a rare exception as it operates to Don Mueang.

China’s three main full service airlines – China Eastern, China Southern and Air China – are the second, third and fourth largest Chinese airlines by capacity in the Thailand-China market. The China Eastern subsidiary Shanghai Airlines is the fifth largest and is also among the top 10 airlines in the Thailand-China market.

Top 10 airlines in Thailand-China market by one-way seat capacity: summer 2018

Rank Airline Code Total Capacity Share
1 Thai Lion Air SL 36,659 14%
2 Thai AirAsia FD 26,245 10%
3 Spring Airlines 9C 24,024 9%
4 China Southern Airlines CZ 23,126 9%
5 Thai Airways TG 21,423 8%
6 China Eastern Airlines MU 18,247 7%
7 Air China CA 12,105 5%
8 NokScoot XW 10,692 4%
9 NewGen Airways E3 9,984 4%
10 Shanghai Airlines FM 9,130 4%

There are a total of 21 Chinese airlines serving Thailand, which combined account for approximately 54% of Thailand-China seat capacity. Only two of these airlines are LCCs: Spring and Lucky Air. While Spring is the third largest airline in the Thailand-China market (behind only Thai Lion and Thai AirAsia) by capacity, Lucky is small, with only a 1% share of Thailand-China seat capacity. 

Thai Airways' market share has declined significantly 

There are currently 10 Thai airlines competing in the Thailand-China market. Along with the six previously mentioned Don Mueang-based airlines, the other competitors are Asia Atlantic Airways, Bangkok Airways, Thai Airways and Thai Smile.

Thai Airways and its regional full service subsidiary Thai Smile combined operate 11 routes to China (nine from Suvarnabhumi and two from Phuket) and account for a 10% share of Thailand-China seat capacity. The Thai Airways Group has not benefitted from the rapid expansion of the Thailand-China market as it has pursued only modest capacity expansion over the past few years. Six years ago, Thai Airways had a leading 30% share of Thailand-China capacity.

Asia Atlantic is a small Suvarnabhumi-based charter airline. Bangkok Airways resumed flights to China in 2016 after a seven-year hiatus. Bangkok Airways is focusing on niche China routes from Samui and is the smallest of the 10 Thai airlines competing in the Thailand-China market (with a less than 0.5% share of total seat capacity).

Overall, Thai airlines account for approximately 45% of Thailand-China seat capacity.

Thai VietJet plans to enter Thailand-China market 

All of Thailand’s LCC brands are banking heavily on China as they expand.

Thai VietJet is the only Thailand-based LCC that does not yet serve China but recently secured CAAC approval for its first Chinese route. Thai VietJet began scheduled services in 2016 and currently operates five domestic routes and one route to Vietnam with a fleet of six A320-family aircraft. 

Thai VietJet intends to accelerate expansion significantly; its tentative fleet plan includes two additional aircraft by the end of 2018 and another 10 aircraft in 2019. Thai VietJet plans to focus mainly on China, since Thailand’s domestic market and most regional international markets (to other Southeast Asia countries) are now oversupplied. 

Thailand’s LCCs use China to reduce reliance on domestic, increase utilisation 

Thai VietJet and Thailand’s four more established short haul LCCs have a majority of their capacity in the domestic market. However, after several years of rapid domestic growth, Nok, Thai AirAsia and Thai Lion have shifted focus over the past two years to the international market – particularly China – as domestic growth has slowed.

Nok and Thai Lion have particularly been using new routes to China to reduce their reliance on the domestic market. More China services have enabled an increase in utilisation rates as China services can generally be operated overnight using aircraft that fly domestically (or on short haul international routes within Southeast Asia) during the day. 

The yield is also often better on Thailand-China routes compared to the intensely competitive domestic market. Launching new China routes is low risk because on most China routes agents are block booking and guaranteeing most (or in some cases all) of the available seats. 

Most of the Thailand-China routes from Nok and Thai Lion are operated under a scheduled charter model. Several of the routes are seasonal and the number of months they operate are decided by the travel agent partners (as well as the number of frequencies).

Chinese airlines enjoy a competitive advantage 

Chinese airlines also rely heavily on block bookings from agents for their Thailand services, particularly on routes from secondary and tertiary cities in China.

There are more than 50 Chinese cities that are served from Thailand. Only in the main cities are independent travellers common, with flights directly purchased from airlines or online travel agents (along with hotels). For most secondary and tertiary cities, almost all travellers heading overseas for holiday opt for packages from traditional agents.  

Chinese airlines often have a competitive advantage over Thai airlines as they have close relationships with local agents and can use their domestic services to feed their international services. Chinese airlines are also able to redeploy capacity easily to different international markets based on the time of year and which destinations are most popular.

Chinese visitor numbers drop in 3Q2018 due to fallout from Phuket boat incident 

Although Thailand is generally one of the most popular destinations for the Chinese, in the past the number of Chinese visitors to Thailand has declined during certain periods. For example, civil unrest in Thailand in 2009 and again in 2014 led to a drop in visitor numbers for the full year. 

A crackdown on zero-dollar tours also led to a reduction in late 2016. Chinese visitor numbers to Thailand plummeted by more than 20% in 4Q2016, impacting Thai airlines, although for the full year visitor numbers were still up by 10%, driven by large gains in the first three quarters.

Most recently, there was a drop in visitor numbers in 3Q2018 following a highly publicised boat accident in Jul-2018. A tourist boat in Phuket capsized on 7-Jul-2018, killing 47 Chinese nationals. The incident immediately impacted inbound demand from China, leading to a 1% drop in Chinese visitors to Thailand in Jul-2018 and a 12% drop in Aug-2018 (following an 18% gain in June and 26% increase for the first half of the year, as previously mentioned). Thailand has not yet reported visitor data for Sep-2018.

Thailand now expects around 5.1 million Chinese visitors in 2H2018, compared to a previous forecast of nearly 5.8 Chinese visitors and matching the 5.1 million Chinese visitor figure from 2H2018.

However, Thailand still expects to meet its original target of 11 million tourists in 2018, which would represent a 12% increase from 2017. (The growth in 1H2018 was faster than initially anticipated.)

A China slowdown would leave Thai airlines in a potentially vulnerable position 

The Thailand-Chinese market has typically recovered quickly following incidents that impacted demand. However, if there is a more permanent decline in Chinese visitors numbers to Thailand – or even if the growth slows on a more permanent or annual basis – Thai LCCs will be heavily exposed, given how much they are relying on China in terms of existing capacity and future expansion.

Chinese airlines would not be as impacted as they can easily redeploy capacity to another market. Thai airlines would struggle to find alternative markets because all of Thailand’s other international markets are much smaller, are not growing as fast, and are generally already oversupplied. 

China has understandably become a hot market for Thai airlines, particularly LCCs. However, the rapid rate of growth experienced over the past four years may not be sustainable. Thai LCCs could find themselves in a potentially vulnerable position if Thailand-China growth slows, or particularly if the market contracts.

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