Revised Airbus strategy reflects need for single-aisle aircraft in China

In its latest market forecast, Airbus raised its single-aisle sales outlook for China by 66 pct to 1,900 aircraft, with 1,161 sales expected in the next 10 years alone.

"The assessment by Airbus is that there is going to be an explosion of point-to-point, short haul travel in the Chinese market over the next 20 years," said Derek Sadubin, chief operating officer at the Center for Asia Pacific Aviation, a Sydney-based consultancy.

In its forecast, Airbus said it expects air travel within China to grow at 14.7 pct annually over the next five years, and at an average of 8.2 pct for the next 20 years.

State media reported that Chinese airlines carried 74.25 mln passengers in the first half this year, with the number set to surge to 270 mln in 2010.

The Airbus revision has brought it closer to Boeing's long-term forecast for China, where both companies are competing fiercely for market share.

Boeing said it expects to sell 1,840 single-aisle aircraft to Chinese carriers over the next 20 years.

"Boeing had a much more bullish prediction on single-aisle aircraft than Airbus in the past, but this upgrade has brought Airbus more in-line," Sadubin told XFN-Asia.

"There is a recognition that there is going to be more point-to-point travel within China, rather than the big hub travel that had been anticipated by Airbus in previous forecasts," he added.

The two rival aircraft manufacturers are often seen as having broadly different strategies for the international market, with Airbus championing the need for wide-body aircraft to serve major hubs, while Boeing is pursuing more of a non-stop, point-to-point system.

On the Airbus side, the A380 "superjumbo" has grabbed the lion's share of media and public attention, but that should not detract from the manufacturer's desire to also produce jets more suited to point-to-point travel, Sadubin said.

"Overall, Airbus believes that both hub-to-hub and point-to-point will play a role," he said.

"There will be some major hubs developing but Airbus is at pains to point out that it is a believer in point-to-point travel as well. Manufacturers get lumped in one camp or another, but the truth is Airbus has always been a believer in point-to-point travel, it's just that maybe Boeing has made the point more forcefully," Sadubin added.

At the end of October, Airbus announced the opening of an assembly plant in China for its A320 single-aisle jet. A week before the announcement, China said it would buy 150 A320 aircraft.

The new facility, in the northeastern port city of Tianjin, will eventually make four planes a month, with the first expected to be completed in 2009.

Alan Lam, an analyst with Guotai Junan Securities, said that Airbus was right to raise its single-aisle forecast, as the key driver for future growth in China's aviation market would be regional routes, which are better served by smaller aircraft.

China's growing number of airports will also increase demand for smaller jets that can fly short-haul routes, with quick turnaround times.

The government has made airport construction a key theme of its 11th five-year plan, which runs until 2010, with 140 bln yuan earmarked for investment over the period.

According to the country's aviation regulator, China will build 49 new airports, launch 71 airport expansion projects, and relocate 11 airports by the end of the 11th five-year plan period.

"The major driver for future growth will come from regional routes within China. Major airline companies will want to use more flexible strategies to expand in the market... they do not need to use wide-body aircraft to fly these regional routes," Lam said.

He noted that the A380 had not been a successful strategy for Airbus in China, with only Guangzhou-based China Southern placing an order for the aircraft.

Due to difficulties with the A380 project, China Southern now may have to wait until 2009 for the delivery of its five "superjumbos", after the potentially hugely profitable Olympic games.

"The A380 has not been a success... putting other types of aircraft in the Chinese market is a much better strategy," Lam said.

CAPA's Sadubin added that demand for smaller aircraft will come from established carriers such as the big three - Air China, China Eastern and China Southern - as well as from low-cost carriers vying to enter the market.

"There will be new entrants to the market buying new aircraft, but the bulk of orders will be from established players trying to keep up with demand on short haul segments," he said.

The gradual liberalization of China's aviation sector has prompted the arrival of low-cost carriers, such as Okay Airways and Spring Airlines, which will help to stimulate overall growth in the market, as they will trigger repricing and keep the established carriers competitive, Sadubin added.