Welcome Beijing Airport Terminal 3! Competition intensifies in China

For the airport, and its key tenants, Air China, China Southern and Hainan Airlines, T3 represents a long-awaited easing in capacity constraints that had led to government intervention last year to cut schedules to/from the capital.

With the T3 opening, the airport's third runway also swings into full operations, although Beijing still faces the lingering issue of congestion. Surging demand will mean the expanded airport (now with capacity for 62 million passengers) is operating close to full design capacity this year (rather than 1.5 times capacity in 2007, when it handled 53.6 million passengers).

Beijing has also put in a strong cargo performance, handling 1.2 million tonnes of cargo last year, up 16.5% year-on-year.

Top 20 Chinese airports passenger growth vs cargo growth in 2007 (bubble size measured by passenger numbers)

Source: Centre for Asia Pacific Aviation & CAAC

Municipal authorities must quickly shift their attention to finalising a site for a second airport in Beijing, which will be badly needed by its slated opening in 2015. The existing airport can be further expanded to handle around 80 million passengers p/a, but on current growth rates, congestion at China's capacity could be problem again soon.

Meanwhile, Shanghai Pudong International Airport will make a much bigger impact on its congestion problem (it handled 50% more passengers last year than it was designed for), with the opening of its massive new Terminal 2 next month. A greenfield airport site, Pudong enjoys much greater development flexibility than its northern rival, with planning already under way for a third terminal and two additional runways. Pudong is a major threat to other North Asian hubs.

The Hong Kong SAR Government this week confirmed a feasibility study will commence this year into the proposed third runway at Hong Kong International Airport. The move was welcomed by Cathay Pacific, which has been agitating for the development of the runway to ensure Hong Kong retains its competitiveness against the fast-growing Mainland airports.

Cathay Pacific could join a bid by the parent of its cross-equity partner, Air China, to take a stake in Shanghai's dominant carrier, China Eastern Airlines. China Eastern's shareholders rebuffed an approach by Singapore Airlines, whose home airport, Changi Airport, opened its new Terminal 3 in Jan-08. Singapore has been exceptional at building capacity ahead of demand, which has helped Changi develop into the pre-eminent hub in Southeast Asia. Through SIA's influence, China Eastern hopes to achieve similar success in Shanghai.

But, as the airport capacity expansion projects across Asia demonstrate, a high stakes game is being played out. The control of Pudong is a key opportunity that Asia's leading airlines are keenly attuned to.