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China airport wrap: Beijing's growth slows while Shanghai awaits a surge; Kunming fastest-growing

Beijing Capital Airport once again was China's largest, and the world's second-largest by passenger volume in 2013, according to newly released CAAC statistics. But with only 2.2% growth in 2013, near-capacity Beijing is plateauing, awaiting a growth surge when its new airport opens later this decade. Shanghai's airports experienced moderate 5% growth while Guangzhou, China's second-largest airport, achieved 8.6% growth.

Once again the high growth figures were the province of China's secondary cities. Kunming, in China's south, was the fastest-growing major airport in 2013, expanding 23.9%. Kunming's growth was possible due to a new airport that opened in mid-2012, ushering in sudden growth. This is in contrast to Shanghai Pudong, which is expected to gradually increase slot availability over a few years starting in late 2014. Tianjin and Guiyang rounded off the fast-growing airports, with about 20% growth.

Passenger volumes and year-on-year growth of airports in China with over 10m annual passengers: 2013

Beijing is the largest but also the slowest growing major airport

Beijing Capital retained its title as China's largest airport by far, with 83.7 million passengers in 2013. But this represents growth of only 2.2%, the slowest in five years. Beijing was the slowest growing airport in the country with over 10m annual passengers. The second- and third-slowest growing major airports were Shanghai Pudong and Shanghai Hongqiao respectively with 5.1% and 5.2% growth.

Beijing's 2.2% growth was a considerably slower pace from the nearly 17% growth in 2009. Demand at Beijing Airport remains exceptionally high but slots are restricted, choking growth opportunities.

Unless considerable airspace reform occurs, Beijing is unlikely to see a major growth surge until the completion of its second major airport later this decade.

Beijing Capital International Airport annual passenger growth: 2009-2013

Beijing Capital's traffic for the first three months of 2014 is up 2.9%. Fluctuations between Jan-2014 and Feb-2014 traffic are to be expected given the change in the Lunar New Year.

March is typically a slower month, but negative growth to below 2013 levels (although still above 2012) is worrisome.

Beijing Capital International Airport monthly passenger numbers: 2012-2014

Georgia, 'Times New Roman', Times, serif;">Source: CAPA - Centre for Aviation and airport reports

Beijing Capital once again failed to take the spot as the world's largest airport, a title still retained by Atlanta. This is despite Atlanta experiencing a 1.1% reduction in traffic in 2013, its first year of contraction since 2009.

Hartsfield-Jackson Atlanta International Airport annual passenger growth: 2009-2013

Source: CAPA - Centre for Aviation and airport reports

Beijing in comparison has been consistently growing, with 2013's traffic up by 50% since 2009.

Beijing Capital International Airport annual passenger volumes: 2008-2013

Kunming, spurred by new airport and more slots, grows the fastest

The fastest-growing major airport in China in 2013 was Kunming with 23.9% growth. Tianjin, adjacent to Beijing, was the second-fastest with 23.3% growth, but a third of the passenger volume (10m to Kunming's 29.7m). Kunming's growth was unusually high compared to recent years.

Kunming Airport annual passenger volumes: 2008-2013

Kunming Airport annual passenger volume growth: 2009-2013

Kunming earlier this decade had been growing at or under 10% a year, but the opening of a new airport in 2012 brought additional slots. 2013 was the first year of seeing a full-year impact from utilisation of those slots.

At least part of the growth at Kunming Airport was probably provoked by non-market motives. Unusually, Kunming's additional slots were made available all at once. While there had been pent-up demand, too many slots were made available. Consequently airlines sought to utilise as many slots as operationally feasible. This was prompted by the knowledge that additional slots would be hard to come by in the future, and that competitors would seek un-utilised slots. 

China Eastern, the largest carrier in Kunming, grew domestic flights but also international flights to Southeast Asia. Kunming's position in Yunnan province gives it a geographical advantage to serve as a hub for Southeast Asia. Additionally, Kunming is the gateway for popular inbound tourist activities around Yunnan.

Kunming Airport to South East Asia (seats per week, one way): 19-Sep-2011 to 19-Oct-2014

Source: CAPA - Centre for Aviation and OAG

Kunming Airport to China (seats per week, one way): 19-Sep-2011 to 19-Oct-2014

Source: CAPA - Centre for Aviation and OAG

As slots were largely utilised in a short period of time, Kunming's growth should plateau in coming years.

Shanghai Pudong’s moderate growth should accelerate in coming years

Although China's largest airport was Beijing, followed by Guangzhou, if Shanghai's two airports Pudong and Hongqiao were viewed collectively Shanghai's airports accommodated 82.8 million passengers in 2013, just under Beijing's 83.7m (although Beijing also has a much smaller second airport, Nanyuan). This makes Shanghai's two airports larger than Guangzhou.

The two Shanghai airports each saw growth around 5% in 2013, faster than Beijing's 2.2%. Yet this is still among Pudong's and Hongqiao's slowest growth in recent years.

Shanghai Pudong Airport annual passenger growth: 2009-2013

Source: CAPA - Centre for Aviation and airport reports

Shanghai Hongqiao Airport annual passenger growth: 2009-2012

Source: CAPA - Centre for Aviation and airport reports

Pudong is the city's international gateway, although there are also domestic flights for connections as well as spillover from the older Hongqiao, primarily a domestic airport. Pudong should experience growth acceleration in 2014 and then a rise in 2015 as additional slots become available from late 2014. While exact details are yet to be finalised, it is likely Pudong will phase in future slot availability. This will ensure more consistent growth over coming years and avoid the slot grab airlines experienced in Kunming.

It is likely airlines will prefer the phased-in approach as they can grow more consistently and avoid the situation in Kunming of having a sudden onslaught of capacity that is difficult to bring to profitability.

China Eastern is based in Shanghai with a 35% share of frequencies when including subsidiary Shanghai Airlines. China Eastern is expected to be the largest recipient of additional slots, although it will likely receive proportionally fewer slots than other carriers, resulting in small, single-digit decreases in marketshare.

Shanghai Pudong system frequency share by airline: 28-Apr-2014 to 4-May-2014

Other large recipients of Pudong slots should be China Southern and Air China, in addition to Shanghai's two privately-owned local carriers: Juneyao Airlines (full-service) and Spring Airlines (low-cost).

China Southern has expressed interest in growing at Shanghai, but this should be viewed with caution as its growth opportunities are limited, and its presence is consistent with carriers having bases in each other's hubs (China Eastern has a base in Beijing, where China Southern also has a hub).

Guangzhou experiences faster growth as China Southern expands. LCC Jiu Yuan could increase growth rate

Of China's five largest airports, Guangzhou was the fastest-growth with an 8.6% increase in passenger volume, although this is slower than in recent years (as is the case at the other major airports).

Guangzhou Baiyun Airport annual passenger growth: 2009-2013

Source: CAPA - Centre for Aviation and airport reports

Growth was led by China Southern, although its domestic growth in 2013 was mostly due to the full-year realisation of growth created in 2012. More noticeable growth occurred in the Guangzhou-Southeast Asia market.

Guangzhou Baiyun Airport to China (seats per week, one way): 19-Sep-2011 to 19-Oct-2014

Source: CAPA - Centre for Aviation and OAG

Guangzhou Baiyun Airport to South East Asia (seats per week, one way): 19-Sep-2011 to 19-Oct-2014

Source: CAPA - Centre for Aviation and OAG

Guangzhou later in 2014 should see the launch of 9 Air/Jiu Yuan Airlines, the LCC being established locally by Juneyao Airlines. As the operation will launch only in mid-2014 with a small fleet, it will take a few years to see an impact on passenger figures from 9 Air, and if 9 Air can generate new demand China Southern cannot.

Chengdu is China’s go-to secondary city, but growth was eclipsed by Chongqing in 2013

China's fifth-largest airport in Chengdu, in Sichuan in western China. Carrying 33.4m passengers in 2013, its volume was slightly below Shanghai Hongqiao's 35.6m. Chengdu grew 5.9% in 2013, representing its fourth year of slowing growth, although volumes continue to increase largely (in absolute terms). Traffic volume has nearly increased from 2008 to 2013.

Chengdu Airport annual passenger growth: 2009-2012

Source: CAPA - Centre for Aviation and airport reports

Chengdu Airport annual passenger volumes: 2008-2012

Source: CAPA - Centre for Aviation and airport reports

But Chengdu's 5.9% growth was eclipsed by 14.6% growth. Chengdu's 33.4m passengers in 2013 however give it a large lead over Chongqing's 25.3m passengers in 2013. Chengdu and Chongqing are separate by only 277km and compete for some overlapping services, especially long-haul international flights. Chengdu has proven more successful at attracting foreign carriers, with British Airways and Etihad some of the latest non-Asian carriers to serve Chengdu.

United will launch a service to Chengdu later in 2014, the first non-stop flight from a US airline to a Chinese city other than Beijing or Shanghai. Lufthansa has mooted adding a service to western China, possibly Chengdu. Chengdu Airport has an aggressive development approach that offers generous incentives for long-haul flights. 

Chongqing's passenger volumes are lower but the airport is maintaining double-digit percentage growth.

Chongqing Airport annual passenger growth: 2009-2012

Source: CAPA - Centre for Aviation and airport reports

Chongqing Airport annual passenger volumes: 2008-2012

Source: CAPA - Centre for Aviation and airport reports

Tianjin and Guiyang Airports also exceeded 20% growth

While Kunming recorded the fastest growth of major airports with 23.9% growth, the next two fastest-growing airports in 2013 were Tianjin (23.3%) and Guiyang (19.7%). This represents a return to fast growth for Tianjin and Guiyang.

Tianjin Airport annual passenger growth: 2009-2012

Source: CAPA - Centre for Aviation and airport reports

Guiyang Airport annual passenger growth: 2009-2012

Source: CAPA - Centre for Aviation and airport reports

Guiyang serves as a hub for southwest China and is seeing increasing international business while Tianjin is near Beijing and largely operates in the shadow of Beijing. Beijing's wider array of flights are accessible via high-speed rail from Tianjin city centre.

AirAsia X switched Kuala Lumpur services from Tianjin to Beijing Capital while Scoot remains at Tianjin (largely so as not to overlap with parent Singapore Airlines in Beijing). Hong Kong Airlines in 2014 launched services to Tianjin, supplementing its numerous flights at Beijing.

Secondary cities are dominating growth

Unsurprisingly China's secondary cities continue to dominate growth figures, although the large airports continue to have the more impressive volumes. Secondary cities, with more accessible slots, are able to expand more easily, but even they can be congested or offer opaque slot processes. Secondary cities are increasingly the recipient of economic development goals (especially in the west, where Chengdu and Chongqing are located). That helps to boost demand as well as offer incentives for carriers to grow.

But the growth model in these areas is largely the same, of using full-service operations despite the pricing sensitivity (more so than in Beijing and Shanghai) and more limited premium demand. Growing numbers of LCCs, such as West Air and Chongqing Airlines, are looking to find a model more sustainable for these markets. Indeed, there could be lessons across the country; Spring is based in Shanghai, one of China's most prosperous cities.

Despite the growth in secondary cities, the prized assets by far are access to Beijing and Shanghai. Shanghai will offer more slot availability in 2014 while Beijing will likely have to wait until later this decade when its new airport opens, ushering in more meaningful slot growth to those fortunate enough to receive the slots. While the creation of slots is a struggle, so too is the process of securing them. And still limiting expansion, especially along the eastern seaboard, is the unpredictability of air traffic management, an area which is only slowly improving.

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