China’s Chengdu Logistics Office director Chen Zhongwei said the City Government is drawing up plans to construct a new Chengdu Airport with the site selection basically finalised to be Jianyang, creating Chengdu as a hub portal to the Middle East and Europe. Mr Chen, as quoted by Yicai, added Chengdu is expected to have four routes to Europe and the Middle East next year, respectively. Doha, Melbourne and Frankfurt will be the next international cities to connect to Chengdu, according to Mr Chen. The local government has said it will help airlines to open new international routes to Chengdu as soon as possible.
Chengdu drawing up plans for second airport, site selection basically finalised
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Chinese long haul secondary city air routes: BA's Chengdu exit does not reflect the broader market
The fastest long haul airline growth is not occurring with Gulf airlines but rather, with services to and from secondary Chinese cities. It is not a secret that local incentives and subsidies, generally common in any market, are especially large in price and duration for secondary Chinese cities. An airline might expect over a third of revenues to be subsidised. This drastically alters the business case in a low-margin industry, hence the proliferation of secondary city services. This extreme dependence on subsidies raises the question of how long governments are willing to issue generous subsidies, and how many routes can be sustainable without them.
British Airways' decision to exit its only secondary Chinese route to Chengdu, in Jan-2017, might suggest the music is ending and the secondary long haul bubble is popping. There is added colour given the recent UK-China air service agreement expansion, and Brexit/British pound depreciation overhangs.
BA's exit does confirm market fundamentals: secondary city yields are low, and some routes are ahead of their time. Yet a number of factors unique to British Airways suggest caution in concluding that BA's Chengdu exit could foreshadow other withdrawals.
Airports - subject as always to the vicarious uncertainty of airline fortunes
CAPA’s 2016 outlook was against a background of unusually high levels of profitability for airlines.