While it has slowed slightly in recent months, growth in passenger traffic between China and North America has been booming in recent years. And that growth is expected to continue, creating major challenges for the airlines particularly given political dynamics in the market. US carriers want to grow. China-based carriers want to grow. And, as of right now, they cannot really do so.
Speaking at the Boyd Group International Aviation Forecast Summit earlier this month Dr. Zhihang Chi, Air China’s VP & General Manager for North America presented his company’s growth patterns, noting that it started slowly and it took nearly 30 years to gain a foothold and stabilize with service just to New York, Los Angeles, and San Francisco. But once the company “flipped the switch” things took off in a hurry. The carrier now serves seven destinations and plans to add two more in the coming year. But that growth will not be as great as the company wants to see. Dr. Chi believes that the growth is artificially stunted by limitations of the current bilateral treaty and expressed concerns about the future of that treaty to be amended in the near future.
United Airlines’ Jim Compton spoke on the same stage, discussing the carrier’s affection for its fleet of Boeing 787 Dreamliner aircraft and its ability to right-size the fleet to markets. Compton is optimistic about China as part of that growth and expects that the growth will be in the “long, thin routes” which the 787 has supported since its introduction.
So much of the demand growth out of China as we look out in the next 5 years is in the secondary cities, cities that have populations that have 8 million or more. And so that 787 is just the perfect aircraft to serve that developing market.
Chengdu was the first of these destinations which United has expanded in to but, based on Compton’s comments, it seems that more such routes are likely. Indeed, since that announcement United has indicated intent to operate a 3x weekly seasonal service to Xi’ian from San Francisco. Politics may get in the way here, too, though the US government is trying a bit on that front. Wuhan is getting a new consulate and Chengdu might be growing into a larger space soon. But that also may not be enough.
The current bilateral agreement caps flights between the two countries and the number of airlines which can operate such service. Zone 1 and Zone 2 destinations in China are nearly maxed out. Dr. Chi spoke to this challenge, noting that his airline is already “bumping up” against the limits. Zone 3 destinations in China are not capped and United may benefit from this, increasing flights into the “smaller” (only because so many other cities in China are large) cities but those opportunities are also limited in total scope.
Dr. Chi also lamented that the most recent round of negotiations at the governmental levels failed to raise the caps. While it is hard to pin down the reasoning for lack of action on any one factor, Dr. Chi suggested that the current US3vME3 fight may be contributing to a political climate which makes expansion of international markets hard for US politicians to support, a policy which will continue to stunt growth should it hold.
.@AirChinaNA's Dr. Zhihang Chi expresses worry that the US3vME3 fight will spill over into US-China market. #Boyd15LAS
— Seth Miller (@WandrMe) August 31, 2015
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