Chinese airports experience rapid growth – New Five Year Plan presents opportunities and challenges
Munich, December 21, 2015
- Comprehensive analysis of the Chinese airport industry by Roland Berger and the Chinese Civil Airports Association
- 13 of the world's top 100 airports are located in China, with Beijing taking the Number 2 slot
- Despite lacking an airport business model strategy, non-aviation revenue continues to increase thanks to on-going structural improvements
- 13th Five Year Plan strategy includes expansion of major airport hubs, clearer positioning for metropolitan airports, increased innovation and improved coverage for remote areas
China's previous Five Year Plan for Civil Aviation Development, achieved rapid growth for the industry, significantly raising its status as a global leader in both passenger and cargo business. However, the circumstances and degree of development of individual airports continue to vary widely. Experts at Roland Berger and the Chinese Civil Airports Association have examined the growth opportunities presented by the actual 13th Five Year Plan, documenting airport industry trends and highlighting the critical issues facing China's airports. According to Roland Berger partner Martin Streichfuss, "Roland Berger identified a number of key trends in the development of China's airport industry. Based on this data and the targets set by the new Five Year Plan, we have been able to put together a broad strategy for airport operators, suppliers and other ancillary organizations to generate success in the future."
China is ascending the ranks of civil aviation powerhouses. Thirteen of China's airports rank in the top 100 worldwide in passenger volume. Beijing vaulted into second place, Hong Kong ranks number 9 and Guangzhou and Pudong International Airport (Shanghai) climbed into the top 20. In addition, in terms of cargo volume Hong Kong and Pudong International Airport now rank first and third. Meanwhile, Beijing, Taipei, Guangzhou, Shenzhen, Chengdu and Hongqiao (Shanghai) all ranked among the top 50 airports in the world in 2014.
The positive effects of the three major hubs Beijing, Shanghai and Guangzhou on the Chinese aviation infrastructure are enormous: they help to create an increasingly complex network of flight routes; they improve infrastructure and services for air-land and air-rail transportation and they promote the continuing construction of airport terminals in interior cities. The hubs also plan to expand capacity to accommodate the increased passenger volumes projected for 2020, which are estimated at 150 million, 130-150 million and 120 million for Beijing, Guangzhou and Shanghai, respectively.
Growth, however, is not just limited to large airports. Small and mid-sized airports are crucial to the nation's "basic air services," as they facilitate air transportation and enhance the accessibility of remote areas; they also serve as an increasingly important engine of civil and economic growth. Opportunities abound too for budget airlines, which are still on the rise in China and have already made moves to position themselves in airports in large inland cities. Nine domestic airlines, including Spring Airlines, have established bases centered on the three main city urban areas of Beijing-Tianjin-Hebei, Shanghai-Nanjing-Hangzhou and Guangzhou-Shenzhen-Foshan. Moreover, the booming demand for Chinese outbound travel has motivated international budget airlines to speed up expansion in China, focusing on both the three major urban areas mentioned above and second-tier cities as target markets.
Driven by the rapid development of the domestic market and international aviation hubs, the utilization rate of small and mid-sized airports has risen rapidly. According to Roland Berger partner Sarna Yeung, "this is a result of per capita and disposable income in the cities surrounding small and mid-sized airports rising much faster than income in and around first- and second-tier airports, and the gap separating small and mid-sized cities from larger ones gradually narrowing." As Yeung continues, "small and mid-sized airports have benefitted from the growth of hubs around Beijing, but more noticeably around Shanghai and Guangzhou, where the coverage and density of small and mid-sized airports has expanded significantly."
Digital integration of airport services
Developing business models that effectively integrate new technology is now an imperative for many Chinese airports. As Roland Berger expert Kai-Marcus Peschl confirms, "Investing in IT is not just about processes and services – it is the key to tapping the vast potential of on- and offline business, which individual airports, terminal shops and airlines are capable of generating." Airports are expected to play a more pro-active role in developing business models that implement new technologies all along the travel industry chain. The previous Five Year Plan laid great emphasis on the airport economy and Chinese airports made significant breakthroughs in generating non-aeronautical revenue from the resulting continuous structural optimization. Non-aeronautical revenue growth came mainly from second- and third-tier airports however, which benefitted from increased commercial space as well as enhanced professionalism and flexibility in management mechanisms. At the same time many Chinese airports continue to lack a strategy for developing their local economies.
The 13th Five Year Plan: Strategy for airports
Roland Berger experts believe that the policy direction of the 13th Five Year Plan for airports will include: the comprehensive expansion of major airport hubs, differentiated positioning for metropolitan airports (with one concentrating solely on domestic routes, another on budget carriers and so on), increased innovation in large airports and basic provision for China's remote areas." The effects will be different depending on the type of airport. International hub airports could expand their cargo business and identify areas where innovative solutions can be developed. The centralized planned economy has considerably restricted the competitive ability therefore airports should take advantage of political reforms and align both organization and business much more closely to the market.
Compared to the relatively straightforward task for hub airports, the positioning and prospects for large, non-hub catchment airports are less clear-cut: the critical questions are how to achieve differentiation based on individual conditions and how to take full advantage of market opportunities such as local touristic features, road / high-speed rail intersections or larger conurbations. The critical issue for regional hub airports for the 13th Five Year Plan will be how to best utilize geographic positioning and generate revenue including that which is non-aviation related. Thus far and often driven by political agenda, many airports have set themselves the target of becoming true regional hubs. The fact is however, that they often fail to serve their immediate catchment areas and over extend themselves in competition with other regional hubs. The key here is to analyze requirements as precisely as possible and put market requirements before political aspirations.
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