OAG Analyses World’s Two Largest Air Markets

In November 2014, the United States and China signed a reciprocal agreement to increase the validity of tourist and business visas issued to each other’s citizens to 10 years, and increase student visas to five years.

The agreement was presented in both China and the US as a unique opportunity to expand business and leisure travel between the world’s two largest economies.

The impact will likely be considerable for both the world’s largest air market, the US, and the planet’s fastest growing air market, China. A recent forecast by the International Air Transport Association (IATA) predicts that by 2030 the Chinese air passenger market will exceed the US.

Analysis by OAG of air capacity growth rates over the last three years predicts startling change to the make-up of the world’s top 10 airports by seat capacity.

At some point before the end of 2017, very likely to be during 2015, Beijing Capital International will overtake Atlanta Hartsfield-Jackson as the world’s busiest airport. These growth rates, along with flight capacity schedules data filed by the airlines for early 2015, suggest in excess of 120 million annual seats in/out of Beijing, with Dubai close behind. In 2015, the top 10 global airports will provide almost 40% more seats than the top 10 in 2009. Furthermore, just five years ago, there were eight European or US airports in the top 10, but by 2017 there may be only three.

The world’s focus, however, is squarely on the two giant air markets, China and the US, particularly as IATA predicts that over the next 20 years, Asia Pacific will account for about two-thirds of global air transport growth. At present, the US is clearly dominant. In November 2014, the total scheduled flight seat capacity of 85.3 million in the US compares to 50.4 million in China. The two markets are evenly matched for the mix of domestic and international capacity, with 79% of Chinese capacity supplied as domestic seats, and 78% in the US.

This over-reliance on a limited number of major hub airports means capacity constraints in China are considerable. Beijing is struggling to meet passenger demand, and construction has started on the capital’s second international airport at Daxing, which is set to open in 2018. Other likely global top 10 airports in 2017, such as Jakarta, London Heathrow and Hong Kong, have similar capacity challenges, while fast-growing airport cities such as Dubai and Istanbul are building new facilities to handle projected growth. Los Angeles opened a new terminal in 2013, and Kuala Lumpur unveiled the world’s largest low-cost carrier terminal in 2014.

“Looking ahead, if China is to become a larger air market than the US, much of the growth will need to come from domestic air services and they will need to be better distributed nationwide,” said Mark Clarkson, Business Development Director ASPAC for OAG. “This is why the Chinese government is embarking on a huge airport building programme, particularly in secondary cities.”

By the end of 2015, China will count 230 airports, capable of servicing 450 million passengers a year. In the next five years, China’s civil aviation industry will invest around US$425 billion on airport construction to improve the nation’s air connectivity.

The continued expansion of low-cost carrier (LCC) services across Asia should provide a further stimulus for infrastructure development. China is poised to become a key player, particularly for intra-regional LCC growth. Research by OAG of Asia Pacific’s top 20 country pair markets for total seat capacity between June 2010 and June 2014 revealed that China features in eight of the fastest growing routes. The average annual growth in seat capacity between Australia and China was 11.4%, while 20% capacity growth was recorded between China and Thailand.

In China, the Civil Aviation Administration of China (CAAC) recently abolished the minimum price requirement for airlines, and introduced new measures and incentives designed to kick-start the development of China-based LCCs.

“Given the potential impact of the changes made by the Civil Aviation Administration of China to the rules governing the establishment and operation of LCCs, the opportunities are now available for a major Chinese low cost carrier to emerge, or for a major Chinese carrier to make a play for regional markets,” added Mark Clarkson.