China’s consumers could embrace the global low cost travel revolution in their
droves, according to Derek Sadubin, General Manager of the Centre for Asia
Pacific Aviation, addressing the China and North Asia Low Cost Airline Symposium in Macau this week.
The Symposium, with some 200 delegates in attendance from across Asia, North
America and Europe, was coordinated by aviation industry consultants, the Centre for Asia Pacific Aviation.
Mr Sadubin stated that China’s population currently has a very low number of air
trips per capita, “but even slight increases in the propensity for travel has massive
implications for airlines, aircraft manufacturers, airports and tourism around the
world - and particularly those countries just a short hop away”.
China’s aviation industry has entered an exciting new development phase, to be
characterised by increasing openness and competition, particularly in international markets, according to Mr Sadubin. “China has entered what we
describe as its sixth major development phase – Liberalisation and Deregulation.
We forecast the coming phase will dwarf even the quantum steps made in 1985 to
de-centralise the industry, in terms of accelerating market development”.
“China’s market evolution has occurred in a massively compressed timeframe –
achieving in slightly over two decades what has taken many decades to achieve
in most other aviation markets. Given this fact, we must all be mindful that the
development of low cost airlines could occur even more quickly than we all
imagine. China’s aviation market could surprise us all once again. There is no time
for complacency”, said Mr Sadubin.
International access will become easier, as China’s negotiators sign more liberal
air services agreements. Liberalisation will lead to significant market changes,
including an increase in point to point-to-point services from an increasing
number of airlines, particularly on Southeast Asian routes. “As the region’s
liberalisation initiatives spread North – and we believe China’s moves especially
will prompt movements in Japan, greater competitive opportunities between North
Asian neighbours will arise. Point-to-point travel between the densely populated
and affluent markets in China, Korea and Japan will mushroom in the second half
of this decade”.
Services from the newly liberalised markets in Southeast Asia to destinations in
China will commence with Valuair in just a matter of days and will intensify as new
low cost airlines join the market later in 2004.
These new entrants, according to Mr Sadubin will operate on a point-to-point
basis at around half the cost of its competitors, or up to 2.7 times cheaper to Hong
Kong than Cathay Pacific. “While this provides some insulation for the low cost
airlines, we are in for an extended period of deep discounting, and the ones with
the deepest pockets will survive. But the market will get a taste of what low cost
competition can offer – and they’ll want more, I guarantee it”.
“Full service carriers will have to learn to live with – and adapt to – lower fares.
Further yield dilution, on key point-to-point Asian markets, is inevitable as more
and more budget carriers enter in the second half of 2004. Incumbents will have to
respond to this, through continued deep cost cutting, promotions, innovative new
service concepts, new routes – or more aggressively by creating their own low
cost units to tackle the issue head-on”.
One of China’s existing carriers is likely to develop its own low cost operation
possibly as early as next year or 2006. Mr Sadubin stated, “it is inconceivable that
this type of development will not be established by the time of the Beijing 2008
Olympics and 2010 World Expo in Shanghai, when the world’s eye will be on
China. History suggests it could be best to start from scratch with a “clean”
subsidiary, with independent operations and management. A joint venture with an
established and experienced low cost airline could be a successful strategy”.
Mr Sadubin concluded, “the likes of the Ryanair investors, Virgin Blue, AirAsia, US
Super Funds and aggressive investors like Temasek, fresh from the launch of
other low cost entrants, could seriously knock on China’s door in coming years
for a piece of its massive east coast market. With its major airlines privatised and
airports increasingly corporatised and privatised, will Beijing knock-back a
partially foreign-invested low cost airline? Maybe – but probably not!”