James Halstead explains why China may prove to be more resilient during the economic downturn than many other regions.

What a difference a year makes.

This time last year the main concerns revolved around a slowing world economy and rising commodity prices and, particularly for aviation, the soaring fuel price.

Now with the deepening financial crisis there are fears of a prolonged world recession.

There is one region, however, (ironically, partly to blame for the increase in commodity prices), which appears more resilient than most – China.

The airline industry is – like most others – is subject to the economic laws of supply and demand.

On a global basis, the level of industry supply is determined by the number of aircraft available, the number of airlines to fly them and the availability of route rights, airports and landing slots.

Demand on the other hand is directly related to growth in GDP. In the more developed aviation markets – for example, the US – there appears to be a fairly static proportion of GDP available to be spent on air travel, while historically there has been a fairly direct correlation between passenger traffic growth and real economic performance.

As a result of the burst of the banking bubble, the developed world seems to be heading into one of the deepest recessions since the 1930s.

It is important to remember that all cyclical downturns are different and this time the globalisation of the past 20 years ensures that all nations are included in the misery.

But this misery can be relative. China had been enjoying a strong period of economic performance with double-digit annual growth.

This rate is certainly slowing, but as recent forecasts show (the ones here are from the World Bank) the economy is still expected to expand 7–8% a year for the next two years.

One reason is the break that the People’s Republic of China (PRC) put on credit in 2007 to offset rising inflation.

Another is the stimulus package put in place in December to spend CNY4 trillion (about $600 billion) on infrastructure.

In 2008, the PRC announced plans to build 200 new airports by 2020, along with construction and disaster relief following last year's earthquake.

Meanwhile, as the rest of the world's consumers suffer as a result of the downturn, Chinese consumers continue to spend, taking advantage of high savings rates.

However, the fortunes of the Chinese domestic airline industry remain mixed.

The industry is still heavily centrally regulated with the ‘big three’ (Air China, China Southern and China Eastern) highly competitive, but under government control.

There have been increasing calls for deregulation and consolidation; a merger of the three would create one of the world’s largest airlines.

Indeed, the deal between Air China/Cathay/Dragonair/Citic in 2006 has already provided a base for a strong ‘national’ carrier.

Meanwhile, SIA's attempts to take a stake in China Eastern seem now to have been thwarted.

The finances of all the ‘big three’ appear a little precarious (mainly as a result of forced acquisitions) and the limitations on foreign shareholdings and split capital structures make access to capital more difficult even in normal times.

China Eastern – financially possibly the weakest of the three – is currently in the process of receiving an injection of state cash, as no doubt will others.

The recent performance of the domestic market in China is in contrast to the experience of the rest of the world.

Passenger demand started showing declines in the early part of 2008 in the run up to the Beijing Olympic Games, affected by the event’s increased security, travel and visa restrictions.

At the same time, other airlines in the region, exemplified by AAPA members, continued to see reasonable growth. China’s poor performance was exacerbated by the earthquake in May 2008.

As a result, domestic traffic numbers did not start to improve until October.

However, by January 2009 things had improved as China recorded one of the busiest ever Spring Festival travel periods. This may not be enough to help the profitability of the ‘big three’ in the short run.

In this command economy, domestic fuel prices are set centrally and were not adjusted to the increase market prices until late in 2008.

And decline in the price of black gold since the summer of 2008 meant that, despite the best intentions, their fuel hedging efforts have only served to create market-to-market losses.

Indeed the situation threatens to generate severe net losses for all (see graph).

The government is trying to help and has ‘requested’ that the domestic airlines refrain from ordering new foreign aircraft to mitigate an oversupply of capacity. It has also put a ban on private new entrants until 2010.

In 2007, China accounted for 6% of world GDP at market exchange rates and 12% at PPP.

There is no doubt that in the long run, it will be a major force in world aviation.

While the country has been underserved in the past, there is now a plethora of new airports in the pipeline and a still dynamic economy, even in these restrictive times.

The make-up of the domestic players in the industry may change but China will still be an increasingly important source of global airline traffic.

Asia-Pacific Airports 2009 Issue 2

What makes Hainan Meilan International Airport special? Keith Strandberg investigates.

Asia-Pacific gateways are fast gaining a reputation for customer service innovation and expertise, and China’s Hainan Meilan International Airport is no exception. For the Hainan Island located airport has taken the high-end travel experience to a whole new level by opening 18 VIP rooms to cater for growing demand from passengers who want that little bit extra at an airport.

Each one is different, boasting its own unique identity, design and décor that aims to reflect Chinese culture, traditions and style.

“We want passengers to know that they are in Hainan and China and believe that we have created something a little different and special,” enthuses chairman of the board, Cong Zhang.

A total of 14 VIP rooms are located in the airport’s Domestic VIP Lounge and another four in its International VIP Lounge.

Zhang claims that another feature that sets his airport’s VIP lounges apart from the rest is the quality of food and beverage served in them. “Food is a priority. There are always at least four different kinds of fruits available and to satisfy different people’s tastes, we provide nine kinds of beverage.



“A selection of cold dishes and snacks are also available from a more traditional buffet area. The VIP lounges are beautiful, relaxing places and the decor and style is really different from room to room.”

The airport is located near Haikou, an old seaside city that has long been popular with visitors from mainland China.

Made capital city of the newly created Hainan Province in 1988, it is the island’s political, economic, scientific and cultural capital and major transportation centre due to the airport and still busy seaport.

The 2002 merger of Haikou city with neighbouring Qiongshan only served to increase the importance of the metropolis to Hainan Province, which also enjoys the status of being a Special Economic Zone.

With so many attractions then, it is little wonder that passenger traffic at the gateway continues to boom, rising from 4.3mppa in 2000 to a record 7.2mppa last year.

And with business travel to Hainan Island at an all-time high, the airport authority decided that the time was right for the construction of the VIP rooms as they would enhance customer service and add to the bottom line.

Explains Zhang: “We believe that they have improved customer service levels at the airport and subsequently the image of Hainan Meilan and the airport authority. They are almost a national brand in their own right and have become known for the professional way they are managed and the personal service provided, which is based on the highest international standards.

“We are also hoping that the VIP rooms will increase our earning potential in respect of revenue gained from non-aeronautical activity. We need to make maximum use of the space available in the terminal to improve the airport experience for our customers and, where possible, generate new revenues. The results so far have been encouraging.”

The airport views potential VIP lounge customers as being anyone from politicians, bankers and high-powered businessmen to conference delegates and all first class passengers on international flights.

And if you are not invited to rooms you can pay for the privilege – access being gained either by purchasing a VIP card or through renting facilities.

Rental charges vary depending on the room requested, but the airport has set fees for the VIP cards, which are expected to account for the vast majority of guests. They range from around 7,000 Yuan ($1,000) for a Personal Silver VIP Card to 200,000 Yuan ($28,000) for a Company Gold Card.

For these fees, customers get a selection of services that include free car parking, concierge services, aviation insurance and special inspection access for domestic flights.

All that is required is one day’s advance reservation, which has to include the VIP’s name, flight number, take-off time, vehicle registration number (if appropriate) and meal requirement.



Upon arrival, guests will be guided to a specific VIP lounge. Then, airport staff will complete the check-in procedures and departure formalities. When the flight boards, airport staff will assist the VIP onto the airplane.

Zhang says that the airport aims to build up a special relationship with each and every one of its VIP room guests, remembering their personal likes and dislikes so that the service can be fine-tuned or bettered on the next occasion they pass through Hainan Meilan.

“Our goal is ‘no complaints’ for the VIP Service for an entire year. It is a difficult but realistic target,” he states. “We want our VIP service staff to be the best and will constantly review and update training to improve customer service levels and introduce new concepts and ideas.”

To Hainan Meilan, the VIP rooms are its chance to showcase the airport and its customer service abilities to the world. It was never going to disappoint.



Asia-Pacific Airports 2008 Issue 3

Xianping Wang discovers that China is beginning to realise the huge economic potential of the airport city.

The ‘airport city’ phenomenon is fast gaining momentum in the People’s Republic of China (PRC) with an ever-increasing number of gateways expressing an interest in the concept.

Indeed, since 2003 when all commercial Chinese airports were transferred to local government by the Civil Aviation Administration of China (CAAC) – with the notable exception of Beijing Capital and Lhasa–Gonggar and Chamdo–Bangda airports in Tibet – virtually all major PRC airports have announced an airport city development project or an intention to draw up plans for one.

Some airports have even gone as far as to complete land-use masterplans, usually with multi square-kilometre properties and billions of RMB Yuan investment schemes.

Changsha Huanghua Airport in Hunan province and Nanjing Lukou Airport in Jiangsu province are just two of the latest gateways to unveil ambitious proposals to transform themselves into airport cities.

In fact it is probably not an understatement to say that PRC gateways are positively rushing to adopt the airport city concept for a number of strategic reasons, though none of the efforts so far appear to have yielded material commercial benefits.

And as you would expect from a country as huge and diverse as China, the understanding of what constitutes an airport city can vary quite dramatically from one airport to another.

A key reason why Chinese airports are attracted to the idea of an airport city is the fact that it provides them with the opportunity to expand their property boundary in a most cost effective way.

It is, after all, much cheaper – or even sometimes free – to obtain land from local owners, invariably city governments, than having to pay market prices for premises elsewhere.

In addition, since most of the large PRC airports are profit-driven commercial entities (usually incorporated locally), the airport city concept fits in well with their need or desire to generate new revenue streams.

And since airport city projects are widely deemed as a ‘natural expansion’ of aviation activity at an airport, and in most cases built on land adjacent to a gateway, who could argue against them being the next logical step in the evolution of the world’s airports? Finally, surrounding landowners are usually eager to have a share of the benefits and opportunities created by aviation, meaning that they are often only too willing to collaborate with airports with respect to their development programmes.

Indeed, in China, this sometimes manifests itself by offering lucrative commercial terms or even offering the right of management control over neighbouring properties.

However, while there is no lack of enthusiasm among airport management teams and property owners to develop airport cities, until recently relatively little real progress had been made in China in terms of actual airport city development.

The causes of such a lack of tangible progress vary from one project to another, the most common and perhaps the biggest cause for concern for potential investors is the governance issue.

One has to remember that until recently Chinese airports were properties of the central government and are still somewhat detached or even isolated from the local communities in which they are located in terms of the exchange of human resources, management communication and business relationships.

In addition, the relationship between an airport and its controlling local government varies substantially from one city to another, meaning that the type of bond enjoyed between the two could help or possibly hinder any airport city projects.

For example, some airports may find it difficult to successfully liaise and co-operate with all the parties that might have a vested interest in the development of an airport city.

Mainly due to the difficulties associated with the ownership/administrative structure, efforts of lining-up the different business interests and motivations of all relevant parties have certainly not proven to be easy.

So who are the different interested parties? Invariably provincial governments, city and district governments and the ‘supervisory agencies’ of airport authorities that differ from one airport to next but could include the State Assets Supervisory Commission (SASC); State Development and Planning Commission (SDPC); local transport bureau; local land management authorities; public utilities; private property owners; and investors and service providers.

The best case to date is perhaps the new Kunming International Airport (under development as a provincial government project) and the airport city plan launched by the Kunming City and its district governments.

History suggests that without unified (or at least closely co-ordinated) effective governance, most airport city projects may well remain on the drawing board or run the risk of being developed in a fragmented, and ultimately less effective, way.

Notwithstanding the difficulties and obstacles, some airport city programmes in China have begun to make progress in recent years.

Among the biggest success stories is the case of Beijing Capital, a Public Private Partnership (PPP) initiative that involves the airport authority, the local government and private sector players.

Also noticeable for making some progress are the airports where the municipal governments play particularly strong roles in ‘directing’ developments through use of their executive powers.

Good examples of these are Tianjin and Chongqing.

However, although some government-driven programmes are starting to bear fruit, at least in the planning and design stages, some are of concern as they might be at odds with the driving forces really needed to kick-start a healthy airport city programmes; namely, market demand and commercial interests.

Elsewhere some PRC airports and their local government owners have decided to seize the initiative and begun allocating land next to their gateways to the airport authority, specifically for the purpose of developing airport cities or projects such as airport industrial parks or aviation economic zones.

Cities adopting this new strategy include Changsha and Zhengzhou, and the bold moves promise to change the business scope of their respective airport authorities.

In fact their advanced governance structure and more effective coordinating process, along with the administrative and financial powers gained as a result of the new strategy, will differentiate them from other airports/airport city projects in China.

Though these initiatives are in their infancy and technically still in the planning stage, there now seems little doubt that this type of local government driven airport city project draws ever closer for China.

While some solutions to the most pressing obstacle – governance – are appearing, other challenges remain and new ones continue to emerge.

Among them are the lack of the management skills in China necessary to make such ground breaking projects happen, and the ability of airports to fund such capital-intensive developments.

With regards to the management skills, China appears to be pinning its hopes on a combination of gaining experience as projects progress and looking externally for help.

In fact, to date PRC airports have not been shy in coming forward with the funds to get consultants and other industry experts from outside China onboard.

Outside investors are certainly interested in the ‘appreciation potential’ of real estate adjoining airports and any regulatory reforms (either locally or nationally) that make this land available for development, could make Chinese airports much more appealing from an investor’s perspective.

If that airport is enjoying healthy traffic growth, has a large population base and is located in a business friendly environment then it becomes an even more attractive proposition to investors.

Few could dispute the fact that the airport city concept appears to have accelerated in China over the past year, particularly in eastern and central/southern regions, where Hongqiao Airport in Shanghai, Nanjing Airport (Jiangsu province) and Shenzhen Bao’an Airport (Guangdong province) are all developing plans.

Domestic real estate developers are the main players so far, but other sectors, such as private equities, international hotel chains and integrated logistic service providers are starting to show an interest.

And with quite a few local governments and airport authorities engaged in negotiations over “large-scale investments”, it is considered only a matter of time before more international investors sign up.

While some domestic and overseas investors will no doubt view the key investment areas in PRC airport city projects as logistics (including bonded warehousing) and light manufacturing, it is interesting to note that the large transactions so far have principally focused on real estate development.

Earlier this year, China launched a massive economic stimulus programme which has a heavy focus on infrastructure development, and as a result of this quite a few key airports are viewed as obvious beneficiaries.

Indeed, the programme is expected to act as a catalyst for large-scale airport development in China, with many new capacity-enhancing projects either being launched or their completion accelerated, triggering a new wave of airport city programmes either within or just outside the perimeter fence.

Many cities are expected to use the economic stimulus package as an opportunity to upgrade their ground transportation links and, in this regard, Hongqiao International Airport in Shanghai provides an eye-catching illustration.

With Hongqiao Airport’s new terminal (T2 at the west side) as the core, the municipal government has unveiled plans to build an enormous ground transportation hub (the Hongqiao Comprehensive Transport Centre) that will be capable handling over one million passengers daily as well as boasting a residential area and office complex.

By combining air, rail (inter-city, subway, high-speed and maglev) and road (public buses and taxis) links, the centre is expected to play a significant role in connecting Shanghai with seven satellite cites in the Yangtze River Delta region.

Investors, developers and operators such as international hotel chains and management firms are literally queuing up to get involved in the project, which is scheduled to open ahead of the Shanghai World Expo in 2010.

Such is the importance of the project to Shanghai’s development that it is being described as a new district for the city that, in the words of the mayor, will play a vital part in the future growth of the Chinese city.

Though not labelled as an ‘airport city’, the Hongqiao project is the first real attempt in China to make air transport the anchor of local economic growth, and thus the first to create a real impact, rather than being merely a concept that may or may not become a reality.

Other Chinese cities and airports are watching the project with interest and are expected to try and follow Shanghai’s lead and approach in their own airport city developments, though few may match the magnitude or duplicate the value of the Hongqiao programme.

And without wishing to labour the point, one of the most attractive aspects of the Shanghai project to potential investors is the governance of the programme – the mega-project being driven by a special purpose vehicle (SPV) created by the local government, and majority-owned and led by Shanghai Airport Authority.

There is little doubt that airport cities and the diverse range of business activities that they encourage will soon start to become key economic drivers in dozens of large Chinese cities.

Indeed, the new source of income that they generate will make airports less dependent on passenger revenues and possibly provide them with an economic buffer when traffic throughput dips.

Quite a few airports in China are reaching the “magic threshold” of 10mppa that will put them on the radar of airport city investors wishing to diversify their business and transform them into multi-billion dollar assets.

Among them are Changsha, Qingdao, Dalian and Xiamen, the latter, of course, having already attracted the interest of Fraport, which paid €50 million for a 24.5% stake in 2007.

As the newly finalised corporate development strategy of one key PRC airports states, “aviation investment and management companies will spearhead the growth of many local Chinese economies for years to come”.

China really is the land of opportunity.

Asia-Pacific Airports 2009 Issue 4

IT innovation will fuel the growth of China’s booming aviation sector, writes Sue Carter.

The development or expansion of any new airport presents a unique challenge from an information technology (IT) perspective, as on a daily basis, a typical airport’s infrastructure must support hundreds of systems and business processes.

These processes may include passenger and baggage handling, security management and air-traffic control, among many others.

Generally all of these processes must be handled in real-time with little margin for error.

Demand for air travel within China has seen passenger figures double since 2000.

Such has been the rise in demand that the Civil Aviation Administration of China (CAAC) estimates that the country’s airports could be processing up to 1.4 billion passengers and 30 million tonnes of cargo by 2020.

To cope with this increased demand China’s aviation sector has initiated one of the largest development projects the world has seen.

In preparation, China’s existing 147 commercial airports will undergo upgrades and expansions and will be joined by as many as 50 new airports (some of which have already been constructed).

The size and complexity of China’s airports will naturally differ, depending on the volume of traffic each handles.

However, they will all need to apply scalable IT solutions and platforms to ensure that they are ready for today’s travellers, as well as the increased volume of travellers predicted for the future.

An estimated $340 billion is to be spent on 3,400 new aircraft, 1,400 of which will be ‘jumbo-jet’ sized or larger over the next two decades, according to Chinese newspaper reports.

Among the airlines acquiring new aircraft is Shanghai Airlines, which in August took delivery of the first of 10 A321s ordered in 2006 and 2007.

But Airbus and Boeing are not expected to have it all their own way, as China’s confidence in its ability to build its own homemade jumbo jet, the C919, recently led to a model of the aircraft making its international debut at the Asian Aerospace Expo and Congress 2009 in Hong Kong.

Lateral thinking
Opening a new airport – or indeed re-developing an existing one – is a challenging balancing act of physical and technological requirements to synchronise operations.

Developers also need to choose whether IT integration is managed as part of the overall business objectives via a master systems integrator, or is managed by a discreet contract supplier.

Building or upgrading an airport requires an holistic approach.

Unisys has been involved in the development of two of Mainland China’s central aviation hubs – Beijing Capital International Airport and the new Guangzhou Baiyun International Airport.

Each project or development was unique and required tailored IT solutions.

Unisys used its 3D Blueprinting framework to align the overall business strategy and vision with the supporting business processes, IT applications and infrastructure so that all facets of the development were synchronised.

A truly holistic approach to IT integration is one that links all four layers to deliver a successful outcome.

There is greater opportunity for this approach when in the role of master systems integrator.

As a systems integrator, Unisys also used a joint responsibility matrix to identify how various systems and processes interrelate and impact each other in order to manage the progress and timing between each contractor and sub-contractor.

In 2004, Beijing Capital partnered with Unisys in the development of its third terminal (Terminal 3).

The giant new terminal was designed to process the massive influx of passengers expected to arrive for the 2008 Beijing Olympic Games.

In just 30 months from contract to completion the volume and complexity of traffic that the airport could handle was dramatically increased as a result of the airport’s physical and IT infrastructure.

Ultimately, Beijing Capital was able to process more than 1,340 flights a day throughout the Games whilst improving the overall operational efficiency of the airport.

The development of Beijing Capital International Airport was driven by the looming deadline of the Olympics, but also needed to accommodate the forecast increase in air travel demand with 76 million passengers and 580,000 flights per annum expected to be passing through the gateway by 2015.

The future of China’s rapidly growing travel industry will continue to be characterised by passenger and cargo peaks driven by high profile and large-scale events such as the 2010 World Expo in Shanghai.

This demand has prompted a race for airports and airlines to secure their share of an emerging market of leisure and business air travellers.

Construction and expansion projects like Beijing Capital are occurring throughout China.

The goal is to develop airports with the IT infrastructure and flexibility to rapidly meet changing demands in logistics, passenger services and other mission-critical applications.

Daily planning for airports requires central airport databases that are capable of using mission-critical passenger and logistics solutions.

These solutions are required to generate flight schedules, display seat availability, manage flight inventory, record passenger bookings and handle passenger check-in and departure.

Guangzhou Baiyun International Airport, for example, operates on the Unisys Central Integrated Information Management System (CIIMS) and Airport Operations Management Solution (a high volume database). The database constantly receives flight-related data from airlines, handling agents and air-traffic control to provide airport staff, government agencies and the general public with real-time information.

Similarly, middleware systems were also applied to integrate other disparate airport systems with the CIIMS, such as the flight information display system, departure control system, baggage handling system, and building management system.

Passenger focus
Whilst future demand for air travel in China is undeniable, it is still anticipated that competition among airports and carriers will be strong.

There is certainly no denying that increasing competition today has sparked a growing awareness of the needs of passengers. The aviation sector in China has suddenly become aware of passengers and, in particular, how they are handled and their overall experience in the airport and the aircraft.

While airports have traditionally focused on baggage handling, there is now a far greater emphasis on how the travellers themselves are processed. Each airport will have the challenge of balancing business efficiencies, risk mitigation, customer
satisfaction and patronage.

To achieve these aims, each airport will need to rely on its IT systems and infrastructure to deliver an exceptional customer experience complete with real-time information (flight arrivals and departures, baggage and freight tracking); fast and seamless connections for baggage and freight; robust safety and security; and the integration of business processes that enable the free-flow of information between airport systems and stakeholders (airlines and airport retailers, for example).

This ultimately means a greater amount of interaction between airlines and airports. For instance, larger aircraft like the doubledecker A380 can deliver a huge number of passengers to an airport at a single time, instantly creating a processing challenge.

To process passengers efficiently and effectively, without jeopardising security standards, requires innovative solutions.

Traditional airport ‘choke points’ like customs and security checks are prompting the development of integrated applications that capture more detail for faster processing upon arrival and departure.

Airlines and airports are also improving the customer experience by using technology to streamline check-in systems such as online check-in, kiosk processing and even barcodes that can be sent directly to a customer’s mobile phone to be scanned at the departure gate.

The development of any airport is more than just a series of terminals, waiting lounges and check-in desks.

China’s growing aviation sector is prompting a new wave of innovations and opportunities. Each airport will rely on its IT infrastructure to support its commercial and industrial offering as an ‘airport city’ with opportunities for ancillary revenue in retail and real estate development.

Technology is enabling ancillary transactions to occur prior to stepping onto a plane. Integrated and Internet-enabled systems within the airport can allow passengers to choose products and services they wish to purchase before they get on the plane.

In the future, almost every transaction and process that occurs within an airport will rely (in some way) on its underlying IT infrastructure. IT innovation is unlocking China’s skies and inspiring a new era of travel in the Asia-Pacific region.

Asia-Pacific Airports 2009 Issue 4

Planned airport development in Mainland China shows no sign of slowing down, writes Joe Bates.

China has announced plans to build the highest airport in the world in Tibet, and its construction is likely to be a daunting task given the altitude and climate, with average temperatures staying below zero throughout the year.

According to Chinese state news agency Xinhua, the new Nagqu Dagring Airport will open in 2014 and its planned location at 4,436 metres (14,553ft) above sea level will make it the world’s highest gateway, beating neighbouring Qamdo Bamda Airport by 102m (300ft).

The airport – which will be just 764 metres lower than the Mount Everest base camp on the Chinese side – is set to become Tibet’s sixth gateway serving Nagqu Prefecture and a population of around 400,000.

Whether it will have the longest runway in the world – the title also currently belongs to Tibet’s Qamdo Bamda courtesy of its 4,200m long runway – remains to be seen.

“The airport construction is planned for 2011 with a construction period of three years,” says Xu Jian, director of the Nagqu committee of development and reform.

“It is expected to cost 1.8 billion yuan [€1.85 million] and cover an area of 233-266 hectares.”

The airport is just one of nearly 100 new airports that China has stated that it intends building by 2020 in a bid to meet future demand, which is expected to soar over the next decade as the nation’s economy grows.

The vastly ambitious development programme comes with a $68 billion price tag and, in terms of new cities getting airports for the first time or new state-of-the-art gateways replacing out of date facilities, is quite simply, mind-boggling.

No other country can match the huge development programme, but then again nobody else has China’s population – 1.3 billion people or 20% of the world’s population – or, its future economic growth potential.

If the big build is going to happen, an average of nine or ten new airports per year will have to be completed over the next decade.

The new airports will mean that 80% of the nation’s population live within 100 kilometres of an airport – a remarkable achievement for a country the size of China.

The government decided to embark on the massively ambitious development programme in 2008 after a decade of rapid economic growth began to create bottlenecks in China’s aviation infrastructure.

And with demand expected to grow by at least 10% per annum between now and 2020, the need for new airports cannot be understated.

Among the 92 projects currently being considered by the Chinese government, are plans for a second gateway in Qingdao (Shandong Province) and new gateways at Guyuan (Ningxia Hui Autonomous Region), Wushan (Sichuan Province), Hefei (Anhui Province) and Xigaze, Nagqu and Yushu in Tibet.

Elsewhere, the Yunnan Airport Group is reported to be on the look out for a global strategic investor to fund a new $2.9 billion airport in Kunming while GE Capital Aviation Services (GECAS) has set up a joint venture with Guangdong Airport Management Corporation to build a new $500 million airport at Chaoshan (Guangdong Province).

Xu Bo, director of the Tibetan branch of the China civil aviation administration, notes: “The objective for the next stage of development is to open direct air routes from Tibet to south Asian countries”

A recent economic stimulus package from the Chinese Government is expected to act as a catalyst for large-scale airport development in China, with many new capacity-enhancing projects either being launched or their completion accelerated, triggering a new wave of real estate development programmes either within or just outside the perimeter fence.

Indeed, many cities are expected to use the economic stimulus package as an opportunity to upgrade their ground transportation links and, in this regard Hongqiao International Airport in Shanghai provides an eye-catching illustration.

For in addition to the airport’s master plan to add a new terminal, runway and 600,000 tonne capacity cargo complex by March 2010, the municipal government has unveiled plans to build an enormous ground transportation hub (the Hongqiao Comprehensive Transport Centre) that will be capable handling over one million passengers daily as well as boasting a residential area and office complex.

Other Chinese cities and airports are watching the project with interest and are expected to try and follow Shanghai’s concept and approach in their own ‘airport city’ developments, though few may match the magnitude or duplicate the value of the Hongqiao programme.

Elsewhere, Shenzhen Bao’an International Airport has unveiled plans to build a second runway and new 500,000sqm terminal on land reclaimed from the sea by 2012 and Zhengzhou Xinzheng International Airport and Shenyang Airport are planning new terminals.

In western China, Chengdu Shuangliu International Airport recently completed its capacity doubling $2 billion runway.

Hangzhou, Changsha, Chongqing, Wuhan, Nanjing and Xiamen are among quite a few airports in China about to reach the ‘magic threshold’ of 10mppa, and all have planned or ongoing development projects designed to ensure that they keep pace with demand.

Though most regional airports in China do not make an ‘operating profit’ because they are viewed as key economic assets by local governments, support for the projects and, consequently, funding is not expected to pose much of a problem.

Indeed, most airports and their owners (provincial and municipal governments) are likely to take advantage of the cheap commercial loans available from China’s domestic banks.

‘Non-profitable’ regional airports are also expected to receive additional funding from central government via the General Administration of Civil Aviation of China (CAAC).

Foreign investment is encouraged, although there has not been much take-up to date.

Reasons for the lack of overseas investment in Chinese airports vary from ‘cultural differences’ to higher than expected internal rates of return (IRRs).

However, there is certainly no indication that airport development in China has suffered as a consequence.

China really is the land of opportunity.

Asia-Pacific Airports 2010 Issue 1

What does 2010 hold for traffic growth at Mainland China’s airports? Derek Sadubin reports.

Beijing Capital International Airport’s passenger numbers exceeded 65 million in the 12 months ended December 31, 2009, making it by far the largest airport in China, and the third largest airport in the world, according to ACI.

Beijing is on track to overtake London Heathrow this year and could overtake Hartsfield-Jackson Atlanta as the world’s busiest as early as 2012, if recent trends are maintained.

By then, Beijing will again be operating close to its design capacity. The pressure is now on officials to make some progress on the much-delayed second Beijing project, reports the Centre for Asia Pacific Aviation.

Beijing Capital, which reported passenger growth of 16.8% in 2009 (with passenger traffic up 170% from 2001 levels), was the only airport amongst the world’s Top 10 to report growth in the challenging year.

Only seven of the world’s 30 largest airports reported growth last year (of these, Beijing reported the strongest growth, while Jakarta and Guangzhou also reported double-digit growth).

Hong Kong (45.6 million) was 13th largest, while Guangzhou Airport was the 22nd largest airport worldwide in 2009, handling 37 million passengers.

Mainland Chinese airports A total of 14 Mainland Chinese airports reported annual traffic of more than ten million passengers in 2009, with all the major airports handling more than five million passengers per annum, reporting solid year-on-year growth

The smaller airports of Chengdu, Changsha, Sanya, Harbin and Guiyan reported growth of above 30%.

Beijing was also the fastest growing of the nation’s five largest airports (the others being Guangzhou, Shanghai Pudong, Shanghai Hongqiao and Shenzhen), driven by strong year-on-year growth in the first half of 2009, off a weaker base than in the same period in 2008.

Airports in China have been defying the weakness experienced by most of their global counterparts, as they benefit from the strong recovery of Chinese domestic travel demand, driven partly by government stimulus measures, which have buoyed the economy.

The rise in size and global importance of China’s airports is set to continue, with the CAAC now forecasting a 12% increase in passenger and freight traffic this year from 2009’s 230 million passengers and 4.46 million tonnes of cargo.

China to surge past the US Civil Aviation Administration of China (CAAC) director, Li Jiaxiang, expects passenger numbers to grow to 700 million passengers per year by 2020 – and to double that to 1.5 billion by 2030.

Meanwhile, a forecast issued by the US Federal Aviation Administration (FAA) for the US market over a similar timeframe provides a clear window into the differences between mature and developing markets.

US mainline and regional enplanements already reached 704 million in 2009 – 11 years before China is supposed to get there.

But the growth rate tells the tale.

The FAA’s 20-year forecast for fiscal years 2010-2030 predicts domestic passenger enplanements will increase by a comparatively meagre 0.5% in 2010 and then grow at an average of an anaemic 2.5% per year during the remaining forecast period; this contrasts strikingly with the robust Chinese predictions. It also looks as though China will also outpace the US at the end of the forecast period; no surprise there, given the growing economy coupled with the differences in population.

While the FAA expects the US market to reach a billion passengers by 2023, enplanements will be 1.21 billion at the forecast period end in 2030, well shy of the 1.5 billion expected that year by Chinese airlines.

As recently as 2005, the administration projected the US market would grow to a billion passengers by 2015.

Today, a mere five years on, the FAA does not see the US market reaching that size until 2023 – eight years later than the prediction it made so recently.

There is much more to this than merely a status issue – although that is always important too, especially when it comes to marketing US aviation products, coming from a position as a world leader, as opposed to a diminishing power.

This is because the difference in growth rates translates immediately to job creation, to business activity and to tourism potential.

To support the near-term rapid growth, China plans to acquire 218 aircraft in 2010 to keep pace with passenger demand.

CAAC added that in 2010, China will invest $13.2 billion in fixed assets and will implement 25 key construction projects, following the construction or renovation of 22 airports in 2009.

Beijing is committed to maintaining this level of investment for years to come, helping China to keep moving up the global aviation league tables.

Asia-Pacific Airports 2010 Issue 2