Reshaping aviation market in the capital’s crowded skies

Source:Global Times Published: 2019/1/10 17:40:12

Strategic decisions required from the airlines serving Beijing as Daxing Airport opening ensues relocation moves



A view of the Beijing Daxing International Airport under construction in January 2018 Photo: VCG



A view of the Beijing Capital International Airport File photo: VCG



China's aviation regulator has released plans for airlines relocation to Beijing's shining new mega-airport which is set to open later this year.

Beijing Daxing International Airport, which is 46 kilometers from downtown Beijing, and 70 kilometers from Beijing Capital International Airport (BCIA), is due to open in September and will accommodate 72 million passengers a year by 2025. 

It is expected to become one of the busiest airports in the world.

This will be the city's second such facility and help relieve pressure on BCIA, which has a capacity of transferring 100 million passengers a year. 

Impact on the old airport

Foreign airlines, along with those in Hong Kong, Macao and Taiwan, have the choice to decide which airport to be based at, with the option of having a presence in both. Chinese carriers, except China Postal Airlines, will have to use only one airport, according to the Civil Aviation Administration of China (CAAC).

Airlines such as China Southern Airlines and China Eastern Airlines will be moved to the new airport, while carriers such as Air China, Hainan Airlines and Grand China Air will still stay at the old airport.

Although it is not a concern to fully meet the demand for Beijing's aviation market in the long run, it is widely believed that it could affect the old airport's performance. 

The opening of the new airport will change the long-term market distribution for  various carriers as the two airports will operate simultaneously going forward. 

After the release of the relocation plan on January 3, shares of the capital airport dropped by 16.05 percent on that single day. 

Air China, China Eastern Airlines and China Southern Airlines are the top three in terms of market share for the Beijing aviation market, accounting for 37.5 percent, 19.7 percent and 16 percent, respectively, according to a report from domestic news site Qdaily.com, citing data from TF Securities.

The report also said that with major airlines including China Eastern and China Southern's relocation to the new airport, the BCIA might see a significant decline in its revenue, as the two hold a combined 30 percent of the market share for the Beijing aviation market. 

A report of China International Capital Corporation showed that with the relocation of airlines, business in the Capital Airport might decline significantly, and the decline might continue till next summer and autumn seasons. It is estimated that its profits will also continue to decrease for the next two years. 

Airport revenue mainly comes from two business lines - aviation and non-aviation businesses. The former is related to flight businesses, including landing fees, parking fees and passenger service fees. The latter relies on revenue derived from passenger flow, including stores' rental fees, advertising, and cargo terminals services in the airport. 

The flow of air traffic movements, passenger throughput and other factors largely determine the income of these two major businesses streams.

For BCIA, income from the two major businesses are evenly divided, with income from aviation business slightly higher than that of the latter. 

In 2017, the capital airport achieved revenues of 9.575 billion yuan($1.4 billion) with an operating profit of 3.552 billion yuan. Of this, the aviation business income earned was 5.1 billion yuan and non-aviation was 4.473 billion yuan.

Happy or sad

The relocation plan also offers an opportunity for those who aspire to start new businesses in Beijing, and shows the CAAC's determination to resolve perpetual problems such as flight delays at BCIA. 

For most foreign airlines, choosing where to depart is a simple decision, as it is widely believed that those which have formed business alliance with other airlines will choose to operate at the same airport.

As to those which do not have an alliance, they might find it easier and more cost effective to stay at the Capital Airport, as there is no need for them to move unless they are looking to launch new routes.

However, it could be some good news for some carriers, such as the Shanghai-based China Eastern Airlines, which has listed Beijing as a priority for business development in 2019. 

Liu Shaoyong, CEO of China Eastern Airlines said the new airport will accommodate 72 million passengers by 2025, of them, 40 percent or 28.8 million passengers will be taken by China Eastern, according to a report from yicai.com. 

Liu said the company aims to build two hubs, Shanghai and Beijing in the future, showing his determination to grab a bigger slice of Beijing market share, which has been monopolized by Air China for several years. 

Hainan Airlines Group (HNA Group) seems to be another beneficiary of the new plan, since Hainan Airlines and Grand China Air, under HNA Group, could stay at the old airport, while Beijing Capital Airlines will gain access to the new airport. 

However, Hong Kong Airlines, also under the HNA Group, can choose which airport they would prefer to operate in, with the option of having a presence in both. 

Posted in: INDUSTRIES,BIZ FOCUS,AVIATION

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