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US Airlines Battle for Lucrative China Route

China is already the United States’largest trading partner in Asia and with the 2008 Beijing Olympic Games on the horizon, competition in the United States for lucrative air routes to China is getting intense.

Larry Kellner, chairman of Continental Airlines, said he feels good about his airline’s application to the US Department of Transportation (DOT) for another daily Sino-US direct flight linking metropolitan New York/Newark with Shanghai, China’s commercial hub.

“Based on our successful Beijing–New York service over the past 15 months, and strong business and leisure market demand in the Shanghai–New York market, we are confident that Continental Airlines will be awarded the Shanghai–New York route, which will begin in March 2007.” The Continental chairman said he expects the DOT’s final decision will be made by the end of 2006.

“From our experience, the DOT will make its final decision based on two key criteria: one is whether the new flight will encourage competition and prevent a monopoly; the other is whether the new route will benefit most people. We meet both standards,” he said.

Compared with United Airlines and Northwest Airlines, Continental is a latecomer to the Chinese mainland market, having just launched its daily Beijing–New York flight in June 2005.

Kellner said he believes more opportunities should be granted to US carriers that do not have a strong presence in China, as with United Airlines and Northwest Airlines.

“Only in this way can competition be encouraged.”

Industry insiders predict that Continental has a good chance of winning the contest for the new route, with the airline having recently purchased two Boeing 777 airliners to ply it.

“We know there is substantial demand for the Shanghai-New York service, which will offer competitive benefits to customers both in China and the United States,” Kellner said.

Ai-Phuong Dang, vice-president of Air Service Development for the Dallas Fort Worth International Airport, said, “We understand that Continental has the upper hand in the competition for the new route, because its proposed flight links Shanghai and New York, where lots of Chinese people live. However, we also believe the New York area is already well served by Chinese carriers, such as Air China and China Eastern.”

On the other hand, there are still no non-stop flights from the northeastern United States to Shanghai, despite the route’s great business potential.

The New York/New Jersey area has a far larger population of Chinese-Americans than any of the other cities seeking a new China route. Continental’s route application has already received backing from the Port Authority of New York and New Jersey, the Manhattan Chamber of Commerce and New Jersey Governor Jon Corzine.

According to Reuters, the carrier has received more than 15,000 letters supporting its application, and this is the major reason Continental Airlines is confident that it will be approved by the DOT.

Kellner said the success of the Beijing–New York service could add weight to Continental’s application for a new route linking Shanghai and New York. Despite being in service for just over a year, the Beijing-New York flight has been successful, with its load factor reaching 85 percent.

Fort Worth-based American Airlines began flying daily Chicago–Shanghai flights on April 2, 2006, the first service ever to China by the world’s largest air carrier.

American’s daily 14-hour, non-stop flight directly competes with United Airlines’ 2-year-old service on the route and underscores the frenzy among big US carriers to exploit China’s explosive economic growth.

Along with India, China is one of the world’s fastest-growing destinations for corporate travellers who tend to pay higher fares. Passenger traffic flying between the United States and China grew by 20 percent in 2005 over that of 2004.

“This is what the airlines have been looking for decades, double–digit growth for the foreseeable future,” says Mo Garfinkle, a consultant who’s been working on China service since 1992 for several airlines, including Continental. “It’s the market everybody wants to be in.”

As for its new Chicago-Shanghai competition with United, Athar Khan, director of American’s Asia Pacific unit, said there are plenty of passengers for everyone.

American expects to have full flights––245-seat Boeing 777s––thanks to interest from companies such as Dell, Motorola, IBM, Nortel and General Electric.

“There’s so much market stimulation right now that we don’t have to worry about cutting into each others’ passengers,” Khan said. “It’s an expanding market.”

The DOT is charged with choosing a route that will best serve the public interest. But that hasn’t stopped the airlines from waging intense public lobbying campaigns to try to influence the decision.

Even American Airlines lobbyist Will Ris calls the combined noise level “a little bit out of proportion.”

The Chinese mainland, the United States’ top Asian trading partner, is seeing double-digit annual growth rates in passenger counts, and air cargo shipments are growing nearly as fast.

In 2008, Beijing will host the 29th Summer Olympics. The Chinese Government projects China-bound air traffic volume to double by 2010.

“China’s aviation system is expanding faster than anyone else’s,” says Henry Steingass, the US Trade and Development Agency’s top Asia officer.

Liu Weimin, director of the Aviation Laws Research Centre with the Civil Aviation Management Institute of China, said, “At the present stage, it is hard to predict who will win the competition to offer the added service. What is certain is that four US airlines are keen to open new business to China, and how effectively they lobby the US transport authority will make the difference.”

Currently, there are only three US gateways to China, Newark, Chicago and San Francisco, a point Dang stressed: “The southern part of the United States, such as Texas, is under-served by direct flights to and from Chinese cities. That is why we think American Airlines also has a chance to win the new route.”

Compared with their US counterparts, major Chinese carriers with flights to the United States are not so advanced in terms of their plans to tap the potential of Sino-US routes.

“Chinese companies are taking a back seat in the competition to tap the Sino-US aviation market, due to their relatively weak positions. Although the new Sino-US aviation pact signed in 2004 is supposed to grant carriers from both countries equal business development opportunities, Chinese airlines cannot fight their US counterparts on an equal footing in terms of business expansion,” Liu commented.

The new round of Sino-US aviation negotiations expected to begin in late August and early September were postponed because of the gap between US and Chinese carriers, said an industry insider.

“Under the current market situation, local carriers have a hard time competing with global giants such as Continental. That is why US airlines are enthusiastic to fly to China, while Chinese carriers are hesitating to open more flights. For local airlines, more flights may mean more losses if they cannot get enough passengers,” Liu said.

China Eastern Airlines, one of the country’s top three carriers, is scheduled to fly to New York from Shanghai by the end of this year. Four to five flights a week are planned on the new route.