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Beijing’s new mega airport sparks battle for lucrative routes

BEIJING — Like ancient warlords, China’s three biggest airlines have dominated their regional cities: Air China controlling Beijing, China Eastern Airlines holding sway in the financial centre of Shanghai, and China Southern Airlines ruling the roost down in export gateway Guangzhou. Until now.

An artist’s impression of the terminal building at the new airport in the southern Beijing suburb of Daxing. With the new facility, Beijing will join a select list of major cities that have two or more international airports. source: Methanoia via Zaha Hadid Architects

An artist’s impression of the terminal building at the new airport in the southern Beijing suburb of Daxing. With the new facility, Beijing will join a select list of major cities that have two or more international airports. source: Methanoia via Zaha Hadid Architects

BEIJING — Like ancient warlords, China’s three biggest airlines have dominated their regional cities: Air China controlling Beijing, China Eastern Airlines holding sway in the financial centre of Shanghai, and China Southern Airlines ruling the roost down in export gateway Guangzhou. Until now.

Rising on a plain south of Beijing is a mega airport that is about to change the balance, bringing all three head to head in the capital as it becomes the world’s biggest aviation hub.

The new airport, due to open in 2019, has been designated by authorities as the hub for members of the SkyTeam alliance, a global group of airlines that includes China Eastern and China Southern.

The two Chinese carriers will each be allowed to capture 40 per cent of the airport’s passengers, gaining coveted time slots to Europe and the US in Air China’s backyard.

“This is an absolute game changer for China Eastern and China Southern,” said Ms Corrine Png, chief executive officer of aviation research firm Crucial Perspective in Singapore.

“Having all the SkyTeam alliance members under one roof will enable seamless flight connections.”

The invasion of Air China’s regional rivals has repercussions beyond China. As well as dominating their home bases, the big three Chinese players have each carved out a position abroad. Air China, through its Star Alliance ties with Deutsche Lufthansa and United Continental Holdings, commands many of the routes to Europe and North America. China Eastern is the biggest carrier to Japan and South Korea, while China Southern is strong in Australia and Southeast Asia.

With access to more slots in Beijing, China Southern and China Eastern would potentially get more access to lucrative North American routes while their SkyTeam partners would get better access to the Chinese capital.

In addition, China Southern, the nation’s biggest airline, would be able to draw traffic from its South-east Asian links to fly via Beijing to the United States.

Until then, they have to fight for slots at the existing airport, which is close to capacity.

Air China, whose Star Alliance partners include United, Singapore Airlines and Lufthansa, controls 38 per cent of the slots at Beijing Capital International Airport, which handled 94 million passengers in 2016, close to the maximum of 96 million.

“There are demands to add hundreds of flights in Beijing every day that get refused because we’re running out of resources,” said Mr Liu Xuesong, general manager of Capital Airports Holding, the operator of Beijing’s existing airport.

“The city is capable of running dual hubs,” he added.

The new US$12.9 billion (S$17.9 billion) airport in the southern suburb of Daxing — approved in 2014 — would accommodate up to 100 million passengers a year with as many as seven runways. Mr Liu estimates that by 2025, the two Beijing airports would share 170 million passengers, including 25 million on international flights.

Beijing is joining a select list of major cities with two or even three international airports, including London, New York, Tokyo and Paris.

Unlike in Beijing, though, those airports usually take complementary roles, such as one serving international or intercontinental routes and the other focusing on domestic or regional flights.

“So far in history, we haven’t seen any city or city clusters having two hubs of the same scale,” said Mr Ma Chongxian, vice-president of Air China’s parent company, China National Aviation Holding, at a conference in Beijing last month.

That is because it is usually airlines, rather than the government, that choose which airport to fly to, said Mr Steve Saxon, a Shanghai-based partner at global business consultancy McKinsey.

“China is different. The government has substantial influence over the three largest carriers”, which will help Beijing build two connecting hubs where other cities have failed, he said.

China Southern has said it will deploy more than 200 aircraft at the new airport by 2020, about a fifth of its planned fleet by that time.

China Eastern will have “a remarkable advantage” by being a hub carrier both in Shanghai and Beijing, as the capital is better positioned geographically as a connecting point for Europe and North America, said Mr Will Horton, a Hong Kong-based analyst at CAPA Centre for Aviation.

China Eastern already accounts for 50 per cent of the market for the top 10 international flights from Shanghai, the country’s financial hub.

The construction of the new Beijing airport is not all bad news for Air China. Its airport is closer to downtown, about 25 minutes in smooth traffic to the main business district in the eastern part of the capital, or the same time by train.

Planned road and rail links from the new airport would also whisk travellers into Beijing in about half an hour, but to the southwest, a part of the city that is less convenient for most business executives, especially during the capital’s notoriously congested peak traffic times.

“Air China is likely to win share on key business routes … similar to how British Airways benefits from the privileged position it has in the more convenient London Heathrow,” said Mr Saxon.

That could affect the lucrative Beijing-Shanghai route, where China Eastern commands nearly 60 per cent of the market, data compiled by Huatai Securities show.

The division of Beijing’s airports by alliance leaves out the third-biggest group, Oneworld.

Members of the group, started in 1999 by Hong Kong-based Cathay Pacific and four other carriers, are instead relying on individual links with the Chinese airlines.

Oneworld member American Airlines Group announced in March a 2.7 per cent stake purchase in China Southern for US$200 million, and will deploy some of its flights at the new Beijing airport as part of the deal.

The US carrier had to postpone the launch of a Los Angeles-to-Beijing flight earlier this year as it failed to secure a time slot.

Delta Air Lines, which has a 3.2 per cent stake in China Eastern, should also earn more slots at the new airport. A representative for Cathay did not respond to an email seeking comments.

Chinese authorities have committed to preserving slots at the current and new airports for carriers that already fly to Beijing, Oneworld said in an e-mail.

It said 10 Oneworld members serve the city with a total of 163 weekly flights from 16 international destinations. BLOOMBERG

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