For­eign car­ri­ers com­pete in 2nd-tier cities

China Daily (Hong Kong) - - BUSINESS - By WANG WEN wang­wen@chi­

For­eign air­lines are com­pet­ing fiercely for busi­ness in sec­ond-tier cities in West China, de­spite the lower prof­itabil­ity of the routes in the re­gion.

Bri­tish Air­ways Plc, which hasn’t launched new routes in the coun­try in seven years, will open a Lon­donChengdu route in Septem­ber.

“We rec­og­nize that China is not just me­trop­o­lises such as Bei­jing and Shang­hai, and that other cities are also de­vel­op­ing,” said Wil­lie Walsh, chief ex­ec­u­tive of­fi­cer of IAG, BA’s par­ent com­pany.

On June 15, the first flight of Fin­nair Plc’s Helsinki-Xi’an route ar­rived in Xi’an. The route is also the first non-stop one from the cap­i­tal of Shaanxi prov­ince to a Euro­pean city.

Fin­nair op­er­ates its Xi’an ser­vice three times a week, with Air­bus 330 and 340 air­craft used on the nine­hour route.

The city of Xi’an is Fin­nair’s fifth des­ti­na­tion in China. The car­rier has been run­ning four flights a week be­tween Helsinki and Chongqing — an­other western city in China — for a year.

“We know the western part is cur­rently grow­ing very fast and the eco­nomic po­ten­tial in the re­gion is great,” said Pekka Vau­ramo, CEO of Fin­nair.

He said the govern­ment’s go-west pol­icy has en­cour­aged the car­rier to grab the boom­ing busi­ness op­por­tu­ni­ties in the area.

How­ever, in­dus­try in­sid­ers won­der if the pas­sen­ger flow in western cities will be able to pro­vide prof­its for air­lines.

Xi’an only ranked 18th on a list of Chi­nese cities wel­com­ing in­bound tourists in 2011, ac­cord­ing to the lo­cal govern­ment.

The low in­bound-tourism fig­ures re­sulted from a lack of busi­ness trav­el­ers, said Kang Lifeng, deputy di­rec­tor of the Xi’an tourism ad­min­is­tra­tion.

Vau­ramo re­fused to comment on the prof­itabil­ity of the new routes to western China, but he said the Chongqing-Helsinki route still “has room to grow”.

Car­ri­ers have to in­vest sig­nif­i­cantly be­fore the routes in western cities be­come prof­itable, al­though that will be pos­si­ble over time, he said.

“There’s some hard work in the be­gin­ning and some in­vest­ment needed for quite a long time,” he added.

Mean­while, in or­der to oc­cupy po­si­tions be­fore the mar­ket booms, for­eign air­lines are tak­ing ac­tion to run new in­ter­na­tional routes to the western cities.

Air France-KLM Group has run its Chengdu- Am­s­ter­dam route since 2006, while in late 2011, Eti­had Air­ways in­tro­duced a Cheng­duAbu Dhabi route.

Many sec­ond-tier cities in China have big­ger pop­u­la­tions than some big cities in Europe, busi­ness in­sid­ers said, and the Chi­nese peo­ple’s in­creas­ing pas­sion for out­bound tourism has given for­eign air­lines more con­fi­dence to in­vest in the mar­ket.

On the other hand, lo­cal gov­ern­ments are mak­ing ef­forts to en­cour­age air­lines to op­er­ate in­ter­na­tional routes to stim­u­late lo­cal eco­nomic de­vel­op­ment.

The lo­cal gov­ern­ments’ sub­si­dies are an im­por­tant sup­port for the car­ri­ers to run the new routes, some busi­ness in­sid­ers said.

Busy air­ports in Chi­nese big-hub cities also pushed the air­lines to smaller cities.

“Air­ports in large cities are too busy to launch new routes,” the IAG’s Walsh said.

Air­ports in sec­ond-tier cities have more airspace and slots and they charge less than big-city air­ports, said Li Xiao­jin, a pro­fes­sor at the Civil Avi­a­tion Univer­sity of China in Tian­jin.

“For­eign air­lines can save if they op­er­ate routes be­tween their hubs and smaller Chi­nese cities,” Li said.

The com­pe­ti­tion in the sec­ondtier cities is not as stiff as in the ma­jor hubs, he added.

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