The United States Transportation Department and China's Civil Aviation Administration last month enacted an agreement that will more than double to 23 the number of daily passenger flights between the two countries by 2012. U.S. Transportation Secretary Mary Peters said the agreement "opens the way for more frequent, affordable and convenient air service between China and the United States."
Calyon Securities analyst Ray Neidl said the agreement will add much-needed capacity between the United States and China, which has been unable to keep pace with demand. "Currently, a dozen daily nonstop flights on average are offered between the U.S. and China by carriers from both countries and the demand for seats far exceeds supply," said Neidl.
DOT said the agreement, effective immediately, allows U.S. carriers to launch 13 new daily flights between the two countries within the next five years—one apiece this year and next, four in 2009, three in 2010 and two apiece in 2011 and 2012. A DOT spokesperson said the department soon would begin accepting airline applications for a route to launch as soon as August, the first under the new agreement.
Meanwhile, the agreement allows for the United States to designate three additional U.S. carriers to operate service to China: one this year and two in 2009.
Neidl said, "Delta would likely be the front-runner for the award. It's the only U.S. carrier with a major international presence that does not go to China. Delta has already filed an application to serve an Atlanta-to-Shanghai route, starting in 2008."
Several domestic airlines, including Delta and Northwest, were quick to applaud the decision, as U.S. carriers have clamored for more routes into China but have faced restrictions—and heated competition—in gaining access. Under a 2004 agreement, U.S. carriers were restricted to 10 daily flights from the United States into Beijing, Shanghai, and Guangzhou. "Under a 2004 agreement, U.S. carriers would have added a single daily flight each year in 2008, 2009 and 2010," according to Neidl.
Secretary Peters in a statement said the two countries in 2010 would resume discussions for a fully liberalized agreement. As such, Air Transport Association president and CEO James May called last month's agreement "an important first step," but the association, which represents the largest U.S. carriers, is looking forward to further liberalization.
The International Air Transport Association predicts average annual growth of nearly 10 percent for international traffic into China between 2005 and 2009 and 14.4 percent growth in freight.
TRX's Travel Analytics vice president and general manager Scott Gillespie also noted that capacity into the Asia/Pacific region in general—and China specifically—has not kept pace with demand, which has put upward pressure on fares between the United States and the region.
"On U.S.-to-Asia/Pac routes, capacity has gone up less than 2 percent, but the economic trade in these regions has grown far more than 2 percent," Gillespie said. "There are far fewer landing slots available, so we're not going to be able to add capacity nearly as quickly as the economy grows. Because of this, we will see fare increases in that region."
DOT this year awarded United Airlines authority to add nonstop service between Washington, D.C., and Beijing, following concerted efforts among several major domestic carriers to gain the single available U.S.-China slot
(BTN, Jan. 22).DOT, in April, 2006, also allowed American to launch daily nonstop service from Chicago to Shanghai and in June 2005 allowed Continental to launch nonstop service from Newark to Beijing. Northwest does not have a nonstop passenger flight between the United States and China, but does offer service to China via Japan. Neither Delta nor US Airways serve China, but both are seeking the next slot allotment.
Peters estimated that the agreement will "stimulate some $5 billion in new business for our airlines as they take advantage of growing demand for travel between our countries. Today, our best estimate is that as much as 16 percent of U.S.-China passenger traffic is being lost to airlines from a third country. This means lost revenues for both our carriers, and lost opportunity for our flight crews. No longer."