News Backgrounder
North Asia shunned for booming Shanghai
America’s long-haul carriers are shifting away from former North Asia bases in Japan and South Korea and developing Shanghai as an international hub.
May 1st 2015
For years, most air traffic between China and the U.S. was channeled through intermediate hubs such as Hong Kong, Tokyo and Seoul. Today, it’s a different story. Chinese and North American airlines are fighting back by expanding their Trans-Pacific operations. Read More »
Big U.S. airlines have been focused on the North Atlantic as their largest long-haul market, but they are now turning to Trans-Pacific routes for growth, with China well and truly in their sights.
The latest move is a Delta Air Lines’ plan to establish an international hub in Shanghai. The Altanta-based carrier operates daily flights to Beijing from Seattle and Detroit and, subject to government approval, intends to offer 28 weekly departures to Shanghai, using its hubs at Detroit, Seattle, Los Angeles and Tokyo-Narita.
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| Korean Air declined a Delta Airlines approach to broaden the relationship beyond a single code-share |
The development has drawn attention to another significant adjustment in Asia’s aviation landscape: China is fast drawing Trans-Pacific business away from Japan. According to a report from consultancy CAPA last month, North American air traffic expansion into China has doubled in recent years, but has stagnated in Japan. “From July 2013 to July 2015, China-North America capacity has increased around 60% and the biggest market, Japan, has decreased by some 20%,” the consultancy said.
U.S. airline route maps are no longer anchored around Tokyo. Of the big three U.S. carriers, United has been the most diversified. In 2005, 57% of its Asian capacity was into Japan. American and Delta had 100% of their Asian capacity into Japan.
In 2014, American had 42%, United 41% and Delta 65%. With the launch of Dallas-Beijing flights in next month, American will have more capacity to China than to Japan for the first time in its history.
U.S. carriers are adding Chinese cities to their networks as big Chinese carriers operate routes to North America. The Americans are going beyond Beijing, Shanghai and Guangzhou. “China Southern’s Wuhan-San Francisco and China Eastern’s Nanjing-Los Angeles services are two recent examples,” said CAPA.
“Four secondary Chinese cities are linked to North America. It is not just the non-stops losing favour. Delta and United are decreasing their intra-Asia flights, mostly from Japan. Some flights are being replaced by partners, with United cancelling Tokyo-Bangkok in favour of an All Nippon Airways codeshare.
Delta is winding down flights as it adds non-stops to Asian cities outside Japan. The numbers are still small, but the direction is clear. Xiamen Airlines is expected to add a secondary route to North America and if that eventuates, Hong Kong Airlines, MIAT Mongolian Airlines and TransAsia will be the only North Asian widebody operators not flying the Trans-Pacific route.
CAPA said the North Atlantic to Europe market is the largest long-haul segment for North American airlines, but it is the Pacific to Asia routes that offer the most opportunities for growth. In 2010, there were 392 daily flights between North America and Western Europe, according to OAG.
In 2015, this is forecast to be 441. Between North America and Asia, there were 124 daily flights in 2010, but in 2015 it is forecast it will be 178. The numbers highlight the fact that for many airlines, flying the North Pacific has been unprofitable.
In June last year, on the eve of launching services from Dallas to Shanghai and Hong Kong, chief executive of American Airlines, Doug Parker, said Asian routes were “investments for the long term”. Fast forward to January 2015. The airline’s president, Scott Kirby, said: “with fuel prices where they are today, we’d expect even our Asian routes to be profitable in 2015”.
The report also draws attention to a spat between SkyTeam alliance partners, Delta and Korean Air (KAL). They have a code-share agreement on a single route, but Delta has sought a more comprehensive joint venture with KAL. The Korean flag carrier, the largest Asian airline operating across the Pacific, rebuffed the approach.
In response, Delta cut earning rates for frequent flyers travelling on KAL. Incheon airport, which carried fewer transit passengers in 2014 than in 2013, is lobbying for Delta to move its Japan hub to Korea’s flagship gateway but it appears Delta has opted for China instead.
“The Delta-Korean Air spat has its origins in Delta believing Korean Air has ‘unfairly’ used its Seoul hub to carry China-U.S. traffic. The China-U.S. market has been big, but until recently was largely neglected by Chinese and American carriers, leaving it to airlines in Hong Kong, Japan and Korea,” said CAPA.
Sixth freedom traffic accounts for 20%-40% of the China-U.S. market. Chinese and American airlines, the end-to-end operators, are now fighting back against the intermediate operators.”
The decision by Delta to set up a Shanghai hub followed a recent partnership deal with China Eastern (CEA) and a code-share agreement with Shanghai Airlines (a wholly owned subsidiary of CEA).
It plans to use its Shanghai Airlines relationship to offer connecting flights to nearly 30 destinations in China. Among them will be Guangzhou, Shenzhen and Nanjing and would also include four new destinations: Zhengzhou, Guiyang, Nanning, and Tianjin. The Atlanta-based airline has co-located with CEA inside the Shanghai Airport, shifting its passenger operations from Terminal 2 to Terminal 1.
It offers its website and airport kiosks in the local language, to create a customer-friendly image in the Chinese market and will employ Chinese-speaking flight attendants on every flight to and from China.
Inflight food and beverages will include Chinese cuisine, already a long held practice by most non-U.S. international airlines. As well, Delta has started accepting payments from Alipay, a leading third-party online payment company in China.
