News Backgrounder
Right place, right time
A relaxed U.S. visa policy for Chinese visitors, tailored social media marketing and payment tools, low premium fares and increasing corporate traffic from Mainland cities is building trans-Pacific growth for United Airlines.
December 1st 2016
Walter Dias, United Airlines managing director for Greater China and Korea, is no fly in, fly out North American airline executive that local managements often encounter. Read More » Hong Kong-based Dias, who trained as an accountant, is a 23-year Asia-Pacific aviation veteran who recognises the phenomenon he is living as outbound Mainland Chinese air traffic to North America explodes.
“The China outbound market continues to grow [for United Airlines]. Last year, outbound to the U.S. was about 2.6 million passengers. This year, we will probably hit three [million], which will be an 18% increase year-on-year,” he said.
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A huge impetus for the demand expansion was a revised visa policy that allows Mainland Chinese travellers to continually visit the U.S. for ten years on a single visa. The relaxed rule is predicted to increase Mainland visitors to the U.S. to 7.3 million by 2021 and add $85 billion to the North American economy.
Dias also told Orient Aviation the numbers of Mainland carriers flocking to the U.S. was "a good sign”, despite their record low fares and dwindling yields. “Traditionally, the Chinese carriers have lagged behind the international carriers, but they are catching up,” he said.
“We’ve seen an annual increase in Beijing of about 22%. In Shanghai, it is hovering around 19% and it’s been more or less linear. The total outbound market is growing at about 17%-18% every year.”
“The problem for us is we cannot add capacity in the same linear fashion, so we are in one of these situations where we may be above the current demand curve, but as time progresses it will come back and meet the demand curve,” he said, as he outlined United’s rationale for offering premium return fares between Shanghai and Los Angeles or Chicago for as low as $1800. “If there is one market in this world that can digest this, it is China,” he said.
Nevertheless, Dias is aware of the challenges of the Mainland market. “The large cities have some capacity constraints. Air traffic control has been constrained, but I know the Civil Aviation Administration of China (CAAC) has it very high on their list of things to improve,” he said.
In the meantime, United remains hell bent on opening routes to Chinese second and third-tier cities that it considers have enough citizens with disposable income for travel.
“United was the North American launch customer of the B787. One of the reasons we went down that path was we had markets in China such as Chengdu, Changsha, Wuhan or Hangzhou in mind. It really changed the world. Suddenly, we could establish destinations we would never have dreamed about five or ten years ago,” he said.
In 2014, United launched San Francisco-Chengdu with B787-8s, which began as a three times a week service but now is twice a week. It added a B787 seasonal San Francisco-Xian route in May, followed by San Francisco-Hangzhou, both at three times a week.
Dias said United has noticed an increase in corporate traffic from Chengdu. “There’s a lot of tech activity. There also is some oil and energy sector business that is continuing to move along. For us, Chengdu is doing OK. It’s been meeting the forecasts we originally put together for it,” Dias said. “From a U.S. perspective, we’re seeing phenomenal growth from China.”
When asked about launch subsidies for Chengdu, Xian and Hangzhou, Dias said he could not comment, but he acknowledged “[local] governments have been very supportive, at the airport, in marketing, just in general very supportive”.
United extended its “strategic partnership” with Star Alliance fellow, Air China, in March. “We kind of re-signed and extended, but also deepened the relationship,” Dias said, and added the two carriers have 100 code shares on each of their airlines.
One of Dias’ jobs is to make sure United provides effortless communication channels with Chinese passengers. He has introduced a United WeChat channel, pioneered UnionPay for onboard sales and introduced AliPay on united.com.
The carrier will receive the first of 14 on-order B777-300ERs in December, with the remaining 13 -300ERs delivered to its Chicago home base by June. Outfitted with the new Polaris cabin, the airline’s new “all-aisle” product will replace United’s BusinessFirst product. GlobalFirst will be phased out due to limp passenger demand.
