Airports
Beijing Daxing opening resets competition between “Big Three” carriers
September 1st 2019
Beijing Daxing’s opening at the end of this month will be lauded for being completed in five years. Read More » But those five years were long for aviation with airline developments that have changed the original strategy for the airport and upped the ante in the long-running plan of airlines to move from state control to market freedom.
It is appropriate to celebrate Daxing as the successful product of powerful central planning. The striking terminal building, designed by the late and heralded Iraqi-British architect, Zaha Hadid, has captured international attention as the largest single airport terminal building in the world. The gigantic project also has supporting infrastructure that includes new highways and a 160 km per hour high-speed rail link that will open with the airport.
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Grand planning included resource allocation: China Eastern Airlines (CEA) and China Southern Airlines (CSA) will move their entire operations from Beijing Capital International Airport to Daxing. Each of the two carriers was intended to receive a 40% share of slots. Flag carrier, Air China (AC), was to remain at Beijing Capital.
But airlines decided such a cleanly delineated plan was not in their commercial interest. AC and CEA agreed to a slot swap: CEA would give AC a quarter of its Daxing slots (10% of the airport’s overall slots), which reduced the Shanghai-headquartered carrier’s Daxing footprint to 30%. In return, AC would give CEA slots at Capital to keep its Beijing-Shanghai route at the older airport rather than moving it to Daxing.
CEA had long been concerned passengers prefer to fly out of Capital instead of trying Daxing. Its original plan called for Beijing-Shanghai flights to be moved last in an unusually protracted multi-year transfer period. CEA had invested significantly in infrastructure around Capital, perhaps a successful bid to establish deeper roots there.
AC’s agreement with CEA is puzzling because it will be operating a split hub. The disadvantages of a divided hub is evident in CEA’s split Hongqiao-Pudong hub in Shanghai. The counterpoint is a divide and conquer strategy. Or at the very least, AC is betting it can win incremental business from Daxing’s different catchment area.
Daxing will bring efficiencies to Beijing aviation. Besides more self-service, automation and improved security flow, it will have a 60-minute minimum connection time for domestic-international and international-international flights. The terminal’s shape should make each gate no more than an eight minute walk from the central node. Split levels allow for the co-location of domestic and international flights.
The benefits of Daxing’s new design negatively contrasts with AC’s at Capital Airport terminal three. Although it opened in 2008, it is clunky and often requires a train ride to reach gates. The fundamental design cannot be changed, but its facilities are being improved at the initiative of AC, a Star Alliance member, and the alliance itself.
People may prefer Capital because offices and hotels are near the road to the airport, but many of those businesses chose those buildings because of proximity to Capital. But any shift of the economic cluster from Beijing’s northeast, in the direction of Capital, to Daxing in the south will take time.
Perception is a factor. Capital is much closer than Daxing to Beijing’s core business district. Transport to Daxing may be faster because of its high-speed links, but the downtown terminus may still be inconvenient for some travellers.
CSA’s exit from the SkyTeam alliance has added complexity to airline allocation at the airports. Before, Daxing was a clear SkyTeam hub with CEA and CSA holding 80% of slots. Now, Daxing’s SkyTeam core is CEA’s 30% presence. Foreign SkyTeam members can choose Daxing’s reduced-but-still-hub status or Capital’s perceived superior geography.
Oneworld members American Airlines (AA), Finnair, British Airways (BA) and Qatar Airways have bilateral relationships with CSA. Finnair will launch Daxing flights while maintaining its Capital service. BA and Malaysia Airlines (MAS) will relocate from Capital to Daxing. Qatar Airways has not announced its intentions. AA said it was considering options. The only other foreign airline to announce a change, as of press time, is LOT Polish Airlines. Like Finnair, it will operate flights from Capital and Daxing.
Chinese media has said foreign airlines may want to see Daxing develop more supporting infrastructure, especially hotels, before they move there.
At the start of Daxing’s construction, LCCs were in vogue. The CAAC upheld Spring Airlines as a model of efficiency, promised sector reform and proclaimed LCCs would make significant market share gains. Momentum has been lost. Only CEA has a dual brand strategy, but it is unclear how they will be managed when both are at Daxing.
CSA will establish a new airline at Daxing, but it has not said if the carrier will be full-service or low-cost.
The balance of power in Beijing aviation could change depending on the outcome of HNA Group’s restructuring. Subsidiary, Beijing Capital Airlines, will move to Daxing but its flagship carrier, Hainan Airlines, will remain at Capital.
In June, the Beijing municipal government took control of Capital Airlines. Previously, it had been a minority investor in the carrier. The agreement appears to ease HNA’s financial position and save face. An announcement said HNA would recommend airline management while the Beijing government recognised the achievements of HNA and Capital Airlines.
Although AC is based at Capital, its ownership is with the central government and not the city level as at Capital Airlines. But the Beijing connections are close enough to have prompted speculation AC wants to consolidate the Beijing market and could gain an even larger Daxing presence through Capital Airlines.
There is speculation AC could end up with a bigger prize: Hainan Airlines. Until recently it was assumed the HNA flagship carrier would be all that would remain from the shell of HNA, but increasingly the chatter is that HNA may have to sell Hainan Airlines to come out in the clear.
Hainan’s debt and complexity would not make for an easy takeover by AC and there is a school of thought that the transaction, if it happens, might be more by force than choice for AC. The potential to control multiple brands prompts the questions: should AC also have a low-cost unit, although passengers often perceive HNA carriers to be higher quality than their Mainland rivals?
What is certain is consolidation is necessary and the outcome of it should see airlines consider dual brand strategies. The airline presence at Daxing’s opening may be far different to the composition of carriers at Daxing in five years if airlines continue to win healthy market control victories.
