This is the second and final blog post of a 2-part article series on Beijing’s new Daxing International Airport. While Part 1 was a general overview of the airport and its integration into the Beijing-Tianjin-Hebei metropolitan area, Part 2 focuses on the impact on Chinese airlines.

Beijing: Air China’s Home Base

Fig.1 – Boeing 747-400 landing, during a Beijing-Shenzhen flight (Credit: © Jay Lee 2019)

Although there are over 30 domestic airlines in China, the landscape is dominated by 3 large state-owned airline groups: Air China Group, China Southern Group, and China Eastern Group (see a previous article which goes over the history of Chinese airlines). Each of these groups have a geographic area where they are historically dominant, and in the case of Beijing that would be Air China Group. In 2018, Air China Group represented nearly 40% of all flights in the capital, leaving 20% to China Eastern Group, 16% to China Southern Group, and the rest to either independent domestic airlines or international airlines [1].

The competitive landscape in the area has been relatively stable in recent years, Beijing Capital being the only airport in the area (excluding Nanyuan Airport which only serves China Capital Airlines). The soon-to-start operations of Daxing Airport will be a major shift in the landscape, notably because acording to CAAC plans, China Eastern Airlines Group and China Southern Group will move (almost) all operations to Daxing International Airport, while Air China Group will stay in Beijing Capital. This split between the country’s 3 largest airlines has multiple consequences, which may play favorably or be detrimental.

In order to have a smooth transition, The CAAC announced that both airports would follow the so-called “One City-Two Airports” plan, which defines the incremental switch to Daxing airport over a period of 2 years.

The Transition Period: CAAC’s “One City-Two Airports” Plan

Fig. 2 – CAAC (Civil Aviation Administration of China), the counterpart of FAA and EASA in China

Earlier this year in January 2019, CAAC published the Daxing International Airport Operation and “One City-Two Airports” Flight Distribution Plan (rough translation of 北京大兴国际机场转场投运及“一市两场”航班时刻资源配置方案, see [2] and [3]). This plan exposed how flight slot resources would be allocated to different airlines. Essentially, Air China Group will remain in Beijing Capital, while China Southern Group and China Eastern Group are to move to Daxing International Airport. All other Chinese airlines will have to choose between one airport or another, as no domestic player can operate at both airports. More flexibility is granted to foreign airlines, although the latter are likely to choose between one or another for operational efficiency.

Interestingly though, HNA Group, the fourth largest airline group in China seems to have decided to keep a foot in both airports, through allocating its different airlines to both airports (Hainan Airlines and Grand China Airlines will stay in Beijing Capital, but China  Capital Airlines will move from Nanyuan Airport to Daxing).
Similarly, the CAAC announced in April that it would allow China Eastern to operate a small number of flights at Beijing Capital, in exchange for a decrease in the number of slots at Daxing (which were granted to Air China in exchange). This was essentially because China Eastern feared it would lose one of the most lucrative flights in the Chinese market: the Beijing-Shanghai Express Line* (see footnote).

According to CAAC’s “One City – Two Airports” plan, airlines will move progressively between October 2019 and October 2021. At the end of this transition period, Daxing International Airport is expected to reach 45 million annual passengers. The two-year calendar is as follows:

• Between 27/10/2019 and 20/03/2020, China Eastern and China Southern must move at least 10% of their flights from Beijing Capital to Daxing. Hebei Airlines must move “a portion” of their flights, and Beijing Capital Airlines will move all of its flights from Nanyuan Airport to Daxing.
• Between 29/03/2020 and 24/10/2020, China Eastern and China Southern must move at least 60% of their flights from Beijing Capital to Daxing. Xiamen Airlines and Chongqing Airlines must move all their flights to Daxing, and Hebei must move an “increased” amount of their flights.
• Between 25/10/2020 and 27/03/2021, China Eastern and China Southern must move at least 80% of their flights, and 100% of their international flights to Daxing.
• Between 28/03/2021 and 30/10/2021, 100% of China Eastern and China Southern flights must have shifted to Daxing. Shanghai Airlines must also move all their flights to Daxing during this period.

*The Beijing-Shanghai Express Line is essentially a high frequency line set up collectively by 5 large airlines (Air China, China Eastern, China Southern, Shanghai Airlines, Hainan Airlines) between Beijing Capital and Shanghai Hongqiao. It puts together and optimizes security checks, waiting areas, administrative processing, and ticket changes in case of a flight delay. It also set up a unique web portal for clients. One of the main reasons for this airline alliance was to counter the increasing competition from high speed trains on this trunk route.

How Will Airlines Operating in Beijing be Impacted?

Among the major factors impacting airlines are :

• The proximity of each airport to the urban areas that matter (populated & business districts)
• The level of international connections each airport has, acting has an international hub
• Capacity or inter-terminal transportation bottlenecks

Let’s dig deeper into each of the aforementioned points.

Geographic Disadvantages of Daxing

Fig. 3 – Inside Daxing International Airport (Credit: Global Look Press)

As mentioned in Part 1 of this article series, Daxing International Airport is located 46 km away from the center of Beijing, Tiananmen Square, while that distance is only 23 km for Beijing Capital. The Beijing transportation policy proposed a solution by building two high-speed rail links (160 and 250 km/h) from the city to Daxing airport, cutting down time required to get to the new airport to 20 minutes (which is similar to the time required to get to Beijing Capital).

However, transportation time only solves half the problem, since departure points for each airport line are different:

• For Daxing International Airport: Caoqiao (Line 10) and Beijing West Station (Line 7 and 9), situated respectively in the South and South-Western areas of Beijing’s city center.
• For Beijing Capital Airport: Dongzhimen (Line 2) and Sanyuanqiao (Line 10), both situated in the North-Eastern part of central Beijing.

Naturally this means that Beijing Capital will more likely cater the Northern and Eastern Beijing inhabitants, while the Southern and Western parts of Beijing will be covered by  Daxing airport.

Unfortunately for Daxing, The Southern and Western suburbs are much less populated, representing only 33% of the city’s population versus 67% for North and Eastern areas [1]. This unbalance may be compensated by the fact that Daxing will be able to tap into travelers from Tianjin, Baoding, Shijiazhuang (i.e. “Jing-Jin-Ji” metropolitan area) due to its proximity to these cities, but that will very likely be insufficient.

Strong Unbalance in Terms of International Flights, in Favor of Beijing Capital

Fig. 4 – Beijing Capital Airport

Today there is a clear-cut domination of Air China Group, and more generally the Star Alliance, for international flights at Beijing Capital. According to an early 2019 report by CAAC, Air China Group secures a 36% market share, while the alliance in general holds a 56% market share. Comparatively, SkyTeam is at 13%, and OneWorld at 12%. According to the “One City – Two Airports” plan, Air China Group will remain (almost) exclusively at Beijing Capital, which will probably incite all other Star Alliance members to follow suit. Cathay Pacific, one of the major OneWorld members in Asia, has also announced that they would remain in Beijing Capital due to their partnership with Air China.

Similarly, all SkyTeam members will probably move to Daxing due to the move of China Eastern Group and China Southern Group. And as flights operated in Beijing by both groups are mainly domestic, coupled with the low international market share held by other SkyTeam members, this shows that Daxing International Airport will first and foremost serve as a domestic hub.

Despite the fact that international flights are a smaller and less profitable market when compared to domestic flights, this still means that Daxing airport could lose traction for this reason.

Passenger Traffic Growth: the Near Endless Potential of Daxing

The expected flight and passenger traffic growth during the transition period can be seen on Fig. 5 and 6 (based of CAAC estimates [2]):

Fig. 5 – Annual Number of Flights (source: CAAC)

Fig. 6 – Annual Passenger Flow (source: CAAC)
In 2019, BJ Capital + Daxing is different from Total due to the still operating Nanyuan Airport

From the two graphs, we observe that Beijing Capital will be relieved of 27 million passengers, dropping to 72 million in 2021. While this drop may seem significant, it doesn’t take away the bottleneck the airport is facing. Let’s remind ourselves that Beijing Capital was planned for a capacity of 82 million annually, a number that will be reached in 2025 if we set the hypothetical passenger growth at 5% increase per year (a conservative estimate, since growth between 2008 and 2017 was 6.60% on average according to CAAC).

Ultimately, as air traffic grows in Beijing Capital, Air China, which operates exclusively at Terminal 3 today, will have to introduce some flights to Terminal 2, currently used by SkyTeam airlines such as China Eastern and China Southern. Connections between both terminals are poor, requiring passengers to go through immigration (if in an international flight), exit the terminal and take a 15-minute shuttle bus ride to terminal 3. These are just some extra challenges that Air China will have to face compared to domestic competitors China Eastern and Southern.

Conclusion

Fig. 5 – China Southern Boeing 787 Dreamliner landing at Guangzhou Baiyun (Credit: © Jay Lee 2019)

Both airports seem to hold some strong intrinsic advantages and weaknesses. Daxing suffers from its higher distance and transportation time to areas of Beijing that matter (populated, business districts…). The split between airlines decided by CAAC makes Daxing International more of a domestic hub, at least in the initial stages, compared to Beijing Capital which will host Star Alliance and most of OneWorld. It will also be one of the world’s first cities to test operating two mega airports, the conventional model usually being one hub + one or multiple secondary airports.

But Daxing is likely to benefit much more from the explosive growth of Chinese air traffic. First of all, it will benefit from a 27 million passenger traffic transfer from Beijing Capital. It will also benefit the most from future new flight routes, thanks to the bottleneck faced by Beijing Capital. In order to develop Daxing, CAAC has also vowed to develop international traffic routes for the airport [5].

Some figures to realize the extent of this growth potential: the Chinese flight/year/inhabitant figure is still trailing back at 0.32 in 2017, compared to the world average (0.52) and to North America/Europe (2). Over the last 10 years (2008-2017), Chinese and Beijing air traffic rose by 12.20% and 6.6% per year on average, representing a doubling of traffic every 6 and 11 years respectively. While air traffic growth predictions are hard to forecast, I believe there is little doubt that Daxing International Airport will make the most of the enormous pool of growth Chinese air traffic has to offer, and to equal Beijing Capital as one of the great hubs of China & Pacific Asia.

[1] 北京“一市两场”的市场发展思考, Carnoc (Civil Aviation Resource Net of China), July 1 2019
[2] 北京大兴国际机场转场投运及“一市两场”航班时刻资源配置方案, CAAC, January 2019
[3] 北京大兴机场竣工，哪些航空公司会搬过去 ? CAAC News, July 1 2019
[4] 国家发展改革委关于北京新机场工程可行性研究报告的批复, National Development and Reform Commission (NDRC), November 2014 (for more detail on Daxing airport characteristics)
[5] 国际航权资源配置与使用管理办法, CAAC, May 2018