New China – Australia agreement opens skies to international connectivity

Chinese and Australian airlines will have unrestricted international access into each other’s markets after a new air services agreement for an “open aviation market” between the two countries was agreed by officials this week. The agreement paves the way for China-based carriers to maintain their strong growth into this country over recent years to meet the demand for the increasing number of Chinese tourists travelling overseas.

The landmark partnership continues a recent relaxation of rights between the two countries and is expected to lead to an immediate growth in flights between the two countries, including many new routes from China’s emerging second and third tier cities into Australia.

The open skies arrangement will certainly benefit Chinese airlines more than their Australian counterparts due to the heavy bias in traffic flows outbound from China. However, Australia’s minister for infrastructure & transport, Darren Chester, notes that there are also transfer benefits to the country’s long-haul operators.

“We have also liberalised traffic rights and code share arrangements, which are important for Australian airlines,” he said. “This will enable Australian and Chinese airlines to service destinations between and beyond both countries, and will allow them to take full advantage of their cooperative arrangements with their commercial alliance partners.

The air service treaty between the two countries was relaxed in January 2015, leading to an immediate increase in seat capacity and flight frequencies between the two countries. Under this revision both countries’ carriers will immediately able to operate 26,500 seats a week between Beijing, Shanghai and Guangzhou to the major gateway cities of Sydney, Melbourne, Brisbane and Perth – an increase of 18 per cent on the routes. An additional 7,000 seats were phased in weekly over the subsequent years, raising the number to 33,500 weekly seats this year.

According to China Tourism Research Institute, China had 120 million outbound visitors in 2015 and they spent $104.5 billion, increases of 12 percent and 16.7 percent compared with 2014. The main driving forces for the increases included personal income rise, favourable policies, and appreciation of RMB. But, there is also inbound demand and Beijing is one of the most popular cities among overseas tourists with around 1.9 million overseas visitors in the first half of this year.

China is now Australia’s fastest growing major source market with annual visitor traffic now exceeding the one million figure, according to Australian Bureau of Statistics data. Speaking at the recent World Routes air service development forum in Chengdu, China, Tourism Australia managing director, John O’Sullivan, said that key to building a market now worth almost $8 billion annually to the Australian economy had been moving away from traditional group tours and aggressively targeting China’s rapidly emerging middle class.

Chinese visitor arrivals into Australia have increased from 100,000 in the year 2000 to one million in the year ending January 2016, with an average annual growth rate of 18 per cent since 2010. Arrivals grew two-to-three times faster in most months in 2015 than total overall arrivals to Australia with the majority visitors travelling to Australia on holiday (arrivals breakdown – holiday (53 per cent), visiting friends and relatives (20 per cent) and education (13 per cent).

Since the Chinese and Australian governments expanded their Air Service Agreement in January 2015 to allow more flights between the two countries, there have been strong interest from Chinese carriers to expand or start new services in particular from secondary ports in China. In 2015 direct capacity from China to Australia increased nine percent with more than 45 percent of visitors travelling on Chinese carriers, one in five with China Southern, which holds the strongest position in the market.

Using data from OAG Schedules Analyser our analysis shows that non-stop capacity between China and Australia has almost trebled (up 198.3 per cent) over the past ten years and more than doubled (up 106.8 per cent) since the start of the decade. Non-stop capacity will rise by a third this year (34.0 per cent based on published inventories), rising from 4,500 flights and around 1.2 million annual one-way seats in 2015 to almost 6,000 flights and over 1.6 million one-way seats.

There are now 25 China – Australia city pairs with non-stop service linking 15 destinations in mainland China with seven in Australia. Sydney Airport alone is currently linked directly with 13 Chinese airports, having grown from just three in 2010, five in 2014 and eight last year.

There are now nine airlines offering non-stop flights between China and Australia, a market still dominated by China Southern Airlines which continues to hold a 40 per cent share of non-stop capacity. It currently links its Baiyun International Airport hub in Guangzhou with Adelaide (a new service in 2016), Brisbane, Melbourne, Perth and Sydney and Bao'an International Airport in Shenzhen with Sydney.

Qantas has confirmed it will launch daily flights between Sydney and Beijing from January 25, 2017, with services to the Chinese capital the next step in the Group’s strategy to tap into the exceptional growth of the Australia-China travel market. Virgin Australia also plans to grow its activities into China as part of its developing relationship with new shareholder HNA Group.

Australia’s largest international gateway, Sydney Airport, has welcomed the historic agreement between the Chinese and Australian governments, which it said will clearly boost tourism and trade between the two countries and reflects the growing importance of Chinese visitors to the Australian economy. From January 2017 Sydney Airport will have seven airlines serving 14 Chinese cities.

“We’re delighted this new agreement recognises the huge potential of the Chinese market to Australia’s tourism and trade,” said Kerrie Mather, managing director and chief executive officer, Sydney Airport.

“Our airline partners have expressed strong interest in the potential for new services from China, building on our recent growth and our position as a world leader in Chinese long-haul routes. This decision delivers expanded bilateral capacity ahead of demand, maximising the value to the visitor economy,” she added.

Australian Airports Association had described the new agreement as “a game-changer” that will drive further growth in tourism, business and education between the two countries. Chief executive, Caroline Wilkie, hoped this initiative with China could lead to revisions to other air services agreements.

“We look forward to continuing to work with the Government and other stakeholders to remove constraints on air access from other markets where possible, in order to facilitate the continued growth and contribution of our airports and aviation industry to the Australian economy,” she said.