With a population of 1.36 billion in 2014, China is frequently seen by global businesses as a potential consumer base with game-changing implications for financial growth.
For the airport industry, it’s not just the size of China’s population that drives growth, but also where the population lives that signals future opportunities.
China has exhibited a steady trend of urbanisation, and as market research company TechNavio observes, 60% of China’s population is expected to live in cities by 2020.
What does this mean for the airport industry?
China’s largest cities are increasing the capacity of existing airports to accommodate ballooning populations, and as population concentration increases in smaller cities, new airports are being built as an important part of an integrated transportation strategy.
In line with this trend, airport construction is continuing at a rapid pace.
Geoffrey Jackson, the executive director of the Aviation Cooperation Program at the American Chamber of Commerce in China, indicates that in the next five years, China will build 20 new airports and has at least 80 expansion plans.
The number of airport expansion and construction projects China is undertaking mean that its airports will not only continue to grow in terms of size and capacity but will also become more sophisticated as airport operations are optimised.
Airports’ three-pronged strategy
Historically, China has focused on improving airport safety to the exclusion of other goals. Safety continues to serve as a dominant focus at Chinese airports, but, according to Huan Luo at Landrum & Brown, that emphasis has slowly expanded to incorporate two other key operational goals: sustainability and efficiency.
These three goals – safety, sustainability, and efficiency – taken together serve as the three-pronged approach expected to impact initiatives at Chinese airports in the foreseeable future.
High levels of pollution, especially in large cities like Beijing, drive efforts to ensure airports make sufficient contributions to limit adverse environmental impacts resulting from construction projects and daily operations.
As reported by CCTV, China’s aim to use its major airports such as those in Beijing, Shanghai, and Guangdong, as hubs that connect feeder airports with smaller footprints reflect its desire to improve transportation while limiting environmental impact.
China is also seeking to undertake sustainability initiatives at individual airports.
The World Bank issued a press release in mid-2013 announcing a $50 million loan to China in mid-2013 that was intended to “demonstrate the environmental sustainability of the development and operation of the Shangrao Sanqingshan Airport [in Jiangxi].”
Specific plans for other airports around the country are also underway with a package of proposals announced at the end of 2014 to install solar power stations, install AC power charging equipment, and begin using clean energy ground support equipment.
Efficiency serves as the final element rounding out the strategy shift at Chinese airports, with the implementation of better technology serving as a crucial piece of driving this goal forward.
Chinese airports have only recently begun establishing IT master plans to integrate systems across the airport.
Integrated technology can help airports reduce aircraft wait time, improve baggage handling, and provide better security monitoring by making sure that accurate, up-to-date information is relayed quickly to those who need it.
Efficiency initiatives frequently have positive ancillary effects on safety and sustainability. For example, reducing aircraft wait times mitigates the airport’s environmental impact in addition to accomplishing efficiency goals.
The three elements composing China’s airport strategy signal the available opportunities for companies looking to enter the Chinese airport market and have implications for the way foreign businesses currently operating in China pursue opportunities.
Opportunities for foreign businesses reside primarily in the design of new airports and the import of technological products.
Architecture companies and other design service companies that take heed of the new emphasis on sustainability and efficiency are more likely to be successful in the contract award process.
Additionally, firms that sell technology-intensive products are well-positioned to export to the Chinese airport market.
China enjoys a relatively advanced clean technology industry, but some green technology, like lower-emission engines, as well as technologically-intensive equipment in other fields cannot be produced domestically.
Security equipment, for example, is still imported from the United States because it is currently out of the range of Chinese production capabilities.
While many opportunities exist in the airport industry for foreign companies, airport construction is one area that remains closed for business growth.
The Financial Times billed the construction of Beijing’s Daxing International Airport as an effort by the government to boost growth through state-led infrastructure projects.
China is relatively developed in its construction and project management ability, and many airports have their own construction companies associated with them.
Infrastructure construction projects, including airports, are still controlled by the state, and foreign companies are barred from competing in this area.
Furthermore, while sustainability as a new strategic goal offers business opportunities for foreign companies, it also puts limitations on these opportunities as “local” sourcing becomes part of broader sustainability efforts.
Evaluation of the market challenges
The shifting emphasis toward improving efficiency and sustainability presents many opportunities for foreign firms, but the airport industry still faces challenges.
Market research firm TechNavio identifies competition with railway infrastructure and the operational losses of existing airports as two of the primary challenges facing the Chinese airport market. Both of these challenges merit attention of the airport industry, but it’s also important not to overstate them.
Despite the pressure exerted on airports by competition with China’s railway network, second in size only to that of the US, it will not be able to crowd out China’s need for new airports.
Sheila Thomas from commercial aviation consultancy Landrum & Brown, says that train travel is typically convenient for distances within 1,000 kilometres.
“There seems to be a sweet spot for train travel for distances that would require more than two hours of driving but less than one hour of flying,” she says.
Building airports that enable longer-distance travel will still be a necessity in key cities throughout China, even as rail networks continue to expand.
It is also true that many airports in China currently operate at losses, and some industry watchers have questioned the viability of continuing to build airports under this kind of condition.
According to the Financial Times, only about one in four of the 200 airports in operation at the end of 2014 were profitable.
Inevitably, some airports that poorly predicted future passenger demand will have a challenging time maintaining their financial viability.
At the same time, for many of these airports that are being built, passenger demand is clearly coming.
TechNavio estimates that, due to rapid urbanisation, passenger traffic will grow from the 389 million experienced by Chinese airports in 2014 to 655 million by 2019.
Many current airport construction and expansion projects are being undertaken to accommodate this future demand, so temporary financial losses may not be indicative of a long-term problem.
• AmCham China's Business Center website at http://business-center.amchamchina.org/ provides resources free of charge to individuals or companies interested in business prospects in China across a wide array of industries, including aviation.