There are some awesome implications in this morning’s announcement of a new memorandum of agreement between Australia and China on increased flights.

The headline figures in the release from Transport Minister Anthony Albanese are a 50 per cent rise in available seats between Australia and China using direct flights (ie, not including Hong Kong, Singapore or Seoul for example) from 14,500 per week now to  22,500 from next February.

However the breakthrough points are the offer of additional capacity within Australia to China carriers if they include stop overs in regional destinations including Cairns, Darwin and Broome.

This doesn’t give the China carriers that land at intermediate regional or secondary Australian points on their way to or from  Perth, Sydney, Melbourne or Brisbane the right to act as domestic carriers like Jetstar or Virgin Australia.  But it will mean that as the number of China visitors grow, and the number of other foreign visitors they bring in from Europe, central Asia or eastern Russia rise, they will be able to carry them onwards on their scheduled flights within Australia, rather than handing them over to Australian carriers where these travellers have itineraries that include northern Queensland, northern Western Australia, central Australia, South Australia and Tasmania.

For a number of years various estimates that have been made of the size of such future traffic flow, and by 2030 it could be that half the passengers that fly between say Cairns and the Gold Coast, or Darwin and Sydney, could be international visitors or even Australians who have chosen to use China carriers to fly to and from Europe, and who break their journey, but continue on a China not an Australian flag carrier.

The net effect of this will be to take substantial domestic traffic off Australian carriers who would have otherwise sold those domestic flights to the customers of China flag carriers.

The second breakthrough point is however a major plus for Australian carriers serving China now or in the future, in that it would allow them to fly beyond China to four additional destinations of their own choosing.

As new traffic treaties take effect between Australia and the EU and UK, and most of them are due for renewal sooner rather than later,  this raises the possibility of Qantas choosing to offer flights between Shanghai and, say, London, Paris, Amsterdam, or Frankfurt, which is  something of considerable strategic importance as the China market, and Australia’s connections to it continue to grow.

In the medium term the connections China flag carriers can offer to Australians flying to Europe pose a bigger competitive threat to Qantas/Jetstar and possibly to  future Virgin Australia ambitions than the current range of services from carriers such as Singapore Airlines, Thai International, Cathay Pacific, Emirates, Etihad and Qatar Airways.

There are already growing opportunities to fly with minimal delays to eastern Europe as well as western Europe on China flag carriers.  Australian carriers can now contemplate offering similar services via China, and participate in China originating traffic, provided Australia overcomes some of the current bilateral restrictions that apply in the EU.

This is the statement issued in Canberra:

MORE SEATS ON FLIGHTS BETWEEN AUSTRALIA AND CHINA

Up to 8,000 extra seats per week will be made available to the airlines of both Australia and China following the signing of a new Memorandum of Understanding (MOU) – a move which will deliver a major boost to our domestic tourism industry as well as give Australian travellers greater choice and more competitive airfares.

Compared to the old cap of 14,500 seats per week between Australia’s major gateway airports and China, the airlines of both countries will immediately be able to offer up to 18,500 seats, and from February 2012, 22,500 seats – an increase of more than 50 per cent.

Most significantly, the new MOU allows airlines to offer even more seats (up to 2,500 per week) on routes into and out of Sydney, Melbourne, Brisbane and Perth as long as those additional flights make stopovers at a regional airport such as Cairns, Broome or Darwin.

Australian carriers will now also be able to fly to China via an extra four intermediate points and to operate services beyond China to four more destinations of their choosing.

China is our fastest growing aviation market, with its airlines already operating at full capacity under the previous air services MOU.

The new MOU is also good news for Australian exporters as it maintains open capacity limits on the movement of freight into and out of China.

Last year, more than 1.7 million people travelled between Australia and China – an increase of 21 per cent on the previous year (2009).

Indeed the value of Chinese tourism to our economy already exceeds $3.1 billion, a figure that’s only like to grow significantly in the line with the expected doubling in number of Chinese tourists by 2020.

Significantly, our new MOU with China contains a shared commitment to negotiating an ‘open skies’ agreement, an outcome that would remove most – if not all – of the limitations on Australian and Chinese airlines operating between and beyond our two countries.

There are several things that give context to this morning’s announcement. Qantas enjoys precisely the same privileges for carrying its own passengers between Los Angeles and New York City that this announcement offers China’s carriers between regional Australian cities and its major capitals.

The difference is one of proportion. US carriers don’t even notice a single A332 Qantas jet flying daily each way between LAX and JFK. But Australian carriers will definitely feel the presence of a few dozen China airline flights operating scheduled domestic sectors between important leisure destinations and major Australian cities  for passengers who would otherwise have been theirs.

And Broome has a tourism potential that is currently crippled by inadequate border control resources, and a runway useless for operations by larger wide bodied jets over any useful distance.

But the statement is recognition of the rapid rise of the China air travel market toward global leadership, something dealt with in yesterday’s release of the latest Airbus market outlook for the region.

Asia-Pacific to lead demand for new aircraft over next 20 years

Requirement for 8,560 new aircraft valued at $1.2 trillion

Asia-Pacific airlines are expected to take delivery of around 8,560 new aircraft over the next 20 years, according to European aircraft manufacturer Airbus. Valued at US$1.2 trillion, the requirement represents 33 per cent of new aircraft deliveries worldwide over the forecast period, with the region overtaking North America and Europe as the largest air transport market.

The latest forecast for the region was presented in Hong Kong today by Chris Emerson, Senior Vice President Product Strategy and Market Forecast.

The Airbus forecast is based on stronger than average growth in both passenger and freight traffic in the region, combined with replacement of many of the existing aircraft in service. In terms of growth, Airbus expects the number of passengers carried by Asia-Pacific airlines to rise by 5.8 per cent per year while the amount of freight passing through the region will increase by 7.0 per cent annually. This compares with global average increases of 4.8 per cent in the passenger market and 5.9 per cent for cargo. At the same time, carriers in the region are expected to replace 78 per cent of the 3,680 aircraft currently in service, ensuring that they continue to operate some of the youngest and most eco-efficient fleets in the world.

Airbus predicts that the region will continue to drive demand for larger aircraft types, reflecting the concentration of populations in the region around the main urban centres and the need for more seats between fast-growing mega-cities. As a result, carriers in the region will acquire around 3,360 new widebody aircraft over the next two decades. This represents 40 per cent of all widebody deliveries worldwide and includes some 780 very large aircraft such as the A380 and around 2,580 twin aisle widebodies such as the A330 and new A350 XWB.

Although a predominantly widebody market, demand for single aisle aircraft in the region is expected to accelerate in the coming years, with a requirement for some 5,200 new airliners in the 100 – 210 seat category, such as the best-selling A320 Family. The increase will be driven primarily by the growth of low cost carriers , as well as the opening of new secondary short haul routes, especially in China, India and South East Asia.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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