The sight of China’s airlines flying to a schedule between Broome, Darwin and Cairns to Perth, Melbourne and Sydney carrying domestic passengers will become commonplace if an MOU just announced between China and Australia  is implemented.

It remained unclear this morning if these flights will carry only foreign visitors arriving or departing from their first or last Australian port of call  in China flag carriers, or compete more directly with Virgin Australia or Jetstar for domestic Australian traffic but that is a minor point compared to the reality of a globally dominant Chinese economy as it will affect Australian tourism and Australia’s air links to the rest of the world.

The view within tourism analysts and airline planners has for some time been that China visitors could account for between one third and a half of all leisure travellers between major Australian visitor attractions within two or three decades even if the rise of personal wealth in China slows substantially from current levels, given the absolute mass of the potential market.

The MOU also anticipates increased competition by China flag carriers for passengers from non-China markets such as Europe and central Asia and eastern Russia to Australia, something already starting to appear on routes to Budapest, Amsterdam, Paris, Vienna and Munich that Qantas has conscientiously ignored or pretended to serve via dreadful connections at London’s Heathrow Airport.

This means the China jet travel boom that the MOU addresses will carry substantial numbers of Germans, Britons or Australians who choose to fly a China flag carrier, and not just China nationals.

The lifeline the deal throws to Qantas (or what looks like becoming Jetstar with a Qantas division) is the concession from China that Australian flag carriers could offer flights beyond China to four destinations of their choosing.

This means Qantas or Jetstar  could offer flights to London via Shanghai, or Frankfurt via Hangzhou, or Paris via Beijing, and compete for the Europe-China passengers just as it competes today for passengers between Singapore and Europe.

In a world of constantly rising fuel costs, the most fuel efficient routing for a flight between Melbourne or Sydney to western Europe is through one of the three Beijing airports, dividing the flying into two longish stages of similar duration and covering slightly less distance in total than flights that go through Singapore and then across northern India and over Afghanistan, or via Dubai or Abu Dhabi.

The headline figure in the release from Transport Minister Anthony Albanese is a 50% 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, it is the future-related detail that is causing the most interest in the airlines.  China is the biggest potential source of growth, and the biggest competitive threat to the Australia-Europe market, that the Australian carriers face. Singapore Airlines and the likes of Emirates and Etihad pale in comparison.

The agreement made between Australia and China also highlights the current lack of China market arrangements or strategies in Virgin Australia.  As a former Qantas executive general manager the new Virgin Blue Group CEO John Borghetti understands China in very fine detail.

Translating what he knows about the China market into an effective strategic response is a pressing matter for Australia’s third ranking flag carrier, if Jetstar is counted separately and placed at the No.2 ranking.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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