United Kingdom and China begin negotiations to increase flights

Talks to increase the number of direct flights between China and the UK have been announced by Transport Secretary Patrick McLoughlin during a recent visit to Beijing. It was agreed to begin negotiations on an improved bilateral air services agreement with China in early 2014. But is the regulatory framework the main limit on growth from the UK as compared with other European countries?

The current bilateral agreement allows up to 31 weekly return flights by designated UK airlines and another 31 weekly flights by Chinese airlines from up to six departure points in the UK and China. Designated UK airlines are British Airways, Virgin Atlantic and bmi whilst Air China, Air China Cargo, China Eastern, Great Wall (a cargo operator) and China Southern are the designated Chinese carriers.

UK and Chinese carriers currently operate a combined average of 41 weekly scheduled flights, a figure which has grown substantially over the last decade. In 2003 there were only seven weekly scheduled flights by UK airlines and four by Chinese carriers. With the addition of cargo flights the weekly total is closing fast on the existing cap of 62 in peak weeks of the year.

Weekly flights20032004200520062007200820092010201120122013
UK Airlines79131819191818191921
Chinese Airlines4810111110810111620

Source: Capstats, 2013

Analysis of other Europe-China markets gives a clear indication of the UK’s relatively weak performance and its high potential for future growth. There are an average of 76 weekly flights from Germany and 61 from France. The Netherlands offers two more Chinese destinations than the UK and even relatively small Finland is able to support four routes, the same number as the UK.

CountryAnnual FlightsWeekly FlightsDestinations
United Kingdom2,110414

Source: Capstats, 2013

Lufthansa operates 35 weekly flights to China, Air France 33 and KLM 27. In comparison British Airways only operated an average of 14 weekly flights in 2013, although has recently risen to 17 with the addition of three new weekly flights to Chengdu from 22nd September 2013.

AirlineAnnual departuresAverage weekly departures
Air China4,11579
Air France1,71033
China Eastern1,45028
China Southern1,36026
British Airways74214

Source: Capstats, 2013

A new bilateral could permit new designated airlines to fly between the UK and China. The existing bilateral includes bmi as a UK designated carrier, which has now been superseded by events through the acquisition of bmi by British Airways. However, there doesn’t appear to be any obvious UK-based substitute airline that would have either the fleet or the desire to fly long haul services to China. A more likely area of growth may come from the addition of other Chinese carriers. The only other Chinese airline currently flying into Europe is Hainan Airlines which flies from Beijing four times a week to Brussels and three times a week to Berlin. The airline is limited to niche routes without direct competition, making Beijing-London not an obvious choice unless it was to consider airports other than Heathrow. Xiamen Airlines is another candidate as it will receive its first long haul aircraft, the Boeing 787-8, next year, but as a Skyteam member would most likely look to fly from its main base of Xiamen to either Paris or Amsterdam.

Although it may seem an obvious decision for British Airways to add more flights there are three main barriers to overcome. The first is the fact that the airline does not have any codeshare partners in mainland China: there are no Chinese airlines in the Oneworld alliance. This contrasts with Lufthansa in Star Alliance (with Air China and Shenzhen Airlines) and Air France/KLM in Skyteam (with China Eastern, China Southern and Xiamen Air). The impact of this can be seen at Frankfurt where Lufthansa and Air China between them have up to three daily flights to Beijing and two daily flights to Shanghai, whilst Air France and China Eastern have up to four daily flights from Paris to Shanghai. This makes it much more difficult for British Airways to easily justify adding services into China, without the benefit of onward connecting traffic. Chinese airline negotiations are complicated by BA's close relationship with Hong Kong-based Cathay Pacific, a core Oneworld partner.

A second issue facing any airline wanting to add services is the fact that Heathrow is severely slot constrained. Slots can be made available for new entrants but it is virtually impossible to secure consistent timings each day of the week. Of course, there are other alternative airports for London, but history shows that most services from these airports to the Far East have failed. Examples include the recently suspended Air China service from Gatwick to Beijing, Korean between Gatwick and Incheon, both Oasis and Hong Kong Airlines from Gatwick to Hong Kong and AirAsiaX’s services from both Stansted/Gatwick to Kuala Lumpur. At the Chinese end of the route, access to viable slots at both Beijing and Shanghai is problematic for overseas carriers.

The final constraint on UK-China market growth is the relatively complicated and expensive visa process for inbound Chinese tourists. After intensive lobbying from the travel industry the UK Government has recently promised a relaxation of the rules to enable Chinese visitors to the EU Schengen zone to apply for a UK visa, which should encourage more tourism.

There has been a rapid increase in direct services linking the UK and China over the past decade, within the constraints of the current bilateral agreement. However, although demand continues to rise, the likelihood of additional direct services appears fairly low, even if a new bilateral allows more frequencies to be operated in theory. Other constraints, such as the lack of a Chinese Oneworld partner, difficult access to slots and the China-UK visa regime will all need to be resolved if the UK is to match the connectivity offered from its European neighbours.

by Iain Smith