There is another more effective Great Wall in China, when it comes to air access

The ‘improved’ air services agreement with China to be announced today Friday might be an excuse for firing up the ‘lock up our skies’ debate to protect Qantas, but this isn’t a simple issue.

Consider these matters:

China’s massive emerging demand for overseas tourism flights, distantly followed by business flights, is coming from people who don’t know what Qantas is anymore than Australians know what Xiamen Airlines is.

The China market is profoundly disposed to fly a China carrier. The Australian market is disposed in a significant part to avoid Qantas, because it has purposefully and methodically p*ssed them off, and doesn’t even offer flights between significant parts of Australia and anywhere, anymore, anyhow.

Having incinerated its access to London Heathrow and continental Europe  in part or in full through indifference, distaste, and to be fair, a measure of bastardry on the part of EU air traffic negotiators, the idea of China being thus remotely useful to renewed ambitions by a future more enlightened Qantas management to fly through it to say Amsterdam, Paris and Rome is tragically misguided.

Flinging the skies over China wide open to Qantas, in the unlikely event China ever agreed to do so, wouldn’t do anything for Qantas, or its employees, other than swallowing every extra buck it could possibly make by its renewed sense of enterprise on flights to the US and Canada for example. And of course, improving its presence on the Shanghai route, because Shanghai is eating Hong Kong’s once unassailable claim to be the key to everything China, whether the trip is about capital raising, or tourism.

An additional reason why China will not become the wide open gateway to Europe via a China city is that China carriers, regardless of their current and future access to European cities, simply don’t have the capacity or slots to handle even a fraction of the growth in demand between China originating flyers and such European cities.

China’s carriers will always make more from one of their own passengers boarding in China to fly to Paris than they will carrying an Australian passenger all the way there from Sydney in price competition with the likes of Singapore Airlines or Emirates on their Australia-Paris flights.

The marginal pricing of through fares to Europe via a hub has only ever working in those years when there isn’t a substantial mid point originating source of traffic.  But China is a substantial market for Europe flights in its own right, and it is growing strongly.

This is a key difference between hub airports in China and hubs such as Singapore, Dubai and Abu Dhabi. The China hubs have their own massive markets to address. Changi and the Middle East hubs draw substantial traffic through their airports, where China sends its own traffic through its own airports. This is a totally different game.

Which leads us to the question, what opportunities does China present to Australian flag carriers like Qantas and Virgin Australia?

It is fair to suggest that those opportunities, predicated on developing brand recognition and value added and suitably frequent services to a range of China cities, demand close and productive commercial links with China carriers.

Neither major Australian airline has the resources to ‘do China’ on its own.  The question is do either of them have a real commitment to ‘do China’ in an incremental, and co-operative way, with a China partner that won’t screw them into the ground?

That’s the same question that confronts any Australian venture into China, and so far, China seems much better at nailing down a deal than Australia. But we can’t do without China, so the issue Australian business has to deal with is how can it lift its game and play just as hard and tough.

What, realistically, can the Australian travel industry in its broader sense, expect from ‘improved’ airline links with China?

It can expect to see a range of regionally focused carriers coming from parts of China outside of Beijing, Guangzhou and Shanghai, and given the capacity constraints at Sydney, some of them are likely to fly 787 or A330 sized jets to Canberra, or even Newcastle, if the access limitations of civil movements at a military airport can ever be fully addressed.

Australian can expect to see such second tier China carriers fly to Hobart, Cairns, and maybe in ten years time, even to Wellcamp (Brisbane’s far far far west airport). Gold Coast airport will be full before we know it, and Maroochydore could see regular flights by 250-350 passenger jets.

The influx will grow not just the hotel industry, including the construction side, but domestic air travel.

In theory, much of this traffic will gravitate strongly to the low cost, mass suffering model of air travel. This should be of benefit to Jetstar and Tigerair as franchises, some of which might be based in China.  But that idea is also a fantasy, in that China’s idea of low cost airline growth is one that is predicated on China branded, owned, directed, and based low cost carriers, and any access that gets granted to Jetstar, AirAsia or Tiger type franchises will only become usefully available after the scene is populated and dominated by China brands. Or to be blunt, when such access is no longer useful.

Efforts to direct Australia-China traffic through intermediate hubs like Singapore’s Changi airport or Kuala Lumpur will have their success limited by the superior economics and consumer appeal of non-stop flights between cities in China and Australia.

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