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Airlines - China

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Published Date: Sep, 2013
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  • Abstract
  • Table of Contents

“China represents a market with both big opportunities and challenges for the airline business. As growth and competition increase at the same time, airlines need to react by being more customer-oriented in terms of service, marketing as well as product design.”

Some questions answered in this report include:

How big is the airline market in China and what will this market grow into over the next five years?
What are consumers’ behaviour and attitudes towards air travel?
How can airlines in China strengthen their financial position by maximising revenue potential from economy class flyers?
What have fast-growing airlines in China done to attract customers and how can airlines in China compete to deliver better customer services under global competition?
What is different about running low-cost carriers in China, and what challenges and opportunities do they have?

INTRODUCTION
Definition
Report structure
Methodology
Abbreviations
EXECUTIVE SUMMARY
The market
Market size and forecast
Figure 1: Forecast of total airline market volume, by passenger numbers, China, 2008-18
Market segment
Figure 2: Air passenger volume and share, by segment, China, 2008-18
Key trends
Growth drivers and barriers
Companies and brands
Figure 3: Airline company brand share, by passenger volume, China, 2010-12
The consumer
Reasons for flying
Figure 4: Reason for air travel in the past 12 months, June 2013
Choice of airline and class
Figure 5: Choice of airline, by purpose for travelling, June 2013
Figure 6: Choice of class, by purpose of travelling, June 2013
Important consideration factors
Figure 7: Important consideration factors for selecting an airline, June 2013
Attitudes towards airline travelling
Figure 8: Attitudes towards airline travel, June 2013
Perceptions of major domestic airlines
Figure 9: Brand correspondence map of perception of major airlines, June 2013
Value-added services
Figure 10: Most wanted value-added services on domestic and international flights, June 2013
Key issues
Introducing more value-added services to economy flyers can offset slow pick-up in premium travellers
Greater competition urges Chinese airlines to drive quality of service and be more customer-oriented
Making low-cost carriers more attractive by sophisticated marketing and product design
Figure 11: easyJet advertising, UK 2013
What we think
THE MARKET
Key points
China becomes world’s second-largest airline market by passenger volume
Figure 12: Air passengers, China vs. global, 2008-13
Mainland domestic flights dominate passenger volume, while HK, MC, TW and international sectors grew faster since 2010
Figure 13: Passenger volume and % share, by segment, China 2008-13
Figure 14: Year-on-year growth rate of domestic and international air traffic volume, China 2008-13
Foreign airlines increase presence in China’s secondary cities
Figure 15: Number of flight routes, China, 2010-12
HK, MC, TW routes enjoy the highest yield per RPK
Figure 16: Average yield per RPK, by market segment, 2010-12
Greater growth of air travel in secondary cities from Northern, Central and Western regions
Figure 17: Air passenger volume and growth of China’s airports with a passenger volume over 10 million, 2012
Market drivers
Steady economy growth
Figure 18: GDP and air passenger volume, China, 2005-12
Greater economic integration with the world
Rising income fuels demand for leisure travel
Figure 19: Number of domestic and international tourist visitors, China, 2007-12
Figure 20: Holidays taken by middle class in the past 12 months, China, April 2012
Relaxed visa requirements and favourable exchange rates boost international outbound travel
Figure 21: Top 20 outbound travel destinations, by tourist volume, China, 2011
Government support on infrastructure development, plan to grow regional aviation and low-cost carriers
Growth barriers
Direct competition from high-speed rail
Figure 22: High-speed rail 4+4 grid planned to be completed by 2020, China, 2013
Flight delay issues deteriorated under air space constraint
Fluctuating seasonal demand associated with lack of annual leave
Pilots become a scarce resource
Monopolistic jet fuel supply
Economic uncertainty and emergent incidence could weaken demand
The forecast
Figure 23: Forecast of total airline market volume, by passenger number, China, 2008-18
Figure 24: Forecast of airline passenger volume, by mainland segment, China, 2008-18
Figure 25: Forecast of airline passenger volume by HK, MC, TW segment, China, 2008-18
Figure 26: Forecast of airline passenger volume, by international segment, China, 2008-18
COMPANIES
Key points
Company share by passenger volume
Figure 27: Airline company brand share, by passenger volume, China, 2010-12
China Southern Airlines
Air China
China Eastern Airlines
HNA Group
Hainan Airlines
West Air
Spring Airlines
Juneyao Air
Cathay Pacific
THE CONSUMER – REASONS FOR FLYING
Key points
Nearly four in five have taken a flight over past 12 months
Figure 28: Reason for air travel in the past 12 months, June 2013
More men travel for business, while women in their thirties travel most on international flights for leisure
Figure 29: Reason for flying, by gender and age, June 2013
Figure 30: Flying for leisure, by gender and age, June 2013
Significantly more leisure air travel once income hits RMB8,000 for domestic sector and RMB12,000 for international sector
Figure 31: Flying for leisure, by household income, June 2013
Figure 32: Reason for flying, by city, June 2013
THE CONSUMER – CHOICE OF AIRLINE AND CLASS
Key points
A third have flown premium economy
Figure 33: Choice of class, June 2013
Figure 34: Choice of class, by city, June 2013
Low-cost carriers attract more leisure travellers
Figure 35: Choice of full-service vs. low-cost airlines, June 2013
Figure 36: Choice of low-cost airlines, by demographics, June 2013
THE CONSUMER – IMPORTANT CONSIDERATION FACTORS
Key points
Safety, convenient flight time and price are top three factors
Figure 37: Important consideration factors for selecting an airline, June 2013
Budget-driven domestic leisure flyers vs. quality-seeking international business flyers
Figure 38: Important consideration factors for selecting an airline, by types of travel, June 2013
Figure 39: Important consideration factors for selecting an airline, by first/business and economy class travellers, June 2013
THE CONSUMER – ATTITUDES TOWARDS AIRLINE TRAVELLING
Key points
Three in five like more price promotions, but less than 30% think low-cost carriers offer attractive price structure
Figure 40: Attitudes towards flight promotions, by demographics, June 2013
Figure 41: Attitudes towards low-cost airlines, by demographics, June 2013
Figure 42: Attitudes towards air travelling, June 2013
Half of flyers want airlines to do more to shorten waiting times
Figure 43: Attitudes towards airline travelling, by reason for flying, June 2013
Business flyers on international routes most willing to upgrade
Figure 44: Attitudes towards service upgrade, by types of flyers, June 2013
Figure 45: Attitudes towards air travelling, by class of flyers, June 2013
Huge demand for domestic flights during New Year and public holidays
Figure 46: Attitudes towards operation during peak seasons, by demographics, June 2013
Figure 47: Attitudes towards air travelling, June 2013
International airlines are preferred by a third of flyers on international flights
Figure 48: Attitudes towards international airlines, by reasons for flying, June 2013
Figure 49: Attitudes towards international airlines, by flying class, June 2013
Figure 50: Attitudes towards airline reviews, by flying purpose and flying class, June 2013
THE CONSUMER – PERCEPTIONS OF MAJOR DOMESTIC AIRLINES
Key points
Figure 51: Brand correspondence map of perception of major airlines, June 2013
Figure 52: Rating difference: all international flyers vs. domestic flyers on major airlines in China, by reason for flying, June 2013
THE CONSUMER – VALUE-ADDED SERVICES
Key points
Food and drink ranks top as optional extra for domestic flights
Figure 53: Value-added services, domestic flights, June 2013
Seating comfort and extra baggage allowance rank top as optional extra for international flights
Figure 54: Value-added services, international flights, June 2013
Men are more interested in onboard entertainment while women like more luggage allowance
Figure 55: Value-added services, international flights, by gender, June 2013
KEY ISSUE – INTRODUCING MORE VALUE-ADDED SERVICES TO ECONOMY FLYERS CAN OFFSET SLOW PICK-UP IN PREMIUM TRAVELLERS
Key points
Despite increasing passenger volume and asset utilisation, airlines are making fewer profits
Figure 56: Airline revenue, net profit, and passenger number, global, 2007-12
Figure 57: Average operating cost structure of airline companies, China 2013
Relying on first/business class revenue makes airlines more vulnerable in difficult times
Figure 58: Schematic representation of revenue impact from premium air travellers, global, 2007 and 2013
Figure 59: Passenger traffic growth, by ticket type, premium vs. economy class, global, Jan 2007-Nov 2009
More reasons for China to focus on revenue from economy flyers
85% of demand comes from short- and medium-haul routes
First/business accounts for only 10% of passenger revenue
Figure 60: Price gap among first, business and economy class tickets, China 2013
Meeting demand for value-added services can help airlines stretch revenues further
Premium economy builds success centred on price value
Figure 61: Passenger revenue and number of China Southern Airlines, 2010-12
Figure 62: Comparison of business, premium economy and economy class on China Southern Airlines, China, 2013
Figure 63: Choice of flying class, by purpose of flying, China, June 2013
Figure 64: Choice of flying class, by household income, China, June 2013
Figure 65: Important consideration factors, by household income, China, June 2013
Providing a personalised flight experience
Figure 66: Attitudes towards air travelling, by class of flyers, June 2013
Figure 67: Attitudes towards healthy lifestyle, China, November 2012
Figure 68: Cathay Pacific partners with The Langham to offer new menu, September 2013
Figure 69: Family holiday taken among middle class, China, July 2012
Figure 70: Scoot Airline’s ScootinSilence zone, September 2013
Multiple ancillary revenue activities
Figure 71: Comparison of airlines ancillary revenue and source, global, 2011
Figure 72: Attitudes towards airline travel, by household income, China June 2013
What does it mean?
KEY ISSUE – GREATER COMPETITION URGES CHINESE AIRLINES TO DRIVE QUALITY OF SERVICE AND BE MORE CUSTOMER-ORIENTED
Key points
‘Big Three’ lose share in all segments as competitors expand
Figure 73: Total market share of the ‘big three’ Chinese airlines, by market segment, 2010-12
Figure 74: Growth rates of total market segment and the ‘big three’ airlines, by region, 2011 and 2012
Chinese airlines expedite international expansion in different ways…
Figure 75: Fleet expansion, by major domestic airlines, China 2013
…but still have to catch up on service quality, which is valued more by high-end travellers
Figure 76: Attitudes towards international airlines, by demographics, China June 2013
Figure 77: Number of complaints made to Chinese and foreign airlines, China, January-July 2013
Compared to food, entertainment and comfort, quality of customer service matters more to Chinese flyers
Figure 78: Important consideration factors, by where, why and how people fly, China, June 2013
Management of irregular flight operations still a big weakness
Open and timely communication helps prevent an incident becoming a crisis
Figure 79: Mobile app veryzhun, China, 2013
A responsive feedback system shows a customer-oriented attitude
Figure 80: Spring Airlines’ chairman blog replying to customer feedback, China, 2009-13
Figure 81: Incidence rate of complaints, Spring Airlines vs. average level of Chinese airlines, China, January-July 2013
What does it mean?
KEY ISSUE – MAKE LOW-COST CARRIERS MORE ATTRACTIVE BY SOPHISTICATED MARKETING AND PRODUCT DESIGN
Key points
Despite strong demand for cheap air travel, China represents a challenging market for low-cost carriers
Less than 5% market share of low-cost carriers
Figure 82: Market share of low-cost carriers in North America, Europe, Asia and China, 2012
Price is important to many, but few think low-cost carriers offer attractive price structure
Figure 83: Attitudes towards price and low-cost airlines, by demographics, China June 2013
Figure 84: Passenger volume, by airline, rail, road and waterway during China’s Spring Festival, 2013
Competitive pricing by full-service airlines and development of high-speed rail erode price competitiveness of low-cost carriers
Figure 85: Comparison of cost of travelling on certain routes, China 2013
Missing elements to support low-cost carriers’ business model in China: lack of secondary airports and high tax on imported aircrafts
Improving appeal of low-cost carriers by sophisticated marketing strategies
Enhance value for money by promoting the advantages of ‘less waste’ and ‘more choice’
Figure 86: ‘Good value for money’ perception towards major airlines in China, June 2013
Figure 87: ‘Overpriced’ perception towards major airlines in China, June 2013
Use more inspirational advertising to attract short break seekers
Figure 88: Frequency of spending leisure time on short trips and long holidays in the past 12 months, China, July 2013
Figure 89: Incidence of spending leisure time on short trips and long holidays, by income, China, July 2013
Figure 90: easyJet advertising, UK 2013
Figure 91: easyJet’s in-flight magazine, UK, 2013
Integrate leisure travel services in product design
Figure 92: Choice of airlines, by purpose of travel, China June 2013
Figure 93: Domestic tourist population and per capita spending, China 2007-12
Flight and hotel packages
Figure 94: Attitudes towards airlines’ offer of packaged deals, by type of flights taken and income, China June 2013
Airport pick-up services and car rentals
Figure 95: Car ownership in China, 2000-11
What does it mean?
APPENDIX – WHO FLIES AND WHY? – REASON FOR FLYING
Figure 96: Reason for flying, June 2013
Figure 97: Most popular reason for flying, by demographics, June 2013
Figure 98: Next most popular reason for flying, by demographics, June 2013
Repertoire analysis
Figure 99: Repertoire of reasons for flying, June 2013
Figure 100: Repertoire of reasons for flying, by demographics, June 2013
APPENDIX – CHOICE OF AIRLINE AND CLASS
Figure 101: Choice of airline and class, June 2013
Figure 102: Choice of airline and class, by demographics, June 2013
Figure 103: Choice of airline and class – Any, by demographics, June 2013
Figure 104: Choice of airline and class – Domestic flight for leisure, by demographics, June 2013
Figure 105: Choice of airline and class – Domestic flight for business, by demographics, June 2013
Figure 106: Choice of airline and class – International flight for leisure, by demographics, June 2013
Figure 107: Choice of airline and class – International flight for business, by demographics, June 2013
APPENDIX – IMPORTANT CONSIDERATION FACTORS
Figure 108: Important consideration factors, June 2013
Figure 109: Most important consideration factors, by demographics, June 2013
Figure 110: Next most important consideration factors, by demographics, June 2013
Figure 111: Other important consideration factors, by demographics, June 2013
Figure 112: Important consideration factors, by most popular reason for flying, June 2013
Figure 113: Important consideration factors, by next most popular reason for flying, June 2013
Figure 114: Important consideration factors, by choice of airline and class – Any, June 2013
Figure 115: Important consideration factors, by choice of airline and class – Domestic flight for leisure, June 2013
Figure 116: Important consideration factors, by choice of airline and class – Domestic flight for business, June 2013
Figure 117: Important consideration factors, by choice of airline and class – International flight for leisure, June 2013
Figure 118: Important consideration factors, by choice of airline and class – International flight for business, June 2013
APPENDIX – ATTITUDES TOWARDS AIRLINE TRAVELLING
Figure 119: Attitudes towards airline travelling, June 2013
Figure 120: Most popular attitudes towards airline travelling, by demographics, June 2013
Figure 121: Next most popular attitudes towards airline travelling, by demographics, June 2013
Figure 122: Other attitudes towards airline travelling, by demographics, June 2013
Figure 123: Attitudes towards airline travelling, by most popular reason for flying, June 2013
Figure 124: Attitudes towards airline travelling, by next most popular reason for flying, June 2013
Figure 125: Attitudes towards airline travelling, by choice of airline and class – Any, June 2013
Figure 126: Attitudes towards airline travelling, by choice of airline and class – Domestic flight for leisure, June 2013
Figure 127: Attitudes towards airline travelling, by choice of airline and class – Domestic flight for business, June 2013
Figure 128: Attitudes towards airline travelling, by choice of airline and class – International flight for leisure, June 2013
Figure 129: Attitudes towards airline travelling, by choice of airline and class – International flight for business, June 2013
APPENDIX – PERCEPTIONS OF MAJOR DOMESTIC AIRLINES
Figure 130: Perceptions of major domestic airlines, June 2013
APPENDIX – VALUE-ADDED SERVICES
Figure 131: Value-added services, June 2013
Figure 132: Most popular value-added services – Domestic flights (China), by demographics, June 2013
Figure 133: Next most popular value-added services – Domestic flights (China), by demographics, June 2013
Figure 134: Other value-added services – Domestic flights (China), by demographics, June 2013
Figure 135: Most popular value-added services – International flights (outside of China), by demographics, June 2013
Figure 136: Next most popular value-added services – International flights (outside of China), by demographics, June 2013
Figure 137: Other value-added services – International flights (outside of China), by demographics, June 2013

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