Some time back in 1985, China Eastern had been the first Chinese airline to place an order for an Airbus aircraft and the airline was about to receive its first such aircraft; within the company, there was a substantial amount of excitement tantamount to the discovery of a new frontier. As a very young airline analyst at Airbus, I was part of a team that were deeply involved in working out route and economic studies to enable the airline to operate these aircraft to their optimum capabilities. Little did we know at that time that a few decades later, the aviation market would grow in leaps and bounds and China would become a dominant player in the aviation market. By the end of 2019, of the 4.5 billion passengers carried by air, China accounted for nearly 660 million passengers, and by the end of 2020, with close to 250 airports in operations and just over 3,900 aircraft in service.
The success of the Chinese aviation market rests largely on the CPC and their systematic policies of laying our guidelines and in the particular case, the planned policy for development of civil aviation as embodied in the Five-Year Period (2021-2025) with an ambitious plan to have around 270 airports in operations and just over 900 million passengers.
Aviation has always been an industry where “uncertainty is normal”; Over the past decades, the growth of aviation has been affected by the oil crisis of 1973, the Iran-Iraq war, the gulf war, 9-11, SARS, the financial crisis of 2008-2009 and finally the Covid 19 pandemic which effectively brought the aviation world to a standstill. None of these events were predictable, and yet, the aviation industry in China remained resilient. There can be a number of reasons to explain such phenomenon, a number of which may be traced back to policies that have been initiated by the CPC decades ago to set a stronger foundation for the aviation industry.
The creation of the Civil Aviation Administration of China (CAAC) in 1987 set the tone for a purely regulatory body whose role was principally to provide the necessary framework and surveillance for the safe and sustainable development of civil aviation in China. The creation, shortly afterwards, of the three main carriers (Air China, China Eastern and China Southern) further established the ‘rules of the game’ for the carriage of passengers and cargo. In a free market economy, anybody with the necessary capital may potentially set up an airline by acquiring the necessary human talent and equipment and the necessary operating rights. In many markets, the uncontrolled growth of capacity, sometimes led by massive orders from OEMs and the subsequent need to take delivery and deploy such capacity, have led to cut-throat competition with its inbuilt inefficiencies and major loss of capital and human resources when the growth of the market was out of synchronization with the capacity growth. We have seen multiple examples of such events in a number of markets as it is the airline that decides on the capacity to be deployed based on their expectation of the market growth and competitor's reactions.
The CPC has however taken another route by first addressing the key milestones and indicators in the Five Year Period; Starting with the laying out of a Plan for China's Civil Aviation Development during the 14th Five-Year Period (2021-2025) based on required GDP growth rate for the country, the resultant objective is then translated into the capacity (hence the number of aircraft) that needs to be added to the current operating fleets, the number of airports that will be built and more generally the infrastructure that will accompany such planned growth. This so-called helicopter view of the entire ecosystem has acted as a framework within which airlines have been able to plan their own development and growth with little waste of scarce resources.
In addition to the above, the CAAC, under the auspices of the CPC, has a role to regulate the allocation of routes within its control hence further providing some levers of control on the market stability.
The next few years will see some interesting development in the field of aviation through two key policy decisions embedded in the Five-Year Period (2021-2025), and more notably in two particular areas; (i) the development of civil aviation turbofan engines designed to power Comac C919 150-seater narrow body aircraft. This development will pave the way for future development of advanced engines for widebody aircraft and (ii) the development of BeiDou, the innovative navigation and communication integrated system which will have wide applications not only as a global positioning system with its obvious applications in civil aviation but also providing exiting prospects for the development of onboard navigation, smartphones and other consumer related devices. In many ways, this high technology development reaches a full circle and epitomizes the spirit of the CPC; Serving the people wholeheartedly, putting people first and providing the necessary framework for a common prosperity.
Written by : Nirvan Veerasamy, Founder and Managing Director of Veling Ltd