Hello All,
The COVID-19 outbreak almost entirely stopped passenger traffic between Mainland China and the USA. Chinese and US airlines currently operate four weekly flights each due to travel restrictions imposed by both countries.
Passenger traffic growth between both countries materially slowed last year due to increasing trade tensions. Using international traffic data from the US Department of Transportation, traffic grew by 1% in 2019 compared with the previous year.
Since 2010, passenger traffic grew from 2.6m to 9.1m passengers, or 15% annualized. The rate was double digit in all years apart from 2017 and 2019. We will analyze the trends in what was one of the fastest growing international market.
A highly uneven growth
The below plot shows the number of annual passengers carried by each airline since 2010:
While overall traffic grew 15% annualized, the traffic growth among Chinese and US airlines has been 22% and 7%, respectively. US airlines had a 61% market share in 2010. In 2019, their market share shrank to 33%.
Below is a table with the 2019 data, along with the 2010 market share:
| Airline | Passengers | Market Share | 2010 Market Share |
| CA | 1,635 | 19% | 20% |
| UA | 1,448 | 17% | 44% |
| MU | 1,421 | 17% | 13% |
| CZ | 996 | 12% | 4% |
| DL | 951 | 11% | 8% |
| HU | 864 | 10% | 2% |
| AA | 633 | 7% | 8% |
| 3U | 270 | 3% | |
| MF | 265 | 3% | |
| JD | 44 | 1% |
United being complacent?
United Airlines (combined with Continental) had a 44% market share in 2010. This shrank to 17% in 2019. From dominant carrier, the airline is now second behind Air China and on par with China Eastern. The US carrier accounts for 27% out of the 28% market share loss by US carriers. Its passenger numbers peaked in 2016. Why did United Airlines lose so much market share?
United flies to China from five hubs: Chicago, Los Angeles, Newark, San Francisco, and Washington. All but one (San Francisco to Chengdu) of United’s flights to China are to Beijing or Shanghai. Only Washington-Dulles isn’t an airport with significant passenger traffic to China.
United inherited a strong China network from the purchase of Panam’s trans-Pacific routes in the 1980s. Due to restrictions on flights between congested airports, United did not receive any new routes to Beijing or Shanghai. The only way to to grow was to start flights to secondary Chinese cities.
United launched flights to Chengdu, Hangzhou, and Xi’an from San Francisco. Only Chengdu remained before COVID-19. United might cancel the route altogether once traffic recovers after the COVID-19 outbreak. The expansion into secondary Chinese cities wasn’t profitable.
Two other factors explain United’s market share loss:
- Between 2010 and 2019, a larger portion of traffic originated from China. Chinese customers prefer, other things equal, to travel on Chinese airlines. Among other factors, crews speak better Mandarin than on US carriers. Chinese tour operators also favor their national airlines.
- With Chinese airlines growing aggressively, airfares suffered, including on trunk routes between both countries. With profitability lagging, United focused on improving the customer mix rather than volume.
Traffic at US airports
Below is a plot of passenger traffic breakdown at US airports:
While Chicago and San Francisco were leading passenger traffic in 2010, Los Angeles handled 27% of all China-USA traffic in 2019. LAX is the most popular destination for Chinese carriers.
Due to heavy competition, US carriers are reluctant to aggressively add capacity at LAX. American is allegedly considering pulling out of the LAX-China market altogether once traffic between both countries normalizes.
Chicago handles the same number of passengers as in 2010. While Chinese airlines added flights to the windy city, American stopped services. United switched more traffic to San Francisco, a hub better suited for connecting traffic, and Newark, where Continental was earning higher business yields.
The rise of traffic outside big three Chinese airports
Below is a plot of passenger traffic breakdown at Chinese airports:
Up until 2013 one had to fly through one of the big three international Chinese airports to reach the USA directly: Beijing, Guangzhou, and Shanghai. Now 11% of traffic originates outside those big three airports, which accounted for most of the traffic growth after 2016.
Chinese airlines received large subsidies from local governments in secondary cities to launch direct flights to the USA. Without those flights, passenger traffic between China and the USA would have likely dropped in 2019.
Due to increasing geopolitical tensions with the USA, the Central Chinese government might forbid cities to subsidize flights to the latter. Should that happen, one should expect many routes originating out of secondary cities not to come back once the COVID-19 outbreak abates.
Which airline is the most exposed to a slump in traffic between both countries?
One airline heavily exposed
Given the difficulty in obtaining traffic rights between congested airports, most airlines will prefer to down-gauge to a smaller aircraft rather than abandoning such route outright. However, routes to secondary airports are more exposed.
For the below table, we consider primary airports:
- China: Beijing (PEK/PKX), Guangzhou (CAN), Shanghai (PVG)
- USA: All big three US carrier hubs
Below is the share of routes between major hubs for airlines in the China-USA market:
| Airline | Major Hub Routes |
| CA | 95% |
| UA | 96% |
| MU | 79% |
| CZ | 81% |
| DL | 100% |
| HU | 33% |
| AA | 100% |
| 3U | 0% |
| MF | 0% |
| JD | 0% |
United’s Chengdu-San Francisco is the only secondary route operated among US carriers. Around 20% of China Eastern and China Southern’s traffic is from secondary Chinese cities. Sichuan, Xiamen, and Beijing Capital Airlines operate secondary routes but they do not have large passenger numbers.
The most exposed carrier is unequivocally Hainan Airlines. The airline grew traffic numbers by 14 times between 2010 and 2019, or 34% annualized. The carrier accomplished that despite limited access to primary routes.
Hainan operates flights from Changsha, Chengdu, Chongqing, and Xi’an. Routes to secondary US airports include Boston, Las Vegas, and San Jose. Unless subsidies continue, the airline will likely have to stop a large number of those routes.
Should tensions increase further between China and the USA, passenger traffic might never recover between both countries. It would represent a seismic change from the high growth of the previous decade.
EPSILON AVIATION 
A very interesting and enjoyable article, as always, thank you so much! Your figure means 4.5 million people moving each way per year. Or 12,300 per day, which requires some 45 planes daily. Perhaps at some future time a similar analysis could be made for US-India air traffic, which although a bit smaller, 3 million people per year, roughly half of each nationality (unlike in the above case, where 2/3 are Chinese, many of whom will prefer a Chinese airline since the majority do not speak English, whereas virtually all Indians do). A big difference here with the afore example is distances, which range from a very comfortable 6,000 to 6,500NM for Canadian cities to a trying 7,600NM for southern American destinations. All are well within A350-100’s nominal range of 8,600NM (using Airbus’ rules, a bit less in real life). Or smaller craft for more northern cities. Much of today’s travel goes via Dubai, Doha or Europe, adding a couple of hours to an already long trip. An added bonus for American carriers is that Indian airlines either do not cater to long distance travel, or are in considerable financial distress, even befor Covid-19.
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Hola Luis, To be clear, my analysis only includes direct flights between China and the USA. The direct USA-India market is much smaller. And yes Indian airlines are less daunting competitors than the Chinese ones ;). The Gulf carriers partially thrived on Air India’s inability to provide adequate service. American wanted to launch a direct Seattle – Bengaluru (tech hubs) flight before COVID-19 hit.
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Well, from DEL non-stop flights were available to: YVR by AC, ORD, JFK, SFO, YYC & IAD by AI, EWR & SFO by UA, (both resuming July 6,2020), and from BOM non-stop to YYC by AC, EWR by AI, JFK by DL, & EWR by UA (also resuming July 6, 2020), for a total of 12 direct connections, out of a total of 30 planeloads needed to move 3 mln pax/year, a bit over a third.
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Please read 30 planeloads per day to move 3 mln people per year
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