While the United States will continue to be the largest single market for domestic airline passengers, it is the rapid growth of China that is grabbing international attention. As per the International Air Transport Association (IATA), China is firmly established in second place with a forecast of 487.9 million passengers in 2017, a 10.2 per cent compounded annual growth rate (CAGR) as against the CAGR of 2.2 per cent of the United States.

The skies are opening up in China at a scorching pace. Realising the potential for exponential economic development, the Chinese Government has embarked on policy liberalisation and providing incentives for the aviation sector.

In August 2013, the Civil Aviation Administration of China (CAAC) released the 2013 budget plan for regional aviation under which 21 airlines get subsidies of about $70.7 million for operating regional services. It also announced funds of over $85 million to develop 134 smaller inland airports. China is scheduled to build 70 airports till 2015, taking the total airports projected to reach 244 by 2020, up from 180 at the end of 2011. China is expected to operate 4,500 aircraft by the end of 2015, up from 2,600 in 2013.

Routes within or connected to China will be the single largest driver of growth, accounting for 24 per cent of new passengers till 2017. Of the anticipated 227.4 million additional passengers, 195 million will be domestic and 32.4 million international. Over 50 cities with populations exceeding three million people are waiting to be connected to the nation’s aviation network.

These developments, the anticipated growth and growing aspirations of the Chinese from Tier-II and Tier-III cities have perked up global aircraft manufacturers, all of whom are making forays into China in some form or the other.

Brazilian Edge

Quick in its response to the opening up of the economy, Embraer, the world’s third largest commercial aircraft manufacturer, entered the Chinese aviation market in 2000, when China’s Sichuan Airlines signed an agreement to purchase five ERJ-145 planes. Since then, several major deals have been completed between China and Brazil, including the purchase of 30 jets worth of $1.2 billion in 2011 by the CLC Corporation, the leasing arm of China Development Bank. These airplanes were provided to the China Southern Airlines for operation in the Xinjiang Uygur autonomous region to complete air travel routes in Northwest China.

Embraer first established its Beijing Representative Office in May 2000 with responsibilities of sales and marketing, customer support and services, government relations and public relations for Greater China. And the first E-190 went into operation in the Chinese market in 2008. In light of the steady growth of its customer base in China, Embraer created its wholly-owned subsidiary, Embraer China Aircraft Technical Services Co. Ltd. in July 2010. Its business scope covers logistics and spare parts sales, as well as consulting services regarding technical issues and flight operations.

Last year, Embraer entered into a joint venture with Harbin Aircraft Industry (Group) Co. Ltd. to manufacture 50-seat ERJ-145 jets in China. Embraer holds 51 per cent equity in the Harbin Embraer Aircraft Industry, while Harbin holds the rest. Harbin is a subsidiary of the Aviation Industry Corporation of China (AVIC).

In anticipation of more low-cost carriers (LCCS) coming up in China, Embraer has chalked out a roadmap with aggressive marketing activities. In December last, Embraer conducted a seminar on LCCs for media representatives, underscoring the importance of seat dynamics in such a scenario and the best aircraft fit for the requirement.

According to Philip Wang, Director of Airline Marketing for Embraer China, 18 per cent of E-Jet operators are in the LCC category. “The Chinese market shows huge potential for low-cost carriers. Currently, 78 per cent of domestic routes carry fewer than 120 passengers per flight, while 68 per cent of routes offer fewer than two flights each way. These routes with medium and low passenger volumes are ideal markets for developing low-cost air transportation. E-Jets generate high daily utilisation because of their short turnaround times and longer maintenance intervals,” he said.

Presently, three mainline airlines dominate domestic routes – Air China, China Southern and China Eastern. The nation’s largest low-fare carrier, Spring Airlines of Shanghai, serves some 40 local cities and 10 international destinations.

Wang explained the success of LCCs with their E-Jets and the ability of the aircraft to fly to smaller markets that are uneconomical with larger narrow-bodies. He referenced the tremendous success of Brazil’s Azul Airlines and the impact it has made in opening new markets and providing affordable air travel to first-time flyers with its predominantly E-Jet fleet. “The greatest advantage of lowcost carriers lies in providing quality service with a relatively lower price. What’s most important is to reduce overall operating cost by using right-sized aircraft. One hundred-seat E-Jets have lower fuel consumption and lower landing fees than larger aircraft.”

Nurturing Chinese Aspirations

The Brazilian company has already delivered 136 jets as of April 2013, taking up regional aviation market share of a whopping 80 per cent. To consolidate on this growth, China remains high on Embraer’s radar.

In 2013, Embraer co-organised the Forum for Civil Aviation Development in China, an annual event held in the city of Ordos, Mongolia. It was the first time in the seven-year history of the conference that regional aviation issues were included on the agenda and Paulo Cesar Silva, President, Embraer Commercial Aviation, made an aggressive pitch for the company’s E-Jets which lead the regional aircraft pack. “Second only to the United States, China operates the largest fleet of Embraer commercial aircraft in the world,” announced Silva. The forum was also an opportunity to launch Embraer’s E-Jets E2s in China. The new aircraft, the E-175-E2, E-190-E2 and E-195-E2, were presented with much fanfare by projecting a huge image of the new Chinese version of the Behold the Power of 2 hotsite.

“Brazilian aircraft are high quality, like those from Boeing and Airbus. The plane model suits the characteristics of the Chinese aviation market,” said Wang Li, Manager of the Hebei Airlines Planning and Development Department. Hebei Airlines is now the fourth carrier in China to operate Embraer E-Jets. It took delivery of two E-190s at a ceremony at Embraer’s factory in São José dos Campos on December 20, 2013. The aircraft are the first of an order of 10 E-Jets that will be used to build a network of scheduled flights from Hebei’s hub at Shijiazhuang Zhengding Airport. The E-190s are configured with six premium cabin seats and 92 main cabin seats. The carrier is developing a network of destinations within the province and also to the provincial capitals of Gansu and Ningxia. Most cities in the Hebei Airlines system are within two hours flying time from Shijiazhuang.

The economy of Hebei province is the sixth fastest growing in China. In the two years since 2008, passenger enplanements doubled to more than 2.7 million yet nearly two-thirds of all flight departures carried an average of fewer than 100 passengers in 2009. It is for this reason that the airline focused on acquiring aircraft that would avoid over capacity, maximize profitability and allow for the controlled addition of seats with incremental flights.

Although there are currently only three airports in Hebei province, the local government has embarked on an ambitious growth plan that will see the construction of four new airports by 2020. Hebei Airlines is an integral part of the development of the region and will use its fleet of E-Jets to facilitate the transport of people, cargo and mail. By 2015, the airline expects to have a fleet of 30 Embraer and Airbus jets and to carry three million passengers per year. Not just Hebei province, the other 21 provinces have also programmes for enhanced transportation networking. China is happening, at least for regional aviation.