490 Million Passenger Trips a Year: 10 Charts on How Flying Changed for Chinese Travelers

Airlines are putting bigger planes in the air, opening more routes, and chasing the people who fly most.

How many times do you fly in a year? How far?

According to the National Bureau of Statistics, people in China made 490 million trips by air last year, averaging 1,705 kilometers per flight — roughly the distance from Beijing to Chengdu.

If you flew 100,000 kilometers in 2016, you were in about the top 5%.

Last year, Chinese airlines alone accounted for 9.23 million takeoffs and landings. Most of them came from the three biggest carriers — China Southern Airlines, Air China, and China Eastern Airlines — which together carried 65% of the country's passengers.

All three released their 2016 annual results last week. We used the numbers to see how travel has changed for Chinese passengers.

The Most Popular Destinations Are Still the Same Four Cities

Passenger-flow data from TravelSky shows that China's most popular domestic routes run between the nine cities below. Beijing–Shanghai, Beijing–Shenzhen, and Beijing–Guangzhou are the busiest.

The busiest route in China is Beijing–Shanghai. Flight data from August 1 of each year between 2014 and 2016 shows China Eastern holding close to 50% of it, scheduling 50 flights a day between the two cities — nearly twice the capacity Air China puts in.

Kunming and Xi'an, two of the country's ten busiest airports by passenger throughput, are also China Eastern's bases in the southwest and northwest. At both, the airline again holds more than 40% of flights.

China Southern is strongest on Beijing–Guangzhou and Beijing–Changsha, where it flies more than 40% of departures. Guangzhou is its headquarters; Beijing and Changsha are cities where it has set up bases.

Air China, backed by Beijing Capital Airport, the country's busiest by passenger throughput, flies nearly 50% of everything on the Beijing–Chengdu route by itself. The competition among the big three, in fact, plays out mostly around these few cities.

To defend its near-half share of Beijing–Shanghai, China Eastern teamed up with Hilton on a points-and-voucher promotion aimed squarely at frequent flyers on that route. To prove they qualified, applicants had to upload their Beijing–Shanghai flight records through the Umetrip app.

Two years ago China Southern began adding flights between Beijing and Chengdu, going from 6 round trips a day to 11. Load factor on each flight has held at around 80%.

The route was traditionally Air China's, because Chengdu is its other base besides Beijing. That makes Beijing–Chengdu one of the few routes in the top ten to have moved in the passenger-volume rankings over the past three years, climbing from 7th in 2014 to 5th in 2015.

Air China has grown more aggressive on China Southern's home turf too. It invested in Hong Kong-based Cathay Pacific and took a controlling stake in Shenzhen-based Shenzhen Airlines, using both to fight China Southern in South China.

It also ran a promotion just for flights leaving from or arriving in Guangzhou, handing out an extra segment of upgrade miles for every flight. That cut the number of round trips needed for an Air China gold card from 20 to 10.

China's Busiest Domestic Routes Are Now Flown by Big Planes

Commercial aircraft fall roughly into three classes:

• Double-deck, four-engine "jumbo" jets, typified by the Boeing 747 and Airbus A380, built for long-haul routes over 8,000 kilometers — Beijing to Frankfurt, for example.
• Wide-body jets with two aisles and more than 200 seats, typified by the Boeing 777 and 787 and the Airbus A330 and A350 series, built for medium- and long-haul routes over 5,000 kilometers, such as the roughly six-hour Beijing–Singapore flight.
• Narrow-body jets with a single aisle and 100 to 200 seats, typified by the Boeing 737 and Airbus A320 series, built for domestic short- and medium-haul routes of about 1,000 to 5,000 kilometers.

The usual assumption was that on short- and medium-haul routes of 800 to 1,600 kilometers, airlines mostly flew narrow-bodies, because lighter aircraft cope better with the strain of frequent takeoffs and landings.

But over the past few years the big three have used wide-bodies more and more, moving planes once reserved for international flying onto short and medium domestic hops.

We looked up ticket listings on Trip.com Group for next Friday and counted the flights scheduled between 6 a.m. and 10 p.m. on China's three busiest routes of 2016. The three airlines had 91 flights in all, 72% of them on wide-bodies.

Beijing–Shanghai is the clearest case. That day China Eastern and its subsidiary Shanghai Airlines scheduled 29 flights from Beijing to Shanghai, 14 of them on wide-bodies. Air China put in 13 flights a day, every one a wide-body. These Boeing 787s, Airbus A330s, and even Boeing 777s are normally flown on intercontinental routes of thousands, even tens of thousands, of kilometers.

Beijing to Shanghai is about 1,100 kilometers one way.

On Beijing–Guangzhou, China Southern scheduled 11 flights, 9 of them wide-bodies. Through the airport's busiest stretch, 8 a.m. to 7 p.m., it carried passengers mostly on Airbus A330s or Boeing 777s.

On Beijing–Shenzhen, Air China and China Southern ran 25 flights between them, 16 of them wide-bodies.

An airline pays the same slot fee whether it flies a 150-seat narrow-body or a 300-seat wide-body. So where capacity allows and demand is strong — on prime routes like Beijing–Shanghai, Beijing–Guangzhou, and Shanghai–Guangzhou, where load factors run close to 90% — airlines prefer the bigger plane, because it spreads the cost of a slot across more passengers.

A slot fee is what an airline pays after it applies to the Civil Aviation Administration to open a route and then has to apply to the departure and arrival airports for takeoff and landing times. Baiyun Airport once auctioned its slots, selling 196 slots in 9 takeoff-and-landing pairs for 550 million yuan.

Pudong Airport instead set a baseline slot price of 172,000 yuan for any slot on any day of the week, then applies a multiplier for the time of day, then works out the final bill from how many days a week the flight runs.

The multiplier tracks how valuable the slot is. Pudong sets it at 1.2 for the 10 slots between 10:25 a.m. and 7:25 p.m. — the prime hours of the day. It is 1 for the 8:25 p.m. and 9:25 p.m. slots and 0.8 for everything else.

So a flight taking off or landing at Pudong in the dead hours of early morning or late night costs an airline 137,600 yuan (172,000 × 0.8) per slot, while a daytime prime slot costs 206,400 yuan (172,000 × 1.2). On top of that, airlines pay landing and ground-handling fees for every takeoff and landing.

That airlines are now putting more big planes on domestic routes means those routes earn enough to cover the higher cost. Flying has also become an ordinary choice for short trips inside China — carriers bring in bigger aircraft only when there are more passengers to fill them.

It appeals to passengers too, of course: a wide-body generally feels more comfortable than a narrow-body, and rides through turbulence more smoothly.

Airlines Bought a Lot of New Planes — Mostly for Overseas Routes

China Eastern has the youngest fleet of the three, at an average age of just 5.4 years. The fleets of Air China and China Southern are only about a year older.

For comparison, the world's three biggest airlines — American Airlines, United Airlines, and Delta Air Lines — average 11 years, 13.4 years, and 17 years. All three have bought heavily in recent years, pulling those averages down.

Over the past two years China Southern, China Eastern, and Air China bought 383 planes between them and retired 126. China Eastern took in the most, 152 aircraft — an average of 6 a month.

In 2016, China Eastern spent nearly 68 billion yuan on 20 Airbus A350-900s and Boeing 787-9s. Over the next three years it expects to spend another 123 billion yuan on aircraft and engines.

Part of that answers current demand for big-plane capacity on busy routes; part of it is for expanding overseas.

China Eastern has said in its annual report that it bought wide-bodies to put capacity into the European and North American markets. Last year it opened its seventh route from Shanghai to North America, plus direct flights from Shanghai to four cities — Prague, Amsterdam, Madrid, and St. Petersburg — taking its Shanghai-to-Europe network to nine routes.

Air China has done the same. It opened 29 international routes in 2015 alone, reaching cities on every continent but Antarctica, among them Auckland, New York, and Islamabad.

Data from OAG, the British aviation information provider, shows that 2016 was the first year in decades in which Chinese airlines, adding capacity, gave more of it to overseas routes than to domestic ones.

In 2016, 110 million people flew abroad on leisure trips, and more of them went to relatively distant places such as South Korea, Thailand, and Japan rather than the old standbys of Hong Kong, Macau, and Taiwan.

That cooling toward Hong Kong, Macau, and Taiwan has to do with shifting politics and with domestic coverage of the friction. South Korea can be expected to lose some of its appeal in 2017 as well.

Europe is the second-largest overseas destination for Chinese travelers after Asia, with France, Italy, Switzerland, and Germany all among China's top ten.

International fares have fallen 30% over the past five years, which makes leisure travelers readier to take an intercontinental trip.

North America comes third, after Europe. The shift has pushed Chinese airlines to put more capacity on China–U.S. routes; by 2015 they were already flying more of those flights than North American carriers. Last year they added more than 800,000 seats between the two countries, giving them 57% of all capacity on those routes.

All these new planes, all these new routes, and cheaper tickets — so how are the airlines doing?

The Gap Between the Three Airlines' Profits Is Wide

By capacity, China Southern flies the most in China and China Eastern is growing fastest.

Ranked by passengers carried each year, the order — China Southern, China Eastern, Air China — has not changed in a long time.

Air China carries the fewest passengers of the three and earns the most operating profit, and it has the highest operating margin as well. Its 8% margin last year came close to the 10.96% industry average compiled by CSIMarket.

Divide each company's operating profit by its annual passenger count and Air China makes about 95 yuan per passenger — enough for three grande lattes at Starbucks.

China Southern comes next at about 30 yuan a passenger, enough for one. China Eastern earns the least, roughly 9 yuan a passenger: it takes three of them to buy a single tall latte.

All three did better last year than in 2015, mostly because of fuel. Helped by a drop of about 12% in oil prices in 2016, they saved 7.7 billion yuan between them on fuel.

A large part of how Air China manages this is that, as China's flag carrier, it flies most of the charters for the Party, the government, and the military, and government bodies and state-owned enterprises tend to pick it for business travel too. A job posting from Air China's Southwest branch lists this duty: representing Air China in dealings with local Party, government, military, and industry regulatory bodies in the region.

Against that background, Air China's revenue from business- and first-class tickets passed 10.5 billion yuan as early as 2015, 10% of operating revenue — far above the industry average.

Flying Keeps Getting More Ordinary, but High-Speed Rail Is Still the Rival Airlines Talk About Most

In 2010, Liu Shaoyong, general manager of the China Eastern Air Holding Company, told a reporter from Beijing Times that high-speed rail really was putting pressure on civil aviation.

The pressure he described went like this: under 500 kilometers, where flights and high-speed trains overlap, an airline may simply drop the route; at 800 kilometers, passenger numbers may take a hit of 20% to 30%; between 1,000 and 1,200 kilometers, the hit is around 15% to 20%.

Li Jiaxiang, former chairman of Air China and later head of the Civil Aviation Administration of China, took a similar line — high-speed rail hurts air routes within 500 kilometers, and the damage fades once the distance stretches to 1,500 to 2,000 kilometers.

China Business Journal counted the casualties: flights between Chengdu and Chongqing stopped not long after bullet-train service opened between the two cities in 2009; the Shitai high-speed line, also in 2009, killed off some Taiyuan–Beijing flights; and after the Hefu line opened in 2015, Fuzhou Airlines and other carriers stopped flying Hefei to Fuzhou.

In 2016, daily flying time for small and mid-size aircraft in China fell sharply, from 6.6 hours to 4.3 hours, while large and mid-to-large aircraft barely moved, flying about 10 minutes more a day than the year before.

The average distance flown by Chinese aircraft keeps rising; the average distance traveled by rail keeps falling. People have always said that a new way of getting around changes the way people travel.

The Beijing–Shanghai high-speed line gave passengers between the two cities something fast, convenient, and dependable next to flights that were always late — and it became China's first profitable high-speed rail line.

Airlines Taking Business Back From Agents Has Changed How Nearly 40% of Users Buy Tickets

Before the internet became widespread, airlines sold most of their tickets through agents rather than carry the labor and overhead of selling them directly. Agents typically handled 70% to 80% of all ticket sales for Chinese domestic carriers.

In 2011, Air France and KLM stopped paying commissions to their sales agents in China. Chinese carriers stuck with the commission model but cut the original 3% rate. At the end of 2015, China Southern, China Eastern, Air China, Hainan Airlines, and others began pushing back against online channels such as Trip.com Group and Qunar, promoting the line "the lowest price is only on our own site," and moving more tickets onto their own flagship stores and apps.

Airlines used to pay these ticket agencies several billion yuan a year in commissions. Dropping the agents and selling directly saves them that money outright.

A research report from GF Securities found that in 2015 alone, the year airlines started cutting commission rates, Air China's agent fees fell by 1.663 billion yuan and China Southern's by 1.113 billion yuan. Air China's dropped by as much as 41.8%. Agent fees as a share of sales expenses fell across all three carriers — down 15.90% at Air China and 9.16% at China Southern.

By the end of 2016, direct sales at China's three big airlines had reached 40%. They expect to push that to 50% this year, close to the direct-sales share at Delta and American Airlines.

Beyond price and the booking experience, airlines have long used loyalty programs to hold on to customers.

Air China has PhoenixMiles, China Eastern has Eastern Miles, China Southern has the Sky Pearl Club. Each offers much the same thing — better treatment, and miles you can turn into tickets. Over the past two years all three have run a string of promotions.

Air China hands out miles and points just for downloading its app or filling in a survey, to get people onto its own phone client.

China Southern started a "member day" promotion in 2015, selling cheap tickets and giving away miles and points to push people to book through its own membership system. That year its member count closed in on China Eastern's, and in 2016 it passed it.

Giving away points and miles is ultimately about pulling travelers off online agents like Trip.com Group and Qunar and back to the airline's own counter, because the miles they earn can only be redeemed with the airline.

Every Airline Is Chasing the Small Group That Flies Most — but in China the Business Has Barely Started

Besides its business- and first-class passengers, Air China owes some of its profit to its frequent-flyer program. As of the end of last year, that program brought in 2.4 billion yuan, against 1.7 billion for the larger China Eastern and 1.6 billion for China Southern.

Air China has five membership tiers — regular, silver, gold, platinum, and lifetime platinum — the most complete structure of the three, and it was the first to introduce platinum and lifetime platinum cards.

What makes the Air China platinum card attractive is that lifetime tier: once a member banks 1 million upgrade miles, the status converts to lifetime platinum. That gives plenty of mid- and upper-tier PhoenixMiles members something to aim at.

And unlike the two-tier gold-and-silver systems China Eastern and China Southern have run for years, every level in Air China's ladder carries a real difference in benefits — the higher the tier, the better the service — which amounts to encouraging members to fly more and more.

China Eastern announced a platinum card of its own last year to draw high-end travelers. Its platinum members get unlimited free upgrades on domestic flights and four a year on international ones.

China Southern was the first Chinese airline to join SkyTeam (20 airlines in all, including Delta, Air France, and KLM). Its Sky Pearl Club has three levels — gold, silver, and regular — and no platinum card yet.

On the whole, China's major carriers have all run frequent-flyer promotions, but next to the big three American airlines, the share of revenue those programs bring in here is still low.

Flying is not the only way to earn. Wherever an airline has partners, points from swiping a credit card, staying at a hotel, renting a car, or eating out can be turned into flights as well.

Banks assume frequent travelers earn above-average incomes. They all use miles to attract this group and get them spending.

Last month, Shanghai Pudong Development Bank launched a "miles bank" that converts points into airline miles. The credit card arms of joint-stock banks including China Merchants Bank, Shanghai Pudong Development Bank, China CITIC Bank, and China Guangfa Bank now all let their premium cardholders swap points for airline miles.

Still, even at Air China — the most profitable of the three, with the most frequent-flyer revenue — ticket sales remain the main source of income, at 90% of operating revenue. That is a different revenue structure from the one airlines outside China have.

Delta Air Lines, the world's second-largest airline, reached a $500 million deal with American Express to sell frequent-flyer miles as far back as 2005.

From 2011 to 2014, American Express paid $675 million a year to buy Delta's miles. Delta now expects the American Express partnership to bring in $4 billion a year by 2021.

By the estimate of the investment bank Stifel Financial, some American airlines, American Airlines among them, get half their profit from selling miles. That business is now starting in China too.

Charts: Feng Xiuxia

Cover image from Voiceherald and VisualHunt