Beijing’s Bygone Buzz: A capital capacity crunch has Beijing barely hanging on as China’s busiest airline market

Beijing’s Capital Airport, which handles all but a fraction of the city’s air traffic, started the 2000s nowhere to be found on Airport Council International’s annual list of the world’s 30 busiest airports. By 2005, it ranked No. 15, growing passenger traffic a torrid 18% that year, with domestic traffic alone up 19%. Five years later, Beijing had jumped to the No. 2 spot in the world, where it sits today, behind only Atlanta. Last year alone, Beijing airport welcomed more than 86m passengers, more than double its total a decade earlier.

But Beijing’s airport is no longer a growth superstar and hasn’t been since 2010, its last year of double-digit expansion. Growth slowed to 6% in 2011, 4% in 2012 and 2% in 2013, before inching up to 3% last year. In fact, ranked by city rather than by individual airport, Beijing remains China’s busiest airline market only if you count the smallish Nanyuan Airport south of the city, which handled 5m passengers last year. Shanghai, with traffic split across two large airports, handled just 1m fewer passengers than Beijing’s two airports last year and is on pace to grab the top spot in 2015 if prevailing growth trends don’t change. Last year, traffic at Shanghai’s two airports grew at an 8% clip, with Pudong handling 52m passengers and the more domestic-oriented Hongqiao welcoming 38m.

Why is Beijing’s airline market growing so slowly—indeed, well below China’s GDP growth—while Shanghai’s traffic growth outpaces that of the nation’s economy?

The top explanation is infrastructure. Beijing simply doesn’t have sufficient capacity to handle many of the new flights that airlines wish to add, especially at peak times of the day. The airport itself cites “tight flight slots” as a key reason for its sluggish growth, along with other factors weighing on most Chinese airports: the slower economic growth, a government crackdown on wasteful premium travel, severe air traffic control delays and high-speed rail competition, for example. China’s aviation regulator, to emphasize the dilemma, estimates that Beijing’s capacity constraints depress passenger traffic by about 10m passengers annually. In the meantime, Shanghai Pudong, with more physical space to expand, just opened a new runway and will in a few years enlarge its terminal facilities (see page seven).

To address Beijing’s infrastructure shortcomings, China late last year began building an entirely new airport south of the city in the Daxing district, which is…
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Get ready. U.S. airlines will begin reporting their Q1 financial results this week, with generally strong margins expected. Fuel was much cheaper this year than last and domestic markets remain strong.

But the weather isn’t all clear. In previews of their performance, some carriers mentioned worsening forex headaches, y/y unit revenue declines and profits not quite as bullish as originally envisioned. Delta, for its part, even pointed to weaker than anticipated domestic revenue, which could signal an end to the tight supply conditions that have prevailed for some time. Delta itself, like Southwest and most LCCs, is now expanding capacity well ahead of likely GDP growth. We’ll get a clearer picture starting this week.

Last week, Hawaii took center stage in network developments, with both Virgin America and AirAsia X announcing new routes. Delta and Turkish Airlines, meanwhile, are both adding service to Colombia. And Mexican and Canadian carriers are both bullishly growing to the U.S.

On center stage in the aircraft market stood Copa, which placed a big B737-MAX order at a political summit that also made news for its potential to heal old wounds between the U.S. and Cuba. But there was also buzz in Scandinavia, where Finnair revealed its inaugural A350 routes—and where Emirates will send newly-densified A380s.

Elsewhere, Tokyo’s Narita Airport opened a new low-cost terminal, Shanghai’s Pudong Airport opened a new runway and the U.S. government opened an investigation into alleged Gulf airline subsidies.

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