Huge Demand Fuels Europe-China Air Route Expansion | Business| Economy and finance news from a German perspective | DW | 22.04.2008
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Huge Demand Fuels Europe-China Air Route Expansion

European airlines are profiting from a big growing demand for air travel along China's industrial belt. Tourist travel to Europe is also expanding among a growing Chinese middle class.

Frankfurt Airport with planes parked at terminal

European airlines are flying non-stop to new destinations in China

The soaring demand for air travel from Europe to China in recent years has led to a rise in the number of new and unusual routes to the Middle Kingdom in the run-up to the Olympic Games in Beijing.

In March, Lufthansa was the first European airline to start up non-stop flights from its main hub, in Frankfurt, to the eastern Chinese city Nanjing, and in June, the German national flag carrier will service Shenyang, a growing industrial center northeast of Beijing and one of the key sites for the summer Olympics.

Lufthansa rival Air Berlin will introduce regular, non-stop flights to Beijing and Shanghai from Dusseldorf in May. Meanwhile, Dutch carrier KLM has been offering non-stop service from Amsterdam to the interior Chinese city Chengdu, in the mountainous hinterlands east of the Himalayas, since 2006.

But it is Finnair, a medium-sized European airline, that has invested the most in the Asian-Pacific region relative to its size. In 1999, the Finnish carrier made the strategic decision to drop all of its North Atlantic routes, except for daily flights from Helsinki to New York, and shift the rest of its long-haul capacity completely to Asia.

Asia strategy

"As a small country, we could not compete with the big European airlines on North American routes. Concentrating on Asia makes geographical sense for us. The shortest route to Beijing or Shanghai from Europe is via Helsinki," said Taneli Hassinen, Finnair's vice president for investor relations.

EU External Relations Commissioner Ferraro-Waldner with Chinese counterpart, Chinese and EU flag in foreground

EU companies have sites near a new air route to Nanjing

Hassinen explained that most European flights to Asia need to fly over the North Pole in Finnish airspace anyway, so a stopover in Helsinki makes sense for passengers coming from cities or countries without an Asian network, such as Spain, Berlin or Hamburg. The majority of its passengers traveling to Asia come from other European cities through its Helsinki hub, with its 25 weekly flights to China accounting for nearly 40 percent of all Finnair's Asian routes.

Of all European carriers, Lufthansa, however, is in the lead, with 58 weekly flights to China, including its two new routes to Nanjing and Shenyang. More than 3,000 German firms are active in China, with exports accounting for 54 billion euros ($86 billion) last year, generating plenty of business travel.

Big European demand

As with Finnair, the bulk of Lufthansa's passengers to China are coming through its Frankfurt and Munich hubs from other destinations in Germany and Europe. German chemical giant BASF opened an integrated production facility in Nanjing in recent years, and it's one of many multinational companies to benefit from the new route, according to airline spokesman Boris Ogursky.

An estimated 1,000 EU companies, including electronics giant Siemens and automakers such as Fiat and Ford, have production sites in and around Nanjing, which is linked by a network of motorways to China's biggest commercial center in Shanghai.

"Nanjing and Shanghai form a huge industrial cluster within 270 kilometers (170 miles) and are close enough so that passengers could easily fly into one city and out of another back to Germany, giving them more flexibility," said Ogursky.

Lufthansa also operates daily flights to the southern Chinese city of Guangzhou in the Pearl Delta region, which is undergoing a boom that could make it the next Shanghai. Altogether Chinese routes accounted for 20 percent of all Asia revenues, and the planes are generally filled to capacity, with average passenger loads above the Asian average of 83 percent, he added.

Middle class traveling to Europe

Martina Noss, a travel analyst with the German bank NordLB in Hanover stressed that European airlines, which are well positioned in markets with tremendous growth potential such as China and India, stand to benefit in the long term. Asian routes are also far more lucrative than the saturated North Atlantic market, where intense competition means a downward pressure on airfares that cut into profit margins, she added.

Two Chinese tourists in front of Germany's Neuschwanstein castle

Touring European castles becomes a status symbol for middle class Chinese

"Asia is a big profitable cake, and Lufthansa has a huge advantage of having established itself early in the China market and getting a big piece of it," said Noss, who added that the bread and butter of air travel are premium-paying business travelers, but that the tourist segment of the market is also expanding rapidly.

"There is a growing middle class in China and India, and taking a holiday in Europe is a great status symbol for them, similar to the Japanese tour groups who travel through the major European capitals in 10 days," said Noss.

According to estimates by European aircraft manufacturer Airbus, there will be 600 million middle class Chinese consumers with disposable income for European holidays by 2020.

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