BA Sees Blue Skies Ahead in China
By Lu Haoting, China Business Weekly | Jun. 09, 2008
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Sara Thorley was very excited one and a half years ago when she received the offer to become British Airways' manager of China.
"What an opportunity! In the next two years, the Olympic Games, the World Expo and the new airport terminals. From an airline perspective, these are all fascinating news," Thorley recalls.
Thorley's experience in China didn't fail to meet her expectations.
British Airways in February launched the first international flight out of the Terminal 3 (T3) of the Beijing Capital International Airport (BCIA). The new terminal, with floor space of 986,000 sq m, is bigger than all five Heathrow terminals combined. As one of the world's largest terminal building complexes, the terminal serves as Beijing's new international gateway to the skies.
Less than one month later, British Airways became one of the first international airlines to use the Terminal 2 (T2) of Shanghai Pudong International Airport. The new terminal has a combined floor space of 546,000 sq m. Shanghai built the new terminal to cater to the continuous growth of passenger and cargo flows in and out of the most populous city on China's east coast.
"The two airports are definitely a great stepping stone to make sure that there is sufficient services to cope with the fast growing air transport in China," Thorley says.
The new terminals in Beijing and Shanghai are just part of China's massive airport construction wave. As one of the world's fastest growing commercial aviation markets, China has launched an unprecedented airport infrastructure building campaign to cope with double digit annual growth in both passenger and cargo air transportation.
The country is upgrading the mega airports in Beijing and Shanghai to expand them into international air transport hubs within the next five years. China is also trying to increase traffic at regional airports and spur local economies in those regions by subsidizing small airports in less developed areas.
"China is a fascinating country full of energy. If I could put that energy into a bottle, I would be a millionaire," Thorley says.
Getting Started
British Airways' predecessor, Imperial Airways, first flew to Hong Kong in 1936 and British Airways first flew to Beijing in 1980, though the flights had to stop in Bahrain and Hong Kong along the way.
Besides passengers, British Airways' inaugural flight from London to Beijing also carried medical data of a 7-year-old female panda in the London Zoo. The documents were for Jingjing, which nearly died from a rare disease but later recovered. Jingjing and Jiajia, a male panda, were a present from the Chinese government to Britain in 1974. The medical data were sent to Chinese animal experts at the Beijing Zoo.
Nonstop once-weekly London-Beijing services commenced in 1993.
But British Airways didn't grow in China as fast as it originally planned and it didn't begin flying nonstop to Shanghai, the country's economic center, until 2005.
The previous aviation agreement between the Chinese and UK governments only allowed British carriers to operate 10 weekly flights from the UK to China. British Airways was awarded six weekly flights to Beijing and the remaining four to Shanghai went to Virgin Atlantic.
In 2004, the two governments reached a memorandum of understanding, which significantly increased the number of flights between the two countries. They increased from 10 in 2004 to 31 in 2006. British carriers were also allowed to fly to six other Chinese cities.
British Airways now flies daily to Beijing, three times daily to Hong Kong and five times a week to Shanghai. It has the largest capacity on the Sino-British route compared to Virgin Atlantic, Air China and China Eastern Airlines.
The airline earlier this year increased its capacity to China by 50 percent by changing from Boeing 777s, serving Beijing, to Boeing 747s. It also plans to fly daily to Shanghai in the "very near future", says Thorley.
The company witnessed double-digit growth during the past two years and Thorley expects to see that growth rate to continue through 2010.
Thorley's confidence comes from China's booming commercial air traffic market. The average annual growth rate of air travelers in China has been more than 15 percent over the last several years and high growth rates are expected to continue until 2020.
About 100,000 Chinese people traveled to the UK in 2004, according to British Airways. That figure is expected to double to 200,000 in 2010, Thorley says.
Business exchanges between China and the UK have been growing steadily.
The UK is China's third largest trading partner in the European Union. Bilateral trade between the two countries exceeded US$37 billion in 2007, surging 29 percent year-on-year. The Chinese Ministry of Commerce said bilateral trade would exceed US$60 billion by 2010.
The UK is China's largest source of foreign investment in the European Union. The number of UK-invested projects in China reached 5,834 by the end of 2007, representing total investment volume of US$28.58 billion.
Closer Ties
It is not surprising China's flourishing air travel market could serve as an important engine for British Airways. In fact the country has also become a financing source for the airline to expand its fleet.
British Airways last October completed US$1.7 billion debt financing for its new aircraft delivered over the next five years, including the Boeing 787 Dreamliner and the Airbus 380 Superjumbo. Two leading Chinese banks - Bank of China, Industrial and Commercial Bank of China - and banks from Japan and Europe will provide the financing.
"The Chinese banks are in a very strong position and gave us a very good offer. We believe China will also play an important role in the finance world in the near future," Thorley says, without disclosing the amount of funding provided by the Chinese banks.
British Airways is also involved in environmental projects in China through its carbon offsetting programs.
The airline unveiled a new carbon offset plan at the beginning of this year. The program uses the United Nations certified emissions reduction to help finance clean energy projects in developing countries, including Brazil and China.
Customers can buy their offset on British Airways' website when they book their flights. The offset cost for a London-Paris return is about 1.50 pounds and for London-New York about 16 pounds.
The money will support a wind farm in the Ningxia Hui Autonomous Region and a hydroelectric power plant in Gansu Province.
"British Airways will be more and more involved with China, not just in the aviation industry. We will grow with the Chinese economy," Thorley says.