Beijing Daxing International Airport is about to open, after 4 years' construction. Resembling a flying phoenix with a bird's eye view, the terminal will welcome its first commercial flight 3 months later.

The new airport is an independent international hub, for one thing, to expand and supplement the already saturated time slots and air space in Capital International Airport, for the other, to support the building of Xiong'an New District and facilitate the integration of Beijing-Tianjin-Hebei Region.

Normally, a cosmopolis like Beijing at least possesses 2 airports, such as New York with 3 ten-million level airports: John F. Kennedy International Airport, Newark Liberty International Airport and LaGuardia Airport, London with Heathrow International Airport and Gatwick Airport, Tokyo with Haneda Airport and Narita International Airport.

The opening of the new airport also indicates the reallocation of resources and powers in Beijing civil aviation market. According to the original arrangement of civil aviation authority, China National Aviation Holding Company (parent company of Air China) along with other Star Alliance's airlines will still operate in Beijing Capital Airport, while members of SkyTeam such as China Eastern and China Southern will settle in the new airport.

Moreover, China Eastern and China Southern will start to transfer 10% of their total turnover in Beijing to the new airport since winter season, 2019.From then on, more and more flights will run in the new airport until the completion of the movement, which is predicted in spring season, 2022.

Such allocation offers enough resources and space for the development of all the Top 3 airlines, objectively. Air China can further consolidate its leading role in the market, while the other two can seize the opportunity to carry out the double-hub strategy and open long-distance air routes that they've been planning for long.

The new airport brings new opportunities, yet it is complicated for the other two airlines to completely move out of the old one. Game starts among the Top 3 airlines competing for better resources in the two airports.

China Eastern

At the end of April, Civil Aviation Administration of China (CAAC) issued an internal notice all at once, against the original plan, permitting China Eastern to keep Beijing-Shanghai route in Capital Airport. Though the document has not yet been publicized, China Eastern confirmed the big news in its Financial Analysis Conference for Quarter 1, asserting it is a huge boost for the company.

Beijing-Shanghai route is the one and only, busiest and most beneficial, all around China,

In this golden business route, China Eastern accounts for 50% share of the market, being crowned as the absolutely greatest carrier. From Leng Jing, a Chinese online financial report website run by Tencent, China Eastern unveiled in the financial analysis conference that it had transported 3.44 million passengers in this route in the year of 2018 with a load factor as high as 88.5%, earning 1.25 billion yuan.

In 2018, the whole airline group carried more than 120 million trips with a net revenue of 2.71 billion yuan, decreasing over 50%. In other words, though accounting merely for 2.8% of the whole passenger turnover, Shanghai-Beijing route contributes nearly half the revenue of the whole company, fully deserved the title of "Dairy Cattle for Profit".

Before 2018, the full ticket price of Shanghai-Beijing route, economy class, was limited to 1260 yuan, restricted by government, while that of Beijing-Hangzhou route was more than 2000 yuan. In the year of 2018, deregulation of pricing at Beijing-Shanghai, Beijing-Guangzhou, and Beijing-Shenzhen routes built the new landscape of market-set prices.

As rules set by CAAC, accumulative rises of no-discount ticket with market-set prices are limited within 10% every season. Last year, prices of Beijing-Shanghai route were raised twice up to 1480 yuan, full price for economy class. Without big changes in other costs, most of the raised prices will be turned into airlines' profit.

"The route is well sold. A load factor of 90% proves that demands exceed supplies. China Eastern has applied for a new round of price adjustment, including Beijing-Shanghai route", told a broker and analyst.

In line with a report from Sinolink Securities, China Eastern Airlines Group (including Shanghai Airlines) account for 53% of the Beijing-Shanghai route, clearly a leading role in the market since Air China Group (including Shenzhen Airlines) account merely for 29%. "The relocation of the route to Daxing Airport definitely will sharply weaken China Eastern's competitiveness, causing the loss of business passengers who are not sensitive to prices", quoted the report.

Daxing International Airport is about 46 kilometers from Tiananmen Square, in straight-line distance, while the straight-line distance between Capital Airport and the downtown city is less than 30 kilometers. Business travelers are inclined to choose Capital Airport, for it is closer to the downtown and possesses a more convenient public transport system. If China Eastern fully move to the new airport, it is hard for the company to maintain its leading role in the market, talking about its biggest threat -- Air China, who will replace it undoubtedly.

Most of the silver and golden members of China Eastern Airlines replied to Leng Jing in some recent investigation that if China Eastern's Beijing-Shanghai flights were relocated to Daxing, they would consider to fly with Air China instead.

"For now, China Eastern must have made a lot of efforts to keep its Beijing-Shanghai route in Capital Airport and Air China should have expected the situation", Leng Jing quoted an insider.

Air China

In terms of time slot resources, Air China Group (including Shenzhen Airlines) account for 40.9% of the market share in capital airport while China Eastern Airlines Group (including Shanghai Airlines) and China Southern Airlines Group (including Xiamen Airlines) account for about 30% in total.

Civil Aviation Administration of China and National Development and Reform Commission co-issued a notice in July, 2016, on the airline base construction plan of the new airport, which announced that China Eastern Airlines Group and China Southern Airlines Group would take up 40% of the slots in the new airport separately. Yet the latest document at the end of April showed since China Eastern's Beijing-Shanghai route stayed in Capital Airport, the company's share in the new airports would decrease to 30%. On the other side, Air China Group will transfer some flights to the new airport.

Outsiders speculate that China Eastern and Air China have agreed a certain deal for resource exchange and it could be a compensation for Air China, yet this might not be the truth.

A senior manager in Air China indicated that Air China had never intended to enter the new airport and there was no deal, only following the arrangement of the authority. In fact, "it will be better if Air China get 10% more slots in Terminal 3, Capital Airport", said the manager, though it is for sure that Air China will also enter the new airport, seen from all the signs.

Upon the publication of the adjustment scheme, Air China sent a Boeing 747 for the test flight on May 13, as well as China Southern Airlines, China Eastern

"For Air China, a carrier that has never run two airports in a city and has no attempt to operate in the new airport, the adjustment is no doubt a challenge", said an insider.

"Sales is not the most challenging. What matters is the operation in two airports simultaneously, which increases complexity in personnel allocation, connecting flights and product designs. Comparably, China Eastern merely affirmed that it would keep Beijing-Shanghai route in Capital Airport and it has already prepared to run in the new airport. With the experience of running in two airports, it will be much easier for China Eastern", also from the insider.

An industry analyst from one of the investment banks said, it is beneficial to keep Beijing-Shanghai route intact for China Eastern in a short term. At least, it will help the carrier maintain its performance. Yet the 10% share that is allocated to Air China also represents the opportunities that China Eastern will lose.

In keeping with the authority's plan, the daily flight volume in Da Xing will reach 1050 in 2021 with 45 million trips and in 2025, there will be 1570 flights per day with 72 million trips.

Therefore, for Air China, it is urgent to make full use of the 10% share.

On one hand, Air China will stay in Capital Airport because it is constructive to connect with alliance airlines and build an international hub. On the other hand, the airlines will move some direct flights or medium-short range tourist flights to the new airport, under the management of Beijing Airlines, a former business jet company affiliated to Air China and a carrier sharing one code with Air China since 2018.

Insiders still expect changes in the allocation since the document issued in April remains to be publicized. "It is unreasonable to think 10% is the final offer", said a senior manager from a carrier.

After China Southern and China Eastern move to the new airport, the resources will be used by Air China, being the solo giant, despite the competition from China Eastern and Hainan Airlines.

China Southern

Different from China Eastern and Air China, China Southern is the first and most positive to propose to enter the new airport. Even owning the largest fleet in Asia with over 850 aircraft, the Guangzhou-based carrier does not hold any advantages in competing in Beijing and Shanghai.

From the perspective of market scale, Beijing Airport and Shanghai Airport Group (including Hongqiao and Pudong International Airports) both held over 100 million trips last year, while Baiyun International Airport merely got 70 million trips with less high-end passengers than Beijing and Shanghai, as well as the fierce competition from Hongkong and Shenzhen Airports.

In recent years, China Southern has been working on "The Road to Guangzhou" and become the greatest carrier in Sino-Australian routes. However, with a comparably weak deployment in European and American air routes, the company still is no match for Air China and China Eastern in the revenue of international routes.

Seen from the financial report of 2018, the Revenue Passenger Kilometers, (RPK for short, referring to the airline's revenue of shipping one passenger per kilometer) of China Southern was merely 0.39 yuan, the lowest among the Top 3.

As the politic center of China, Beijing is full of political and business passengers and tourists, thus the market being chased by all the airlines. However, it is hard for them to get ideal slots since the resources are limited and saturated. China Eastern and Southern always have been planning to build a second hub in Beijing, the premises of which are enough international air routes and transit passenger flow. Since the old times, there is an unwritten rule that the long-run international air routes can only be operated by one carrier and for the golden routes like Beijing-Paris and Beijing-Los Angeles, the carrier is Air China, so the other two airlines' business in Beijing has been underdeveloped for a long time. The rule actually prevents Daxing Airport from launching new air routes, resulting in the lack of edges to draw the airlines' attention therefore constraining the development of the new airport.

In May, 2018, CAAC released International Air Route Resource Allocation and Usage, explicitly classifying the international routes into two categories: First Class and Second Class. Competition of the long-term international routes will be introduced to the Second Class. That is to say, one carrier can be added to the route. Currently, many carriers are endeavoring to win over the long-term international air routes departing from the new airport. The most ferocious one is the Beijing-Paris route, for which China Southern is competing with China Eastern, Juneyao Airlines and Capital Airlines, totally a different scenario from Capital Airport.

CAAC has offered a basket of favorable policies to attract the airlines to move into the comparably far-away airport in the aspects of airport charges, aviation fuel, and traffic rights.

The ready-to-open airport may not influence the leading role of Air China in Beijing anytime soon, yet it does provide China Southern and China Eastern a chance to carry forward the "double-hub" strategy. China Eastern announced in the first quarter financial report conference that it had made the decision to build a hub in Daxing Airport with the cooperation with SkyTeam fellows, while China Southern proclaimed in 2013 that it would set up construction command center in the new airport and signed a framework agreement in September, 2015. Moreover, the Guangzhou-based carrier once made it clear to bring up "double-hub" strategy in 2017.

What's more, China Southern announced in June, 2018, to set up Strong Air with over 10 billion yuan, which would base in Daxing International Airport. As planned, the carrier will have invested 250 aircraft in the new airport by 2025.

Told by a brokerage analyst, China Southern only have a few international flights in Capital Airport and with the added flights in the new airport, it will transfer the international routes at first, then some low-flow domestic routes flying between Beijing and second-and-third tier cities. Finally, it will be the best-selling fast routes like Beijing-Guangzhou. In this way, the company can minimize the influence of the transition. As for the background, senior executives of the company said in its first quarter financial report analysis conference that the load factor of Beijing-Guangzhou route was approximately 84.2% with 34% to 33% off in ticket price in the year of 2018..

News from China Southern, "It is absolutely the lifeline of China Southern, hugely contributing to its total revenue. The arrangement of the layout of Daxing International Airport still remains to be decided by CAAC, based on which the company can set about the transition. What is for sure, the company will not consider to touch Beijing-Guangzhou route in the 'migration' in October, 2019."