There are still a billion people in China who have never flown in a plane, and this is a huge regional aviation market that needs to be tapped
Text | Deng Yujie Wang Jingyi
Edit | Wang Jingyi
County tourism is on fire.
When tourist cities are crowded, more and more tourist destinations in lower-tier markets are welcomed, and some fourth-tier cities and below, especially county-level (county towns and county-level cities), have seen significant growth in the tourism market.
According to Ctrip data, hotel bookings in the county market during the May Day holiday increased by 68% year-on-year, and scenic spot ticket orders increased by 151% year-on-year, which was higher than the national market. Cities such as Tumshuk, Baoshan, Huaihua, Chifeng, Hotan, and Heze with regional airports have seen a significant year-on-year increase in air ticket bookings, most of which exceed 50%.
But to these smaller cities, there are very few options to choose from. Just like Tianshui, there is only one airline, China Express Airlines, that operates a route to Tianshui Maijishan Airport.
For most people, China Express Airlines is a familiar and unfamiliar name.
If you live in a first- or second-tier city, you may have seen this name when booking a flight, but you haven't actually flown it, but for people in small cities and towns, China Express Airlines is probably the only airline you've ever seen, and when the plane takes off and lands at the airport, you finally know what the plane looks like for the first time.
In China's civil aviation industry, China Express Airlines (002928. SZ) is a unique presence: it is the first and only airline in China that continues to focus on regional routes.
Unlike trunk airlines such as the Beijing-Shanghai line, which are busy day and night, one or both ends of most routes in China is a sparsely trafficked regional airport (with an annual throughput of less than 2 million passengers) and a small city that is not well known.
For example, Tianshui. This new Internet celebrity city located in the southeast of Longxi has only one direct route from Chongqing = Tianshui = Tianjin, which is exclusively operated by China Express Airlines. In the summer and autumn season of 2024, China Express Airlines will open 178 routes to 131 cities, 97% of which are regional routes and 87% are solo routes, building the only air passage for more than 100 cities like Tianshui.
In China, there are still one billion people who have never flown in a plane, and there is huge potential for development, which is the regional market that China Express hopes to target.
What impressed Wu Longjiang, CEO of China Express Airlines, was such a moment: the new route was launched, and the villagers went to the mountains in groups to see the planes. The fellows had seen trains, but had never seen airplanes, "just to see what airplanes looked like." When I saw the expectant eyes of the people standing on the hill from afar, all the fatigue was relieved.
Photo by Wang Jingyi
Regional airlines are beautiful, but they are also difficult. Wu Longjiang said to the travel passenger (ID: carcaijing) that in the harsh conditions of the high-frequency operation, will encounter the airport runway is short and narrow, there is no blind landing system, there is no center line light, etc., and some airports are next to cliffs, the airflow is unstable, and the requirements for safe operation are very high.
In the 18 years since its establishment, China Express Airlines has explored a business model from government-oriented to passenger-oriented: initially cooperating with the government, cultivating regional passenger flows and routes, and relying on government subsidies and institutional customers (mainly local governments and airports) to purchase capacity.
When the passenger flow is cultivated, the revenue structure will gradually shift to the market side. From 2017 to 2019, the sales amount of individual air tickets increased from 1.992 billion yuan to 3.685 billion yuan, a cumulative increase of 85%, and by the end of 2022, it had accounted for 78.97% of passenger revenue.
Chongqing-based China Express Airlines, which became the first listed company in the regional airline sector in 2018, now ranks among the mid-sized airlines with a fleet of 72 aircraft.
On the evening of April 23, 2024, China Express Airlines released its 2023 financial report and the first quarter of 2024 financial report at the same time. In 2023, China Express Airlines achieved a total operating income of 5.151 billion yuan, a year-on-year increase of 94.89%, and a net profit loss attributable to the parent company of 965 million yuan, compared with a loss of 1.974 billion yuan in the same period last year.
In the first quarter of 2024, Huaxia Airlines' operating income was 1.616 billion yuan, an increase of 54.67% year-on-year, and the net profit attributable to shareholders of the listed company was 24.6685 million yuan, turning losses into profits. On the 24th, China Express Airlines (002928. SZ) stock price has a daily limit.
Potential passengers are in the township bazaars, in the streets and alleys. According to the latest plan of the Civil Aviation Administration of China, by 2035, the annual per capita number of flights and the aviation population will double compared with 2019.
Let a person who has never been on a plane take a plane, let people take aviation as one of the regular travel methods, and then let aviation and tourism, cargo and other elements be integrated, this is what China Express Airlines wants to do and is doing.
01
People standing on the hill watching the plane
A ticket costs 170 yuan, including 20 kg of checked baggage. This is exactly the China Express Airlines flight G52675 taken by Carcaijing in April 2024, from Jiangbei Airport in the main city of Chongqing to Wulingshan Airport in Qianjiang District, Chongqing.
Source: China Express Airlines
The ticket price is low, the mileage is also short, the actual flight is 230 kilometers, a total of 39 minutes, and the plane almost enters the level flight stage and begins to fall. Passengers carried large bags and handbags, and the plane was almost full.
For the Qianjiang River in the hinterland of the Wuling Mountains, the construction of high-speed rail is too expensive, and road transportation is too time-consuming, and if it can be as cheap and convenient as taking a bus, it is undoubtedly the preferred mode of travel - in the vast Midwest, this is the significance of regional aviation.
According to the 2013 definition of the Civil Aviation Administration of China, regional airlines have two key indicators, one is that the annual passenger throughput of the regional airport departing or arriving is 2 million passengers or less, and the other is that the flight distance is within 600 kilometers.
According to the latest plan of the Civil Aviation Administration, by 2035, the average number of flights per capita per year will exceed one. By comparison, in 2019, China took 0.47 flights per capita per year, lower than the world average of 0.87 and far lower than the United States' 2.48, meaning that number will double by 2035.
The overall market of China's civil aviation still has a lot of room for development, and regional airlines are even more so, with small passenger flow, which is a typical feature of regional airlines.
The fate of Tianshui Airport is a microcosm of the development of many small airports in China. When the voyage opened in September 2008, the annual passenger throughput was less than 10,000 passengers, and in 2019, the highest throughput reached 200,000 passengers. Affected by the epidemic, Tianshui Airport was suspended for 1 year and 3 months. Until December 24, 2023, China Express Airlines will open a round-trip flight from Chongqing to Tianshui to Tianjin, which is currently the only route at Tianshui Airport.
Photo by Wang Jingyi
According to statistics from the Civil Aviation University of China, 70% of regional airports contribute only 7% of the industry's passenger traffic, and the regional market accounts for about 10% of flights, lower than the 30%-40% level in Europe and the United States.
At present, Xinjiang and Inner Mongolia are the dominant markets of China Express Airlines. According to the statistics of Zhongtai Securities, China Express Airlines basically does not fly first-tier flights, first-tier flights, first-tier flights, and the number of flights in county-level cities or below the fifth-tier cities, and new first-tier to fourth-tier cities accounts for 30% of the total number of flights.
Regional aviation is not only a concept of civil aviation, but also a story that connects people. Some villagers are willing to sell their pigs in exchange for a meager air ticket, just to experience the feeling of flying into the sky. Sometimes, the suitcase is replaced by a flat arm, and even airlines don't know how to place it, and the plane, which has always felt unreachable in the clouds, suddenly takes over.
In Wu Longjiang's view, when the emergence of China Express Airlines makes cities no longer blind spots on the aviation network, this is a very meaningful thing. In the process, you have to cross one hurdle after another, you have to go up the mountain, you have to go down to the sea, you have to go deep into the jungle, you have to go into the desert, to find differences, although you are tired, but the scenery you see will be different from others.
Whenever a new route opens, the hill is full of people watching the plane, which makes Wu Longjiang moved but also a little emotional, the fellows finally saw the appearance of the plane for the first time, but what is in front of them is only the small regional plane of China Airlines (89-seat Bombardier CRJ900), in fact, the plane has a bigger and longer plane, they have not seen.
02
Go to the bazaar and sell airline tickets
There is a photo on the wall outside the AOC (Airline Operation Control Center) of the office building of China Express Airlines, on which there is a "Sign-holding Brother". What is a "sign-raising brother"? It is to sell air tickets to the local market and sell air tickets to the villagers who are rushing to the market.
For the Beijing=Shanghai route, airlines have set flights and aircraft types, and naturally there are passengers to sit, but in the sinking market faced by China Express Airlines, it is not a simple matter to let a person who has never taken a plane before, or even take aviation as one of the regular travel methods, and it is necessary to continue to promote the change of passengers' cognition and travel habits.
It is widely recognized in the industry that there are 1 billion people in China who have never flown before, and there is huge potential in the feeder market, and the question is how to tap into this potential. For example, in order to develop round-trip flights from Chongqing Qianjiang to Chongqing urban area, the sales are carried out on the streets, hoping to promote the local elderly to experience an airplane.
"The source of customers is accumulated little by little, the channel is dug out little by little, the cost of cultivating customers is very high, and the learning curve is very long, but it has become our barrier. Wu Longjiang said.
Marketing is the first level, and operation is the second level. The passenger flow of regional airlines is small, and it is difficult to make money if you use the existing mature narrow-body models to fly regional lines, because the aircraft is too large and the seat rate will not be high, so it is necessary to match relatively small seat aircraft, which involves regional niche models.
More than half of China Express Airlines' fleet of 72 aircraft are Bombardier CRJ900 aircraft. In China, China Express is the only passenger airline to use Bombardier aircraft.
Source: China Express Airlines' 2024Q1 financial report
"There are only four or five hundred models in the world, unlike Boeing Airbus, which has a scale of tens of thousands of aircraft, so our operational support and resources are insufficient, and we need to build our own aircraft to a large extent, from the training and maintenance of regional aircraft to the supply of spare parts, we need to solve it ourselves, and the children of the poor are in charge early. Wu Longjiang said.
From aircraft types to airports, the hardware and software operation environment of regional airlines is more difficult than that of trunk lines. In order to operate in areas with harsh conditions, there are high requirements for safe operation, and there are also higher requirements for pilots, so it is necessary to establish a safety management organization, formulate relevant safety production management systems, etc., and establish a portfolio risk management system suitable for the operation of China's regional aviation market.
One example is the use of big data to strengthen the safety factor, such as the establishment of pilot portraits, airport portraits, and the establishment of an independent environmental prediction system based on the meteorological system, which together form a comprehensive risk management and control, first ensure safety, and then accelerate development.
In the past, Huaxia was a fleet of all regional aircraft, and in recent years, more than 20 mainline aircraft A320 have been introduced.
In response, Wu Longjiang said that airlines are pursuing to achieve a balance of operations as soon as possible, and to use the most suitable aircraft to operate the most suitable routes. The use of Airbus aircraft is to undertake the market and cultivate relatively mature routes, these routes are still regional routes, and the original intention of China Express Airlines to focus on the regional market has not changed.
In recent years, China Express Airlines has also introduced domestically produced ARJ21 regional models, and more than 8 aircraft have been listed. As the only private airline to purchase domestically produced small aircraft, the daily utilization rate of China Express Airlines ARJ21 is significantly higher than the industry average.
There are 66 airlines in China, and China Express Airlines is the only one that has been focusing on regional routes for a long time. "We regard the branch line as our mission and ideal, and to a large extent, it is the power of the mission that drives us to stick to this cause. Wu Longjiang said to a passenger (ID: carcaijing).
03
Start with subsidies
Regional airlines are the right and difficult way to go.
The right thing is that regional airlines want to make up for the small places that can't be reached by high-speed rail. When the construction cost of high-speed rail is too high, building a small airport can reach the whole country more quickly, and China Airlines believes that in the area west of the Hu Huanyong Line (the geographical boundary between the Chinese population), the input-output ratio of regional aviation is relatively more economical and efficient.
Both the Civil Aviation Administration of China and various local governments believe that it is not only the economic account, but also the deep-seated industrial and social value to the local investment promotion and tourism development.
"But we generally don't discuss whether a particular route makes money or not, but look at the overall market. Because there are different models on a single route, it is not just about whether it is profitable at the moment, because the source of regional passengers needs to be cultivated, even if it is losing money, but as the frequency of flights or the structure of the route network becomes more and more reasonable, the source of passengers will gradually increase. Wu Longjiang said to a traveler.
There is no escaping the fact that regional airlines also face many challenges. Affected by the epidemic, since 2021, Huaxia Airlines has suffered losses and its performance has been under pressure, with a loss of 1.97 billion yuan in 2022 and a net loss of 965 million yuan in 2023.
It can be observed that the financial situation of China Express Airlines is different from that of other airlines. When the industry was hit hard, China Express Airlines reached a high net profit, and when everyone gradually recovered, the recovery process slowed down a little.
Taking Air China as an example, the financial report shows that in 2020, Air China has already incurred losses and increased year by year, reaching a maximum loss of 38.619 billion yuan in 2022, but Air China has recovered rapidly in 2023, with a loss of only 1.046 billion yuan.
"This is because regional airlines have a certain lag," Wu Longjiang explained to Carcaijing, adding that regional airlines were just needed for travel and were less affected in the early stage of the epidemic, but when the aviation industry began to recover after the epidemic, the eastern market was the first to recover, and the central and western regions were relatively slow, so that there was a dislocation.
On the other hand, there is also pressure on the subsidy funds that regional airlines rely on.
"In the past two years, many local government subsidies have been postponed, but airlines can only choose to negotiate and fly at a loss based on cooperation trust and future development considerations. A regional airline practitioner said to a passenger (ID: carcaijing).
Government subsidies are mainly reflected in the "other receivables" item in the financial report, and the financial report of China Express Airlines shows that other receivables increased from 697 million yuan to 754 million yuan in the first quarter of 2024. In the column of "other receivables with the top five closing balances by debtor", the first three are government subsidies, accounting for about 35% of the total closing balance of other receivables.
Source: Company financial report
But this is not a problem faced by China Express Airlines, and companies such as Fortune Airlines, Loong Airlines, and Juneyao Airlines, which are involved in regional airlines, have the same dilemma.
There are three main sources of subsidies for regional airlines, one is the local government, the second is the indirect capacity procurement of the relevant government parties, and the third is the Civil Aviation Administration. When the stability of the first two was not good, the Ministry of Finance and the Civil Aviation Administration made timely adjustments.
In January 2024, the Ministry of Finance and the Civil Aviation Administration of China jointly issued the Notice on Amending the Interim Measures for the Administration of Regional Airlines Subsidy, and the last time a subsidy policy for regional airlines was introduced was ten years ago. Compared with before the revision, the changes are reflected in three aspects.
The scope of subsidies has become more focused, the distance restrictions on inter-provincial segments have been relaxed, and the subsidy methods have also been optimized, focusing on remote and special areas such as Tibet, Xinjiang and Qinghai, as well as underdeveloped areas with ground transportation without high-speed rail access, such as border areas, old revolutionary base areas and island areas.
In this regard, China Express Airlines also agrees that the state's subsidies for regional airlines are more focused and have strengthened support for small passenger segments in remote areas, indicating that the country has seen the role of regional airlines in the construction of a three-dimensional transportation network.
04
Flexible figure, explore the road to the market
In addition to government and state subsidies, airlines themselves need to find a way out.
In order to increase the flow of passengers, it is the most direct way to open direct flights with domestic first- and second-tier cities. Tianshui Airport does exactly this, and its effect is also very significant, almost every time a new route is opened, the passenger throughput will be on a new level.
However, it is not easy to coordinate multiple resources for new routes, especially direct access to large airports such as Beijing, Shanghai, Guangzhou and Shenzhen. As a result, "trunk branch connection, full network connection" has become a more feasible strategy - first connect small airports to the nearest hub airport, and use the existing route network of hub airports to directly connect the whole country.
This is the first through flight mode explored by China Express Airlines, and Guizhou Xingyi is a typical example.
At its peak, China Express Airlines has 8 flights a day between Guiyang and Xingyi, and this route in Guizhou Province, which takes nearly 1 hour, is actually the busiest route of China Express Airlines in terms of daily frequency. On the basis of maintaining high-frequency bus operation in the Xingyi = Guiyang section, Xingyi can quickly reach dozens of large and medium-sized cities across the country through Guiyang transit.
Photo by Wang Jingyi
For example, from Xingyi to Hangzhou, passengers buy a through ticket of Huaxia Airlines, transit through Guiyang, depart from Xingyi at 12 noon, and arrive in Hangzhou at 5 pm. The advantage of the through mode is that passengers can pay the full ticket price at one time when purchasing the ticket, enjoy the packaging service, one payment, one check-in, one security check, baggage hanging, and worry-free refund and change.
The demand for travel is created by convenient transportation. The passenger throughput of Xingyi Airport exceeded 1 million passengers for the first time in 2018, and has been among the million-throughput airports in China for several consecutive years.
What's more, regional airlines have a network agglomeration effect, which is not a simple sum of individual markets. The improvement of the accessibility of the aviation network and the improvement of the aviation market demand have jointly created a broad space for development.
Photo by Wang Jingyi
From 2017 to 2020, China Express Airlines achieved profitability, especially in 2020, when the operating income reached 4.72 billion yuan, and the net profit attributable to shareholders of listed companies reached 612 million yuan, the highest in the history, triggering the capital market's attention to regional airlines.
This means that China Express Airlines continues to iterate on its business model: initially cooperating with the government, launching and gradually cultivating regional passenger flow and routes through airports.
When the route gradually stabilized, the revenue structure and focus gradually shifted to the market. From 2017 to 2019, the sales amount of individual air tickets increased from 1.992 billion yuan to 3.685 billion yuan, a cumulative increase of 85%, and by the end of 2022, it had accounted for 78.97% of passenger revenue.
In the first quarter of 2024, China Express Airlines turned losses into profits, with a net profit of 24 million yuan. According to the financial report, the reason for the turnaround is that on the one hand, the company's capacity has increased steadily, the scale of revenue has further expanded, and on the other hand, the year-on-year improvement in travel demand and the continuous increase in passenger load factor.
After solving the traffic problem of "whether there is any", China Express Airlines should further move from accessibility to accommodation, solve the application problem of "good or not", combine tourism, fresh food and other elements with aviation, and develop more revenue methods.
Regional airlines are not only a mode of transportation, but also part of economic development. Regional airlines, like the Green Train, connect people in small places in obscurity. They rarely appear in everyone's field of vision, but in the era of gradual equality in short videos, they will occasionally be seen, just like Tianshui is crowded with people.
Wu Longjiang said that the mission of China Express Airlines is to "integrate small to big", and hopes that in the next ten years, the value of accommodation will be amplified, and the industry will be implemented in the city, so as to help the city's economy and development.
This is also the way forward for regional aviation.