x1234
Topic Author
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Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 5:40 pm

I had to go to Xi'An China for business recently and found out Hainan flies 2x weekly Xi'An to Los Angeles (XIY-LAX) directly. I was wondering how these secondary Chinese cities being connected to SEA/SFO/LAX are profitable on such low volume? Do Chinese carriers have vastly lower costs than American carriers?

This is also interesting: https://onemileatatime.com/hainan-xian-los-angeles/
 
MalevTU134
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 5:47 pm

They are not. It is subsidy driven in most cases.
 
YouGeeElWhy
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 5:48 pm

Massive massive subsidies by the local and central Chinese government.
 
evanb
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 6:02 pm

x1234 wrote:
I was wondering how these secondary Chinese cities being connected to SEA/SFO/LAX are profitable on such low volume?


They're very likely not profitable, and even with subsidies than many Chinese cities offer for these services, they're still not profitable. But they're also about building brand, prestige and experience in the international marketplace and are likely cross-subsidized by profitable local and regional routes.

x1234 wrote:
Do Chinese carriers have vastly lower costs than American carriers?


Yes, they do have massively lower costs than American carriers, but they also have much lower unit revenues.
 
Airlinerdude
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 6:22 pm

While we don't have any empirical evidence to say one way or another, these secondary routes are likely not profitable. Chinese airlines enjoy fairly transparent subsidies to launch and maintain these routes on the mandate of China's aviation agenda.

Chinese regulators limit competition on domestic routes, allowing airlines to make healthy profits to cross-subsidise loss-making international routes chosen to reward allies such as Cuba. China’s smaller cities also give handouts to airlines (around $1.3bn in 2016) to launch new long-haul routes from their airports. All this has created more seats than locals can fill. So the carriers are selling them cheap to foreign travellers looking for a long-haul bargain, explains Mr Horton. The Chinese authorities encourage the practice.


https://www.economist.com/business/2018 ... air-travel
 
nipkow
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 6:33 pm

Profitable or not - I would‘t call Xi‘an necessarily secondary with over 4 million inhabitants.
 
Airlinerdude
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 6:40 pm

nipkow wrote:
Profitable or not - I would‘t call Xi‘an necessarily secondary with over 4 million inhabitants.


Wikipedia lists Xi'an as one of China's 'Tier II' cities, hence my implied distinction as such.

Tier I cities include Beijing, Guangzhou, Shanghai, Shenzhen, and Tianjin;

Tier II cities include Changchun, Changsha, Chengdu, Chongqing, Dalian, Fuzhou, Harbin, Hefei, Jinan, Kunming, Nanchang, Nanjing, Nanning, Ningbo, Qingdao, Shenyang, Shijiazhuang, Suzhou, Taiyuan, Wenzhou, Wuhan, Wuxi, Xiamen, Xi'an, and Zhengzhou


https://en.wikipedia.org/wiki/List_of_cities_in_China
 
chonetsao
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 6:42 pm

One of the Chinese cities is said to have US$30 million budget per year to help Airlines to 'establish' desired intercontinental route connection. The figure was for the first 2 years only. Normally average USD250 to 350 per passenger per year depends on the route and frequency. Then it is gradually reduced. The subsidy is sore of transparent if you dig enough in local news.
 
VTCIE
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 7:04 pm

Airlinerdude wrote:
nipkow wrote:
Profitable or not - I would‘t call Xi‘an necessarily secondary with over 4 million inhabitants.


Wikipedia lists Xi'an as one of China's 'Tier II' cities, hence my implied distinction as such.

Tier I cities include Beijing, Guangzhou, Shanghai, Shenzhen, and Tianjin;

Tier II cities include Changchun, Changsha, Chengdu, Chongqing, Dalian, Fuzhou, Harbin, Hefei, Jinan, Kunming, Nanchang, Nanjing, Nanning, Ningbo, Qingdao, Shenyang, Shijiazhuang, Suzhou, Taiyuan, Wenzhou, Wuhan, Wuxi, Xiamen, Xi'an, and Zhengzhou


https://en.wikipedia.org/wiki/List_of_cities_in_China

While not Shanghai, Xi’an is a really, really big city in China. If Beijing is NYC and Shanghai is LA, Xi’an is Seattle. For that matter, Jinan is Phoenix and Wuhan is Detroit.

Chinese cities are WAY bigger than you think, and they deserve all the routes and subsidies they can get.
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MIflyer12
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 7:29 pm

Population without regard to per capita income is a lousy indicator of market-sustainable demand for air service. In total GDP XI'an is about the size of Kansas City. Last time I checked Kansas City lacks TPAC service.
 
Begues
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 8:24 pm

They certainly seems to believe there is future growth for the airport, the new terminal currently under construction is larger than all 4 terminals combined at ORD, in fact at 7 million sq feet quite a lot so, they are also throwing in a bunch of new runways to boot.
 
tphuang
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 8:27 pm

x1234 wrote:
I had to go to Xi'An China for business recently and found out Hainan flies 2x weekly Xi'An to Los Angeles (XIY-LAX) directly. I was wondering how these secondary Chinese cities being connected to SEA/SFO/LAX are profitable on such low volume? Do Chinese carriers have vastly lower costs than American carriers?

This is also interesting: https://onemileatatime.com/hainan-xian-los-angeles/

how are secondary USD cities to PEK/PVG profitable? People dont' bat an eye for US carriers launch route from outside of NYC/SFO/LAX, but it's a problem when Chinese carriers have flights from their secondary cities?

What do you think dallas or detroit or atlanta are to people in China?
 
c933103
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 8:32 pm

nipkow wrote:
Profitable or not - I would‘t call Xi‘an necessarily secondary with over 4 million inhabitants.

According to 2010 census Xi'an have 8.4 million population within its administrative area but that only make it the 22nd largest city in China.
Also, currently in China only Beijing, Shanghai, Guangzhou can be considered as primary city, each of them being the economic/political center of the region they are in. While arguably Xi'an is also the leading city in the Northwestern China area but its area of influence is much less then Beijing which can cover the entire Northern China.
VTCIE wrote:
While not Shanghai, Xi’an is a really, really big city in China. If Beijing is NYC and Shanghai is LA, Xi’an is Seattle. For that matter, Jinan is Phoenix and Wuhan is Detroit.

Chinese cities are WAY bigger than you think, and they deserve all the routes and subsidies they can get.

Xi'an is more focused on heavy industry and natural resource extraction that I guess DTW might be a better comparison.
Begues wrote:
They certainly seems to believe there is future growth for the airport, the new terminal currently under construction is larger than all 4 terminals combined at ORD, in fact at 7 million sq feet quite a lot so, they are also throwing in a bunch of new runways to boot.

Indeed Xi'an airport is planning to achieve an annual passenger throughput of over 100 Million passengers just like many other Chinese airports.
Last edited by c933103 on Thu Apr 18, 2019 8:48 pm, edited 1 time in total.
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Begues
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 8:45 pm

c933103 wrote:
nipkow wrote:
Profitable or not - I would‘t call Xi‘an necessarily secondary with over 4 million inhabitants.

According to 2010 census Xi'an have 8.4 million population within its administrative area but that only make it the 22nd largest city in China.


It is the 7th largest airport by number of passengers though, I guess it has a lot of transfer passengers, it doesn't make much sense otherwise.
 
c933103
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Thu Apr 18, 2019 9:01 pm

Begues wrote:
c933103 wrote:
nipkow wrote:
Profitable or not - I would‘t call Xi‘an necessarily secondary with over 4 million inhabitants.

According to 2010 census Xi'an have 8.4 million population within its administrative area but that only make it the 22nd largest city in China.


It is the 7th largest airport by number of passengers though, I guess it has a lot of transfer passengers, it doesn't make much sense otherwise.

http://news.carnoc.com/list/475/475719.html
Transfer passenger percentage at Xi'an airport last year is 11.2%
That is actually a pretty high percentage when compare to other Chinese airports, as in year 2017 the percentage of transfer passenger at PEK, PVG, and CAN are only 8%, 10%, and 12% respectively.
This is a placeholder.
 
ScottB
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Fri Apr 19, 2019 1:28 pm

tphuang wrote:
how are secondary USD cities to PEK/PVG profitable? People dont' bat an eye for US carriers launch route from outside of NYC/SFO/LAX, but it's a problem when Chinese carriers have flights from their secondary cities?

What do you think dallas or detroit or atlanta are to people in China?


Cities with higher per capita income and GDP? Dallas, Detroit, and Atlanta are going to have higher local demand to China (at least, at profitable fare levels) than WUH or XIY will have to the U.S. Plus there are well-established, mature hubs at DFW, DTW, and ATL which will help to fill those flights. That's not true at WUH or XIY.
 
codc10
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Fri Apr 19, 2019 2:02 pm

HGH and XIY were big losers for UA even with subsidies and major marketing campaigns. Outside of the coastal cities, China punches well below its weight in terms of population to USA-bound premium demand, and the outbound market from the USA isn’t well-developed. Plus, competition from Chinese carriers which seem to have a high loss tolerance (see HNA Group) further dilutes yield. CTU is holding its own but pales in comparison to United’s performance to PVG, PEK and elsewhere in Asia.
 
mdavies06
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Fri Apr 19, 2019 2:14 pm

LAX to secondary Chinese cities may not be massively loss making for these carriers because LAX is LAX. Every Chinese carrier wants to fly to LAX (and YVR and Moscow) before considering other locations in the world for long haul. However, having said that profit making is not the primary objective for these thin routes. It is all about city marketing overseas via generous subsidies. Now that China as a whole are building on sovereign debt fast, flights like these will last as long as the economy and govnt budget keeps up. If China dips into a recession (though IMO won't happen soon), these flights will have to start making money and we will see a number of them stop running.
 
eal
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Fri Apr 19, 2019 2:23 pm

Three things at play here, one is providing capacity to primary Chinese cities through the secondary cities due to the restrictions posed by the one route-one carrier policy; another is tour groups which often book out almost the entire plane and contribute to the huge wave of secondary china routes that have proped up; third are the much discussed regional subsidies for intercontinental flights.

Right now its open season and all the secondary Chinese airports/airlines are trying to build up their hubs due to the fact that its impossible for every airline to concentrate their operations out of desirable places like PVG, SZX, PEK, etc. In America we don't bat an eye when a place like Minneapolis or Salt Lake City gets an intercontinental flight, that's because we're so used to an established hub system, China is still trying to build this model. Chances are most of these secondary city flights will go away as soon as a proper network system begins to emerge, more deregulation will most likely help with that and it does seem that is the direction the Chinese gov't is going.
 
FSDan
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Fri Apr 19, 2019 4:08 pm

mdavies06 wrote:
LAX to secondary Chinese cities may not be massively loss making for these carriers because LAX is LAX.


Based on the load factors we've seen posted before on this site for these routes, in combination with the fact that we know they don't have a high percentage of premium traffic, I'd say it's very likely even the LAX routes are loss making. Last time I saw the load factors, most routes were lucky to be in the 60s and 70s, and some were in the 40s and 50s.
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LAXLHR
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Re: Hainan 2x weekly Xi'An (XIY) to Los Angeles (LAX), how is secondary China profitable!?

Fri Apr 19, 2019 5:48 pm

FSDan wrote:
mdavies06 wrote:
LAX to secondary Chinese cities may not be massively loss making for these carriers because LAX is LAX.


Based on the load factors we've seen posted before on this site for these routes, in combination with the fact that we know they don't have a high percentage of premium traffic, I'd say it's very likely even the LAX routes are loss making. Last time I saw the load factors, most routes were lucky to be in the 60s and 70s, and some were in the 40s and 50s.


Yet load factors do not tell the whole story, especially coming out of China. The belly of these planes are full!!



*******

I have zero problems with flights being subsidized, considering the tens of billions of dollars pumped into the US and other global carriers over the years.

It's clear that many people on a.net have very little to zero knowledge about China, and most probably have never been when it comes to anything outside of Shanghai and Beijing....lol. Obviously the same types will cheer when DL starts flying to these "secondary" cities - which by the way are more spectacular than ANYTHING here in the USA! America use to be awesome... that now belongs to China!

At the same time its lovely to see some of the insightful and knowledgeable ones bringing greater clarity to the thread, with regard to "secondary" cities without the aid of wiki (which is a quick resource) but one should never ever hang their hat on those figures without back up research.
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