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Dalian Airport expects continued growth as

Air China and China Southern boost North
East focus
CAPA > Aviation Analysis > Dalian Airport expects continued growth as Air China and China Southern boost North East focus

9-Mar-2012
PREMIUM
CAPA

Dalian Airport, Chinas 15th busiest airport, is expecting continued growth in the coming years
as it capitalises on its location as a regional financial base and gateway to a heavily
industrialised city and an important international shipping centre and logistics hub in North
East China. The airport, which reported a 12% year-on-year increase in passenger numbers to
12.0 million in 2011, is Chinas ninth largest airport by international capacity and the biggest
in the northeast region by passengers numbers. (It is the region's only airport handling more
than 10 million passengers p/a. Other key airports in the region
include Harbin, Changchun and Shenyang.)
2012 will see further growth as the airport benefits from the establishment by Air China of
its Dalian Airlines subsidiary on 31-Dec-2011. Based at Dalian Airport, the new airline is
connecting the city with Air China's hubs before covering other major domestic cities, and is
part of efforts by Air China to expand its domestic footprint and create a hub in the north east
of the country. The carrier is operating three Boeing 737-800s (of which two are owned)
initially, but plans to increase its fleet size to five aircraft in 1H2012 and 20 aircraft by 2015.
A bastion of China Southern following its takeover of China Northern Airlines in 2002, Dalian
Airport is a key northern gateway, with strong trade links to neighbouring Japan and Korea,
which feature in Dalian Airlines' future expansion plans and in the existing route network from
the airport. The focus on the north east region, both by Air China and China Southern, also
reflects a shift in domestic network development patterns in China in light of increasing
competition from the high-speed rail (HSR) network.

Continued air traffic growth but ranking slips from 12th to

15th
While traffic growth at Dalian Airport has grown rapidly in recent years, the airports ranking
has slipped, from being the 12th largest airport in 2000 and 2001 to being 15th largest in
2011 (although this is an improvement from its 16th place ranking between 2008 and 2010)
as airports including Hangzhou, Nanjing, Qingdao, Changsha and Wuhan have overtaken it.
Chinese airport (select) 2011 passenger traffic (mill) and year-on-year growth

Source: CAPA Centre for Aviation, CAAC, individual airport reports, China Civil Aviation Online CAAC-News,
Carnoc, Chengdu.cn & China Civil Aviation Online

In 2011, Dalian Airport handled 12 million passengers, a 12.2% year-on-year increase. Cargo
volumes, however, declined 1.9% to 138,000 tonnes (the airport was likely the 14th largest
airport by cargo traffic again in 2011) while aircraft movements increased 2.6% to 93,000.
Passenger growth will continue in 2012, with the airport forecasting 13.2 million passengers,
149,000 tonnes of cargo and 101,00 aircraft movements in the year. Passenger volumes have
more than doubled at Dalian since 2005, increasing by almost fourfold over the past decade
and increasing by over sixfold since 1997.
In the longer term, Dalian Airport is targeting annual passenger growth rate of more than 15%
p/a in coming years with passenger numbers exceeding 16 million by 2015. The airport is
seeking to introduce new international routes and is also seeking a freighter carrier to be
based at the airport.

Dalian Airport annual passenger traffic growth: FY1997 to FY2011

Source: CAPA Centre for Aviation & CAAC

Dalian Airport builds for strong predicted growth

Dalian Airport has a 3300m runway, a 65,000sqm terminal building and a new 71,000sqm
terminal building completed in Sep-2011 as part of a CNY2257 million (USD342 million) thirdphase expansion project at the airport. This has increased terminal capacity at the airport to
136,000sqm, raising its capacity to 21 million passengers and 450,000 tonnes of cargo p/a.
The Phase III expansion of the airport includes the construction of the terminal building
(located west of the existing terminal), a 340,000sqm apron, taxiway reconstruction and other
supporting facilities.
Meanwhile, progress continues on the CNY15 billion (USD2.3 billion) new Dalian Airport
project. Phase I of construction work is expected to be completed between 2014 and 2015, by
which time the current Dalian Airport will have reached its capacity of 21 million annual
passengers and will be transformed into a freight airport.

Chinas ninth largest by international capacity, seeking to

add service to Seattle and Paris in 2H2012
Based on capacity data for the week ended 09-Mar-2012, Dalian was the ninth largest
international airport in China by international seats. Services are operated to 11 international
destinations in Asia Fukuoka, Hiroshima, Hong Kong, Jeju, Nagoya Chubu Centrair, Osaka
Kansai, Sapporo Chitose, Seoul Incheon, Taipei Taoyuan, Tokyo Narita and Toyama. The airport
is seeking to further extend this geographical region with Dalian Airport chairman Cai Li
earlier this year stating that under the support of the Dalian Government, the airport is
planning to offer direct air services to Seattle and Paris in 2H2012.
According to Innovata data, 15% of capacity at the airport is deployed internationally, with the
regional North Asian markets the only source market for international arrivals at present
(services were, however, previously operated to destinations in Russia).

Dalian Airport international vs domestic capacity share: 05-Mar-2012 to 11-Mar-2012

Source: CAPA Centre for Aviation & Innovata

Dalian Airlines faces strong competition

Air China, China Eastern and China Southern all have secondary hubs in Dalian, providing
fierce competition for new entrant Dalian Airlines.
China Southern Airlines has a 32% share of the Dalian air market, with Air China holding a
much smaller 12.6% capacity (seats) share at present and Shenzhen Airlines holding a 10.2%
capacity share. China Southern, which has a 44.5% share of peak time slots at Dalian, aims to
continue to report double-digit passenger growth at the airport, competing head-to-head with
Air China, as it seeks to further entrench its dominant position in the Northern region of the
country (China Southern also has a hub in Urumqi (northwest region) with the carrier well
positioned to outpace its counterparts in the underdeveloped markets of northeast and
northwest China).

Dalian Airport capacity share by carrier (% of seats): 05-Mar-2012 to 11-Mar-2012

Source: CAPA Centre for Aviation & Innovata

Dalian Airport share of aircraft movements (system, peak time)

Source: CAPA Centre for Aviation & Innovata

Note: Peak time is defined as the hours of 6:00 to 9:00 and 16:30 to 19:30

China Southern Airlines' Dalian branch company and Dalian Airport Group signed a strategic
cooperation agreement in Aug-2011 to expand the carriers presence at the airport. Under the

agreement, the carrier will maintain an average passenger traffic growth of no less than 12%
p/a at the airport over the next five years, with a target of more than 15% p/a. China
Southern's Dalian branch company transported 3.6 million passengers in 2010.
Unsurprisingly, the two largest destinations served from Dalian are Beijing (36,974 weekly
seats in the current week as per Innovata data) and Shanghai (32,466 seats), both with over
30,000 weekly seats. Nanking/Nanning (13,608), Harbin (9458) and Jinan (9198) are served
with over 9000 weekly seats. Internationally, the largest destinations
are Seoul Incheon (9822) and Tokyo Narita (8950).
Dalian Airport is a base for China Southern Airlines and a large number of its Japanese
destinations originate from Dalian. In fact, the majority of China Southerns Japanese
destinations have services origin from Dalian and overall, Dalian is the second largest airport
for Japan services after Shanghai Pudong, with 59% of arrival international seats to Dalian
Airport being from Japan. There are four operators of service between Dalian and
Tokyo Narita All Nippon Airways (ANA), JAL, China Southern and Air China with services also
operating from Dalian to Fukuoka (Air China and China Southern), Hiroshima (Air China and
China Southern), Nagoya Chubu Centrair (China Southern), Osaka Kansai (ANA, China
Southern and Air China), Sapporo Chitose (China Southern) and Toyama (China Southern) in
Japan, according to Innovata.
China Southern, Korean Air and Asiana Airlines, meanwhile, both operate on the Seoul
Incheon-Dalian sector, while Jeju is also served non-stop from Dalian by China Southern. Hong
Kong (Air China) and Taipei Taoyuan (UNI Airways, China Southern, China Airlines and Hainan
Airlines) are also served from Dalian. North-east Asia is the airports only international market.
28.6% of international arrival seats are operated from South Korea, with China Southern
Airlines operating service to Jeju and China Southern, Korean Air and Asiana Airlines operating
between Dalian and Seoul Incheon. Air China also operates between Dalian and Hong Kong
and UNI Airways, China Southern, China Airlines and Hainan Airlines deploy capacity between
Dalian and Taipei Taoyuan.
In recent route announcements, China Southern Airlines announced the launch of daily XianDalian-Osaka Kansai service with 185-seat A321 equipment and increase of Harbin-Osaka
Kansai frequency from two to three times weekly with 156-seat A320 equipment, effective 25Mar-2012. The carrier also plans to launch twice weekly Dalian-Guangzhou-Koh Samui service
with A319 equipment from 20-Mar-2012, operated by the carriers Dalian branch company.

Air travel more convenient than trains in low-density HSR

region of North China
Dalian offers air direct services to the most major cities in China, with services to 39 domestic
destinations at present, and to the seven cities in Japan and two in South Korea. Flight times
are very short from Dalian to South Korea (between 1hour 15min and 1hour 30min), reflecting
Dalians strategic location.
Domestically, air travel offers a more convenient option to current (and likely future) rail
routes, with train trips to most Chinese cities outside China's northeastern region requiring
changing trains in Shanghai or Beijing, also requiring time-consuming trips around the
peninsula. In this respect, Dalian is quite unique in China.

Location of Dalian (marked as A)

Source: Google Map

Overall, the northern part of China has the lowest density of HSR development, while the
904km Harbin-Dalian HSR has been delayed until at least Jul-2012. Service was originally
expected to commence in early 2012, but test operations on the line have been postponed
due to quality problems, including excessive roadbed settlement near Dalian City. As the
first HSR in North China region, the Harbin-Dalian line will have 24 stops, of which four stops
are in Dalian including Wafangdian West Railway Station, Pulandian West Railway Station,
Dalian North Railway Station and Dalian Railway Station. It will take just over one hour to
cover the less than 400km between Dalian and Shenyang.
Once the high-speed line is put into service, most rail passengers will shift to the new line,
relieving pressure on the existing Harbin-Dalian railway, the busiest in the region transporting
goods such as coal, oil, agricultural products and lumber.
Dalian International Airport deputy GM Du Zhiyuan previously stated the airport would hold
talks with the Ministry of Railways to establish some cooperation in light of the line

development. Mr Du stated the development of the HSR network might not necessarily be a
bad thing for the airport adding that the rail network can bring domestic passengers to the
city and the airport, through its route network, can provide onward connections for
passengers to other parts of China and/or international destinations such as Japan and Korea.

Overall, HSR is not expected to have the same impact on

domestic air volumes at Dalian as witnessed in other places in
China, particularly the southeast.
Overall, HSR is not expected to have the same impact on domestic air volumes at Dalian as
witnessed in other places in China, particularly the southeast.
Meanwhile, Dalian is an economically robust economy, with the city seeing continuous annual
double-digit GDP growth since 1992, as it benefits from machine manufacturing and
petrochemical, oil refining and electronic industries. Its strong international trade position has
been boosted by its status as an open-city since 1984, allowing considerable foreign
investment from Japanese, Korean, American and European countries, with companies such as
Canon,Mitsubishi, Sanyo, Toshiba, Intel and Pfizer having a presence in the citys economic
zones. The city, also a financing/banking centre, is also a popular tourist destination,
predominantly attracting visitors from Japan, South Korea and Russia.
Overall, Dalian Airport, like many of the numerous other second-tier airport across China, is
planning for continued double-digit growth in the years ahead, as it sees continued growth in
the robust domestic market and an increasing focus on international markets, initially in the
Northeast Asia circle and then expanding further into other Asian, then US and European
markets.