Can Airport Investment Clear the Runway for Growth?

China’s 12th Five Year Plan (2011-2015) has identified infrastructure development as essential for maintaining economic growth, and under it local governments will be footing the bill for airport renovations, expansions and massive new projects. The New York Times looks at recent and planned air-travel development projects and the strategies being used to maximize commercial profit, noting that the economic benefits of expensive projects are debatable:

At a time when many American airports are falling into disrepair, China is quickening its air travel development, with plans to build nearly 100 more airports by 2015, including some at high altitudes, where special landing gear is required. Many of those airports are expected to lose money, but that hasn’t deterred the government, which views the expansion of infrastructure as vital to economic development.

[…]China’s building programs are supported by an authoritarian political system that brooks no challenges. When the government decides to build or expand an airport, there are no public hearings or any public protests of note.

[…W]ith expansion China’s airports will face tough management challenges, particularly if labor costs rise and air traffic slows. There are also concerns among some analysts who study economic development that China’s airport program is excessive and that the country’s high-speed rail is likely to erode the profitability of airports.

While the bottom-line of pricey projects are as of yet inconclusive, the Wall Street Journal reports that, even as air-travel in other countries continues to slow, China’s increased air travel is contributing to a global rebound in the industry:

Global airline-passenger traffic remains on track for double-digit growth this year as a rebounding Chinese market leads broader expansion by carriers in Asia and the Middle East, according to industry data published Wednesday.

[…]China’s domestic market has driven the broader recovery, with traffic surging 20% in February, or 13% after stripping out the effect of the Lunar New Year, a prime time for leisure travel. Last year, the holiday fell in January.

Other big domestic markets continued to shrink, with U.S. carriers cutting capacity to boost their pricing power while cautioning that automatic government budget cuts are starting to hurt business.

Also targeted for continued expansion under the current Five Year Plan is high-speed rail infrastructure. The Guardian cites competition with high-speed rail and environmental concerns as grounds for better integrating the two forms of travel rather than investing into new airports:

The 12th Five-Year Plan’s goal of building 82 new airports by 2015 will increase China‘s airport network by nearly 50%. The majority of these airports will fly shuttles for passengers located in remote cities of China to hubs that connect to other major destinations. But as Chinese airlines are forced to cut prices to compete with the rapidly growing high-speed railway network, the answer is not more airports, but better-developed transportation networks.

[…]Airport construction is not only a bad economic investment — it also has adverse impacts as China struggles to reduce carbon emissions and pollution. High-speed rail, the main competition to air travel, emits less carbon dioxide per passenger. Requiring electricity rather than kerosene, high-speed rail travel can also help China decrease dependency on foreign oil and the associated susceptibility to price fluctuations and supply disruptions.

High-speed rail is already edging out regional flights and airports, with Shanghai starting to offer combined flight and rail tickets for onward travel to nearby cities. If other major cities follow suit, regional small airports will be further marginalised.

[…]What China needs is not more airports but smarter integration of its different transportation networks.

For more on infrastructure development and the airline or high-speed rail industries, see prior CDT coverage.


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