Modelling the Potential for Aviation Liberalization in Central Asia- Market analysis and implications for the One-Belt-One-Road initiative

A/Prof Dr. Xiaowen FUInstitute of Transport and Logistics Studies, University of Sydney

In cooperation withAchim I. CZERNY, Guowei HUA, Zheng LEI, Kun WANG

Connectivity Matters• UK House of Commons Transport Committee (Transport

Committee 2016) worried about air connectivity of London:

– “The growth of large hubs in the Middle and Far East and North America has threatened the UK’s position as an international aviation hub. … in 2014 it (Dubai) became the world’s busiest in terms of international passenger traffic ahead of Heathrow…. IAG, owners of Aer Lingus and British Airways, sees Dublin as a potential hub airport with connections to the UK, Europe and beyond.”

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Connectivity Matters• UK House of Commons Transport Committee (Transport

Committee 2016) worried about air connectivity of London:

– “The UK’s connectivity with the world’s emerging markets is a major concern… The Confederation of British Industry (CBI) has estimated that a new daily service to one of the key growth markets could generate up to £128 million of additional trade… if additional airport capacity is not operational until 2030, the UK could lose as much as £5 billion per year in lost trade to the BRIC economies alone.”

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Connectivity Matters• UK House of Commons Transport Committee (Transport

Committee 2016) worried about air connectivity of London:

– “…domestic connectivity suffers as a result of capacity limitations…(the expansion at Heathrow will lead to) new regular daily services from the airport to around 40 new destinations, including 10-12 new long-haul routes.”

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Dubai Airport 1965

Concourse B

• One million passenger in 1974• five million passenger mark achieved 6 years later in 1980.• Now third largest airport in the world!

• Hub of Emirates, and secondary hub of Qantas.

• Dubai’s aviation sector supports 125,000 jobs including 58,000 direct jobs.

• Dubai International Airport: aviation supports over 250,000 jobs and contributes over US$22 billion - 19% of total employment in Dubai, and 28% of Dubai’s GDP. 5

The Belt & Road InitiativeSep 2013, Kazakhstan: Silk road economic belt Oct 2013, Indonesia: maritime silk road

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Good traffic volume growth until recently

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In Comparison - Russia

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Cost of Travel 2015

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Counter-factual analysis• Average liberalization Effect:

– If routes to China were under similar circumstance (i.e. liberalization) as those to previous Soviet Union countries, on average, the chances of route service will be 48-78% higher.

– If routes to China were under similar circumstance as those to other international markets, on average, the chances of route service will be 27% higher.

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What can we say? • China – Central Asian markets have been under-

developed and falling behind services within Central Asia, to Russia and former Soviet Union countries, to many EU and middle East countries (high price, low traffic volume and low connectivity).

• If China and Central Asia market could achieve comparable liberalization status as those to Russia, former Soviet Union or EU countries, the number of Chinese destinations and routes that can sustain scheduled services will be quite promising –Connectivity can be substantially increased. Note a positive feedback with service-volume-economy

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Move on with first step• Many countries are concerned that

whether their airlines and company can survive with liberalization.

• Korea’s concern and market outcome in the US markets.

• Canada and US compromise in liberalization.

• We need to move on with a time table!

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Jeju was the 2nd least developed province in Korea, government tried to support it politicallyGimpo-Jeju is the busiest air route in the world

• 2,500 flights/weekWith 2 million foreign visitors, spillover effect to output

production: US$3.5 billion (Jeju Development Institute, 2014)

Land price increased more than 5 times in residential area in 5 years

Air connectivity means a lot of to the country, not just airlines!

Look Beyond

Thank you for listening.

Questions?

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