1. Modelling the Potential for Aviation Liberalization in Central Asia - Market analysis and implications for the One-Belt-One-Road initiative
A/Prof Dr. Xiaowen FU
Institute of Transport and Logistics Studies, University of Sydney
In cooperation with
Achim I. CZERNY, Guowei HUA,
Zheng LEI, Kun WANG

2. Exploring Connectivity in LLDCs 2016 University of Sydney – ITT for LLDCs research collaboration

3. 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.”
Air connectivity is of critical importance to economic growth and cultural exchange. In 2016, the UK house of commons transport committee released a report urging the government to invest in airport capacity expansion immediately, either in the London Heathrow airport or the Gatwick airport. The committee requested immediate action by the government because it worries the air connectivity of London and UK. The committee argued that 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. For example, in 2014, Dubai became the world’s busiest airport in terms of international passenger traffic ahead of Heathrow.

4. 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.”
The committee also worried about UK’s connectivity with the world’s emerging markets. One of the study shows that a new daily service to one of the key growth market could generate up to 128 million pounds of additional trade. If additional airport capacity is not operational until 2030, the UK could lose as much as 5 billion pounds per year in lost trade to the BRIC economies alone.

5. 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 new long-haul routes.”
Finally, the committee worried that the lack of capacity also reduced domestic connectivity. With capacity expansion, Heathrow could add 40 new destinations.

6. Technology and Policy

7. Honolulu Airport 1982
Was a major hub for Asia – North America traffic – regarded as a very modern airport
Honolulu Airport - now
Diminishing importance when airlines can fly direct across the Pacific ocean

8. One million passenger in 1974
Dubai Airport 1965
One million passenger in 1974
five million passenger mark achieved 6 years later in 1980.
Now third largest airport in the world!
Concourse B
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.
If London, a city with five airports, needs to worry about connectivity, other nations should also prepare for future challenges. There are also opportunities. Who would think of making a connection via Dubai thirty years ago? In 1974, the airport handled only 1 million passengers. With the right policy in trade and transport, the city’s passenger volume increased by more than 400% in just 6 years, and has become the third largest airport in the world and generates hundreds of thousands jobs.

9. The Belt & Road Initiative Sep 2013, Kazakhstan: Silk road economic belt Oct 2013, Indonesia: maritime silk road
That is why we believe it is important for countries in Central Asia to find ways to improve their air connectivity. Because the One Belt One Road initiative proposed in 2013 in Kazakhstan and Indonesia, we particularly examined the aviation market and liberalization potential between China and the five countries in Central Asia.

10. Good traffic volume growth until recently
Since 2006, international traffic in the region has been growing steadily, from 1.5 million one-way passengers to more than 4 million in That is, traffic volume more than doubled overall.

11. In Comparison - Russia
Still, this region is not achieving its full potential. This table compares the number of routes from Central Asia to Russia as of year Although many historical, political and cultural factors played important roles in promoting the travel to Russia, considering the fact that China has become the world’s second largest aviation market as early as in 2005, there seems to be insufficient air connectivity to China, the world’s largest trade nation.

12. Cost of Travel 2015
In addition, travel cost to China is much higher than to most other regions. As of 2015, on average it costs 16 cents in US$ to fly one passenger for one kilometre on routes from Central to China. In comparison, it costs about 9 cents on routes to Russia, 11 cents to India, less than 10 cents to Germany, less than 12 cents to UK.

13. 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.
Our study suggests that much of the problems are due to tight regulation on the international markets, especially those between Central Asia and China. Our investigation suggest that if routes to China were under similar circumstance as those to previous Soviet Union countries, on average, the chances of air services on the route to China will be 48-78% higher. If routes to China were under similar circumstance as those to other international markets such as Germany, UK, Thailand etc., on average, the chances of route service will be 27% higher.

14. Currently, only three cities in China have direct air services to Central Asia, which are Beijing, Urumqi, and limited services to Sanya. Even if the Central Asia- China markets can be liberalized to the extent as those to Germany, UK, Thailand etc., our study suggests that there will be direct services to Chinese cities such as Chengdu, Guangzhou, Chongqin, Xi’an and Shanghai. That is, connectivity may be doubled or tripled.

15. 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
In summary, our study suggest that the Central Asia – China markets have been under developed and falling behind services within central Asia, to Russia and former Soviet Union countries and also routes to many EU and middle East countries. If China and Central Asia market could achieve comparable liberalization status as those markets, there will be significantly improved connectivity. With increased competition, we expect price to fall, frequency and service quality to increase. This will create a positive feedback, attracting more airlines and passengers to the market.

16. 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!
We understand country’s concerns of liberalization. Will my airlines get a larger market share? Will my airlines survive the competition. For man years, airlines in Korea worry about the same issue and the Korean government was reluctant to open its skies to airlines in the Untied States. They were almost forced to liberalize with US after the Asian financial crisis. Although Korean airlines did have a hard time early on, within a few years they captured more than 60% of the market share in the Korea – US markets. Canadian airlines had the similar fears when Canada and US negotiated the Open-skies agreement in the 1990s. The two countries finally found a solution. United States will first open its skies to Canadian airlines, but airlines in Canada can have a year’s protection in key aviation hub airports. So, it is possible to find solutions, and it is very hard to make airlines globally competitive by protecting them forever. We need a clear time table to move ahead.

17. Look Beyond
Jeju was the 2nd least developed province in Korea, government tried to support it politically
Gimpo-Jeju is the busiest air route in the world
2,500 flights/week
With 2 million foreign visitors, spillover effect to output production: US$3.5 billion (Jeju Development Institute, 2014)
Land price increased more than 5 times in residential area in 5 years
Air connectivity means a lot of to the country, not just airlines!
Finally, policy makers need to think beyond just airlines. Jeju island was the 2nd least developed province in Korea and the government tried to support it, including liberalizing its skies unilaterally. Today, the Seoul Gimpo airport – Jeju island is the busiest air route in the world with more than 2500 flights a week. The Jeju Development Institute estimated that in 2014 alone, aviation services brought in more than 2 million foreign visitors, and bring more than 3.5 billion US$ to the province. Land price increased by more than 5 times in residential area in 5 years.
Air connectivity means a lot of to the country, not just airlines. It is time for countries in the region to think strategically and promote growth in economy and improve communications.

18. Thank you for listening. Questions?