Transportation Deployment Casebook/2018/Civil Aviation in China (1980-2017)

Introduction

Air transportation is developed including two modalities: scheduled services and charter services. Scheduled services are provided by different airline carriers. Each airline carrier has their particular air route; hence airline carriers can plan their service deployment in advance. For example, based on the scheduled services, passengers can book airline tickets with lower prices three or more months before their departure. Charter services are mostly offered for the point to point service, such as for tourism services in resort areas. Air service is designed for long distance and higher efficiency trips. moreover, international flights facilitate global trading and human resources flow. Scheduled services were deployed for public transportation, whereas charter services were deployed for mostly individual or specific demand. The essential technological characteristics for aircrafts are fuselage design, wing design, and turbo propulsion engine design.

Qualitative analysis

Advantages

Air transportation's main advantages are

• Providing long-distance trips;

• Providing higher efficiency transportation mode;

• Accelerating the flow of human resources;

• Enhancing the interaction between global markets;

• Requiring less ground networks construction.

The main aviation service initially targets on the high-end market, however to cater the increasing of customers’ demand, as well as to reach a higher passenger load factor, many airline carriers issued new strategies to attract more customers with lower price thus to increase their competitiveness.

Advent of the air service

Transportation modes support mobility for people and freight. There are three categories of transportation modes: land service, water service and air service. Prior to the advent of air transportation, road services and water services provide the most transportation infrastructure, such as arterial roads, railroads and maritime transportation. Before the 20th century, road transportation was designed for non-motorization trip modes, such as walking and cycling. Since the beginning of the 20th century, vehicles were developed, hence the road system was then improved for meeting the motorization. Varies types of vehicles worked for different purposes, this characteristic increased the flexibility of the road performance. However, the construction of roads was limited by geographical conditions. At the very early stage, the geographical condition always added extra costs for crossing rivers and mountain terrains. Railroads was another option for heavy freight transportation due to the higher capacity of locomotives. However, the limitation was also the construction constraints, the railway constructions required a low gradient, as well as the railroads were not as flexible as arterial roads, the upgrading of locomotives and the maintenance for railways created additional costs. As the geographical reason and the increasing manufactory demand, maritime transportation became the most effective mode to transport heavy industries over long-distance trips. Maritime services took place on specific area, for instance, channels, rivers, cabotage, and oceans. British developed maritime transportation mode, for example they built large and fast steamships with their advantages in propulsion power in the early 19th century, then their maritime transportation brought them the dominant position in trades. However, the expansive maintenance fee for port infrastructure and the high terminal costs as the cost constrain for some backward countries. In addition, the technological requirement and navigation technology were other constrains for some countries at that time. As the result, the maritime transportation development was more like locality. After the several disastrous wars in the 20th, countries began to recover their economy, thus more economic cooperation and manufactory industries occurred. They tried to make connection with other countries, as the result airline for civil use emerged at that time. Backward countries had to promote the talent flow from powers, while powerful countries had to attract amount of cheaper human resources for industries from backward countries, then air transportation for civil use started to enter and play an essential role in the global interaction.

Invention of the aircraft

The first aircraft for human being was the kite and rocket that invented by Chinese. At the initial stage, the concept of aircraft was raised from imitating the birds. By the end of the 14th century, an official named Wan Hoo in Ming Dynasty China conceived a daring idea that tying himself on a wooden chair with 47 rockets which providing propulsion, grasping two large kites in his hand, then burning the rockets for taking off. Nevertheless, he finally died due to the explosion of gunpower when he was in the air. In 1490, Leonardo Da Vin ci designed an ornithopter with flapping wings. However, the model didn’t work well due to the heavier mass of human than the birds. Then in 1783, people started to design air balloons for flight, but the direction was hard to be controlled because wind wasn’t always blowing in the predicted direction. Until the 19th century, an English baronet conceived a new aircraft model with fixed wings and a propulsion system. In 1799, George Cayley suggested the first scientific design for fix-wing aircraft. Based on the knowledge of lift force and drag force, scientists and engineers started to build and test the aircrafts. The industrial evolution in the 19th century promoted a huge innovation of science and technologies. In 1903 the Wright Brothers made the first flight after the developing and wild use of internal combustion engine, then other competitors tried to combine the telecommunication technology with the aircrafts, then warcraft was introduced for army during the WW1, and aircrafts played an essential role in wars. Aerodynamic was the basic technological expertise used in the invention process of aircrafts.

The early Civil Aviation Market in China

Despite Chinese invented the first prototype of aircraft and produced military-use aircraft independently from 1914, the development of China civil airline industry was behind other powerful competitors. Before 1950, there were only three airline carries operating in China: Civil Air Transport, Pan Am Airways and Lufthansa Airways. In 1920, the government started to build aviation schools and factories in Shenyang, north-east of China, as well as sent students to the Soviet Union, France and Japan for aviation study. However, the emerging was disturbed by wars and political issues from 1931. The first civil airline service was set up between Beijing and Tianjin and started in use from April 1920. The civil airline service was then terminated due to insufficient funding and outdated infrastructure. In that turbulent times, the scale of early aviation market in China was small. The core technologies for engine design and materials were not familiar by staffs. Hence, the quality of produced aircrafts was low, and the production was also as small scale. In addition, not many government policies could support the development of aviation industry at that time, because the government didn’t have a long-term development plan. After the founded of People’s Republic China in 1949, the civil airlines and airports were controlled by military until the policy of modernisation in 1980. In November 1949, lots of talents on aviation study came back to China, those people provided technological supports for the China civil aviation service. Before 1980, the flight price and administration of carriers and passengers were under united supervision by the nation. After 1980, the policy of modernisation stipulated that airline carries were able to be founded by local departments, then the civil air service in China gradually became commercialized. After 1980s, China civil air service market emphasised a supply exceeded demand situation. This was due to airline carriers need to occupy the market share. Aiming to attract customers with lower price and more services, the capacity competition in the early market caused excessive production and decreased load factor as the US aviation market before 1978. In 1997, the government issued a price policy that encourage airline companies to provide discount in the ticket price. Government’s loose regulation on aviation market induced vicious competition in the early market.

The role of policy in the birthing phase

In the birthing phase, unexpectable reduction of passenger load factor and ticket prices lagged and confused the airline service market in China from 1980s. To solve these problems and to regulate the administration of aviation industry, the government decided to change the loose supervision to tight supervision. At this point, the government limited the threshold for entering the airline market, also started to recombine carriers and to integrate resources. The supporting policy ‘civil airline service innovation plan’ was then raised up in 2002. The recombination of the entire aviation industry improved centralization. The airline market then became more manageable. After the recombination, in 2005, the Civil Aviation Administration of China announced that government encourage private investment in airline services. This policy facilitated the private economy development, thus some private airline carriers were established, such as Okay Airways. Ticket price was managed by the government strictly, so the emerging of private airlines didn’t disturb the market situation. Whereas, those private airlines developed in the niche market that they targeted on budget flights. Lower price was the point that attracting customers who planning trips without such a lot budget. Cost control policy was embedded, the strict administration ensured the centralization of the aviation industry and became an essential factor for airline’s life cycle.

The growth of Civil Aviation in China

Based on the ministration of the government, the passenger load factor increased to 80% from 2003 to 2010. The overplus production was consumed, this led to a positive direction for the airline price market, hence led to more economic profits. The aviation service tended to mature after 2010. Due to the economic crisis in 2008, aviation industry was affected a lot by the inflated fuel price and the downturn of market environment. From 2013, the government loosen the airline industry entrance threshold again, at this time, many new carriers enter the aviation market, as well as many air routes were opened as response. supply in the aviation market increased, carriers began to reduce the flight cost for attracting passengers, while the demand increased as well. The infant airline carriers provided their services in small cities mostly to seek a stable development. The bloom of these new carriers then lowered the centralization of the market because the dominant airline carriers initiated the acquisition to keep their market share. As the result, the market price inflated with the acquisition and regulation. The government then declared to guide the aviation market price and to encourage using od adjustment price. Analysts found that the private airline carriers were producing healthy competition to the sector. The government then started to seek more profits from international flights and international interactions. After 2015, international routes increased as a huge amount. The aviation industry paid more attention on the revolution of service supply from 2016, the government decided to solve problems on the airline management, such as the punctuality rate for flights, and aiming to re-build the relationship between market demand and market supply. The Boeing’s market report in 2015 suggested that the number of aircrafts in China should triple in next twenty years and China was estimated to be the largest aviation market by 2034.

Quantitative analysis

Methods

The life cycle of one mode can be shaped as an S-curve. The S-curve suggests the periods of birthing, growing and maturity. The data was collected from the National Bureau of Statistics of the People’s Republic of China. To obtain the qualitative analysis, a three-parameter logistic function is estimated as $S(t)={\frac {K}{1+e^{(}-b(t-t_{0}))}}$

Where S(t) is the status measure (number of passenger in this case), t is time (in years), t_0 is the inflection time (year in which 1/2K is achieved), K is saturation status level, and b is a coefficient to be estimated via linear regression.

In the estimation, R-squared emphasises the correlation between two variables. The K value then is able to be calculated when the R-squared which the closest to 1.0 was obtained.

b value can be calculated as the slop of the linear function about the K values and t values.

Then the prediction of passenger number is easily obtained from the formula shown above.

Variables for the S-Curve equation

Variable	Description	Value
t	Time
t0	Inflection time	2015.8
K	Saturation status level	93000
b	Coefficient	0.15449
RSQ	R-squared	0.991736109

Number of air service passengers in China 1980-2017

Life Cycle S-curve of Civil Aviation service in China

Discussion

The S-curve shows the effects on the life cycle of civil aviation industry in China by the modernisation policy from 1980. From observing the curve, the inflection year is 2015, means the number of passengers is saturated in 2015, and 930,000,000 passengers are predicted at the saturation level. Hence, the civil aviation industry in China is experiencing the maturing phase.