The global airline industry has never had an easy ride. Regulatory changes, security procedures, rising fuel prices, overcapacity, and low-cost competitors have forced the major players to adapt and evolve over time. The prolonged financial downturn has added to the industry’s challenges, reducing the passenger volume and profits of many legacy carriers.
Recent years have also seen the rise of Middle Eastern megacarriers such as Emirates, which is on track to be at least twice the size of every other long-haul carrier in the world by 2015. Now, China’s rapidly emerging airlines are poised to further shake up the industry, as China becomes a viable and cost-effective midpoint stop for Europe-to-Asia traffic flows. Already among the top performers in terms of growth and profitability, as shown in Exhibit 1, carriers in China and the Middle East are poised to reshape the Europe-to-Asia routes, squeezing the business of legacy endpoint and hub carriers. (See Exhibit 2.) To offset this risk, forward-looking carriers must develop strategies to strengthen their market position and capitalize on China’s growing travel and tourism industry.