China Airports Evolution Analysis

a UBM Aviation brand China Airports Evolution Analysis First Published: April 2012

Table of Contents 1. EXECUTIVE SUMMARY... 3 2. WORLD TOP 20 AIRPORTS BY CAPACITY... 4 3. CHINA RAPID GROWTH... 7 3.1 AIRPORTS IN CHINA... 7 3.2 CHINA DOMESTIC AVIATION MARKET... 8 3.3 THE MIX OF CHINA S EXISTING AND FORECAST FLEET... 8 4. BEIJING RAPID GROWTH... 10 5. BEIJING VS ATLANTA... 11 6. SUMMARY AND CONCLUSIONS... 13 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 2

1. Executive Summary China is already the world s second largest economy after US and it is expected that it will overtake the US economy in 2016 1. As China s GDP increases and disposable income levels rise, the population becomes wealthy enough to travel both within and outside the country s borders. Due to the population of China and surrounding countries, there is a huge market opportunity for aviation businesses operating to/from and within China, which is currently only in its infancy phase. The population size of China is stimulating the massive growth seen at the Chinese airports. A comparison of general population in the top 20 cities in the US vs China illustrates the huge potential for air travel in the country over the coming decade, with all of the top 20 cities in China having over 3m inhabitants. Compared to the US of which has only 2 cities (New York and Los Angeles) with a population of over 3m. Atlanta Hartsfield Jackson Airport (ATL) is the busiest airport in the world by capacity since 1998 2 with Beijing Capital (PEK) in second place for the past two years, but with Beijing s rapid growth, it is forecast to overtake Atlanta in 2012 after 15 years at number 1. The recently built terminal at Beijing Capital International Airport cannot keep up with China s booming air-travel demand. The city already has Beijing Capital International Airport and Nanyuan Airport, but they are not big enough to handle growing demand and a third airport is being built. Due to be completed in 2015, Daxing Airport, located 50km out of the city in the village of Nangezhuan, is expected to handle 120 to 200 million passengers a year. 3 The Chinese air travel market has the potential to grow 10 times from where it is today, assuming China will reach a similar level of propensity to travel as Europe and the US and to become 4.3 the size of the US air travel market. 4 This potential presents huge opportunities for the aviation industry and that in years to come the top 20 airports of the world will be dominated by Chinese airports. 1 http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25 2 OAG Schedules inet 3 http://www.dailymail.co.uk/news/article-2037385/daxing-airport-beijings-3rd-airport-outstrip- Heathrow-worlds-busiest.html 4 OAG Schedules inet 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 3

2. World Top 20 Airports by capacity In November 2011 OAG announced that Atlanta, the world s largest airport, will soon be overtaken by Beijing Capital airport. Based on the average annual capacity growth rate (table below) the fastest airport growth is in Asia Pacific and the Middle East. Three of the five airports that are growing at a rate of over 8% per year belong to China. Top 20 airports by capacity 2011 Source: OAG Schedules inet In 1999, Hartsfield Jackson's leadership established the Development Program called "Focus On the Future" which involve multiple construction projects with the intention of preparing the airport to handle a projected demand of 121 million passengers in 2015. The program was originally budgeted at $5.4 billion over a ten-year period, but due to project delays and increased construction costs, the total is now projected at over $9 billion. 5 Beijing Capital has rapidly ascended in rankings of the world's busiest airports in the past decade. It had become the busiest airport in Asia in terms of passenger traffic. Daxing Airport will be Beijing's third and could have as many as nine runways, under plans that are already under creation. The airport is expected to handle between 120 and 200 million passengers every year, at least twice the number dealt with at Heathrow. 6 5 http://www.bizjournals.com/atlanta/stories/2007/09/24/story2.html 6 http://www.dailymail.co.uk/news/article-2037385/daxing-airport-beijings-3rd-airport-outstrip- Heathrow-worlds-busiest.html#ixzz1ia9CgPNW 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 4

With more than 1.3 billion people, China is the world's most populous country representing 20% of the world's population. China's population growth is stimulating the massive growth seen at the Chinese airports. All the top 20 cities in China have a population of over 3m inhabitants, compared to the US, which has only 2 cities (New York and Los Angeles) with a population of over 3m. Rank City State Population 1 New York New York 8,175,133 2 Los Angeles California 3,792,621 3 Chicago Illinois 2,695,598 4 Houston Texas 2,099,451 5 Philadelphia Pennsylvania 1,526,006 6 Phoenix Arizona 1,445,632 7 San Antonio Texas 1,327,407 8 San Diego California 1,307,402 9 Dallas Texas 1,197,816 10 San Jose California 945,942 11 Jacksonville[h] Florida 821,784 12 Indianapolis[g] Indiana 820,445 13 San Francisco California 805,235 14 Austin Texas 790,390 15 Columbus Ohio 787,033 16 Fort Worth Texas 741,206 17 Charlotte North Carolina 731,424 18 Detroit Michigan 713,777 19 El Paso Texas 649,121 20 Memphis Tennessee 646,889 Top 20 US cities by population Source: US Census Bureau 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 5

Rank City Urban Area Population 1 Shanghai 22,265,426 2 Beijing 19,295,000 3 Tianjin 11,090,044 4 Guangzhou 11,070,654 5 Shenzhen 10,357,938 6 Dongguan 8,220,937 7 Chengdu 7,123,697 8 Hong Kong 7,055,071 9 Nanjing 6,852,984 10 Wuhan 6,434,373 11 Shenyang 5,743,718 12 Hangzhou 5,695,313 13 Chongqing 5,402,721 14 Harbin 4,517,549 15 Suzhou 4,074,000 16 Jinan 3,922,180 17 Xi'an 3,890,098 18 Wuxi 3,542,319 19 Hefei 3,352,076 20 Changchun 3,341,700 Top 20 Chinese cities by urban population Source: Chinese 2010 Census 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 6

Capacity (Seats) Millions Capacity (seats) Millions 3. China rapid growth 3.1 Airports in China 60 50 40 30 20 10 - Top 15 Airports in China by capacity 2011 Airports Top 15 Airports by capacity 2011 Source: OAG Schedules inet Top 5 Airports - scheduled seats 2002-2015 80 70 60 50 CAN 40 HKG 30 PEK 20 PVG 10 SHA 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Year Top 5 capacity growth and OAG forecast Source: Schedules inet 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 7

Shanghai International Airport (PVG) shows the highest average capacity annual growth rate at 12.57% in China and Beijing Capital International Airport (PEK) shows an average growth rate at 8.96%. 3.2 China domestic aviation market Segmentation by capacity 2011 - Top 5 9% 9% 7% 30% China Southern Airlines China Eastern Airlines 20% 25% Air China Hainan Airlines Shenzhen Airlines Other Segmentation by capacity 2011 Source: OAG Schedules inet The largest airline in the Chinese market by capacity is China Southern Airlines with its main hub in Beijing, closely followed by China Eastern Airlines and Air China. 3.3 The mix of China s existing and forecast fleet The international expansion of the Chinese carriers, which had previously concentrated largely on expanding their domestic networks and more recently on consolidation in the country, is fueled by strong economic growth. This economic growth is fuelling development and aircraft demand through an increased demand in air travel in the country. 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 8

Aircraft Category by year Regional Single aisle Twin aisle- Long range Twin aisle- Medium range Twin aisle- Short range Twin aisle- Ultra large Total 2010 143 1,271 99 45 13 36 1,607 2011 149 1,370 112 46 13 37 1,727 2012 167 1,493 140 47 12 38 1,897 2013 189 1,606 174 52 12 40 2,073 2014 205 1,657 188 54 11 39 2,154 2015 221 1,681 193 53 11 39 2,198 2016 237 1,718 198 51 11 39 2,254 2017 250 1,724 203 49 10 39 2,275 2018 261 1,725 210 49 6 38 2,289 2019 269 1,723 209 48 3 37 2,289 2020 276 1,695 205 44 3 37 2,260 Total 2,367 17,663 1,931 538 105 419 23,023 China s Fleet mix 2010-2020 orders Source: OAG CAMRO The mix of China s predicted fleet is steadily growing in next decade. China's aircraft fleet is projected to increase by 2020 to over 2,260 aircraft. 7 China s inability to domestically mass-produce modern high-performance jet engines at a consistently high-quality will be a challenge for their relatively young aviation industry. Aviation Industry Corporation of China (AVIC) is treating engine development as a high priority as it plans to invest 10 billion RMB (US$1.53 billion) into jet engine research and development over the next 5 years in order to shorten this learning curve. 8 7 OAG CAMRO with OAG forecast growth based on existing growth rates 8 http://www.chinasignpost.com/2011/06/jet-engine-development-in-china-indigenous-highperformance-turbofans-are-a-final-step-toward-fully-independent-fighter-production/ 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 9

4. Beijing rapid growth Beijing has grown rapidly over the past 10 years on the back of the rapid aviation growth in China. Beijing Capital International Airport is not only an aviation gateway of Beijing and a window for international communication, but also a radial centre for the China civil aviation network. 9 ATL PEK 2002 54,562,247 20,648,760 2003 53,563,123 21,751,312 2004 56,689,886 27,082,806 2005 58,071,613 30,243,068 2006 54,594,444 33,690,508 2007 55,740,279 36,299,371 2008 55,365,025 39,120,610 2009 53,710,426 44,287,954 2010 54,198,630 46,813,815 2011 54,933,004 48,700,531 2012F 54,970,218 53,063,717 2013F 55,007,457 57,817,810 2014F 55,044,722 62,997,833 2015F 55,082,011 68,641,946 Atlanta (ATL) and Beijing (PEK) capacity growth by year with OAG forecast growth based on existing growth rates Source: Schedules inet The forecast based on the average annual growth rate predicts that Beijing Airport (PEK) will overtake the world s largest airport Atlanta International (ATL) in 2012 with Beijing Airport growing at 8.96% per year and Atlanta International at 0.07%. 10 9 http://www.routesonline.com/airports/2490/beijing-capital-international-airport-co-ltd/ 10 OAG Schedules inet 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 10

Capacity (Seats) Millions 5. Beijing vs Atlanta Beijing vs Atlanta scheduled seats 2002-2015 80 70 60 50 40 30 20 10 0 ATL PEK Year Atlanta vs Beijing capacity growth and OAG forecast Source: Schedules inet Beijing s capacity growth is being fuelled by an ever increasing demand for air travel to/from and within the country, due to rising disposable incomes and an ever growing population. In order to accommodate the demand, carriers are using larger aircraft to and from Beijing in order to maximise capacity on available slots. Compared to Atlanta, which operates both as a major international hub as well as a regional feeder hub, the average aircraft size is smaller. The extensive regional jet network operating into Atlanta provides a vital feed to Atlanta s long-haul network. ATL PEK 2002 130 196 2003 124 186 2004 121 184 2005 121 180 2006 116 183 2007 116 187 2008 117 186 2009 112 186 2010 116 186 2011 122 188 2012F 121 188 2013F 120 187 2014F 119 186 2015F 118 185 Average aircraft size (seats) by year and OAG forecast based on existing trends Source: Schedules inet 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 11

Number of Operations (Frequency) Thousands The larger the aircraft capacity at Beijing means a lower number of frequencies compared to Atlanta. ATL PEK 2002 420,839 105,461 2003 432,780 116,964 2004 467,552 147,276 2005 478,684 167,554 2006 471,052 184,511 2007 479,781 194,456 2008 474,548 210,100 2009 480,125 237,527 2010 467,025 251,342 2011 451,837 258,560 2012F 455,060 282,819 2013F 458,305 309,354 2014F 461,574 338,378 2015F 464,866 370,126 Annual frequencies at Atlanta and Beijing with OAG forecast based on existing trends Source: OAG Schedules inet 600 500 400 300 200 100 0 Beijing vs Atlanta scheduled frequency 2002-2015 ATL PEK Year Atlanta vs Beijing total annual scheduled passenger frequencies with OAG forecast Source: OAG Schedules inet 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 12

6. Summary and conclusions With Beijing having its sights firmly set on becoming the world s busiest airport, it is worth examining how the airport has developed. Beijing Airport has surged into second place behind Atlanta from 10 th to 2 nd in under 6 years aided more recently by the opening of Terminal 3 at Beijing Capital Airport in 2008, a sweeping structure designed that is far bigger than all of Heathrow's five terminals combined. Beijing has started construction on a new mega-airport that will have nine runways and when Beijing Daxing International airport opens in 2015, the Chinese capital will become the world's busiest aviation hub. Beijing is expected to play a major role in transport for the Asia Pacific region and the main bridge with the rest of the world. China with 20% of the world's population and Beijing with the average capacity annual growth rate at the level of 8.96% will continue to grow to a potential 10 times the size of their existing air travel market, assuming a future propensity to travel as the US today. Population Annual capacity (To/From/Within) Ratio capacity: population Potential Chinese capacity (unconstrained growth) millions share of world millions of seats millions of seats population US 312.9 4.5% 946.2 3.0 - China 1,339.7 19.2% 433.5 0.3 4,051.2 10x the size of the current capacity Potential capacity growth in China OAG Schedules inet Source: http://www.chinatraveltrends.com and Capacity US 946,168,972 Potential in capacity 10 times Potential China vs. USA China 433,487,545 4,051,200,000 >4.3 Potential growth in Chinese capacity vs the US In comparison, this would translate into a potential air travel market in China 4.3 times the size of the existing US air travel market, placing the Chinese airports firmly as some of the worlds largest. 2012 UBM Aviation Worldwide Limited. All rights reserved. A UBM plc company. 13

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