The deal, which permits more flights between Australia and China, will allow the likes of Air China Ltd. and Qantas Airways Ltd. raise the number of seats offered between major cities such as Beijing and Sydney by as much as 18%. Further quota increases are to be phased in over the next two years.
The agreement, which follows a free-trade pact the two countries signed last year, helps Australia capture a greater share of the growing business from Chinese tourists. It also satisfies Beijing's ambition of aggressively expanding the reach of Chinese airlines.
More Chinese have been traveling abroad as the economy grows and ticket prices fall. Last year, 100 million Chinese nationals traveled overseas, and that number is set to double by 2020, said Andrew Robb, Australia's trade minister, in a statement Friday.
"Tripling aviation capacity from China into Australia over the next two years will ensure we are well placed to capture our share of this growth," Mr. Robb said.
More Chinese tourists will help support Australia's mining-led economy, which has been hurt by tumbling commodity prices. From Beijing's perspective, more visitors to China will help its attempts to make the economy less dependent on industrial production and more on domestic consumption.
The deal offers opportunities for Chinese airlines, such as China Southern Airlines Co. and China Eastern Airlines Corp. , to combat pressure on earnings from market congestion at home and competition from budget carriers.
"The latest air-service agreement comes just in time as we've been hoping to add more flights," said a representative from China Southern. The airline has been the most aggressive among its Chinese peers in launching services to Australia, and currently has 52 flights a week from China to Australia and New Zealand.
The deal may also help cement an alliance between Qantas and China Eastern, as the companies await antitrust approval for a proposed joint venture targeting new routes. "China is a very important market for Qantas, particularly given its strong trade links and potential as an inbound tourism market," a Qantas spokeswoman said.
To be sure, an influx of Chinese carriers into Australian airspace could intensify competition for customers flying the so-called Kangaroo route between Australia and the U.K. Some Chinese carriers are already flying the route, using home cities as stopovers, and offering tickets to Australian travelers at vastly lower prices than rivals, including Qantas.
"Gains from the deal are clearly for Chinese airlines," said Will Horton, a senior analyst at the CAPA Centre for Aviation, a Sydney-based consultancy. "But a gain for Chinese airlines means an even larger benefit to the Australian economy."
Under the terms of the deal, Australian and Chinese airlines will be able to operate up to 26,500 seats a week between Australian gateway cities and, on the Chinese side, Beijing, Shanghai and Guangzhou. A further 7,000 seats will be phased in over the next two years to bring the total to 33,500. The quota for all the other Chinese airports has been lifted by the same amount, for a total of 67,000 Australia-China flights in two years.
Source: Wall Street Journal by Ross Kelly and Joanne Chiu
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