China Transportation Airports:More outbound flights and larger planes to drive further growth

China implements new flight schedules for the next six months.

    China’s civil aviation regulator, the CAAC, has implemented its new winterspringseason flight schedule for the country from Oct 25 (for the next sixmonths), in which total scheduled domestic flights will increase by 6%yoy to 54,956 flights per week, while total international passenger flights(ex. HK, Macau and Taiwan) will increase by 47% yoy to average 8,046flights per week. In the latest approved flight schedule, Chinese airlines willintroduce 57 new international routes, including Beijing-Auckland,Guangzhou-Christchurch, Shanghai Pudong-Brisbane and Xiamen-Sydney.

    Where are the top growth flight destinations? Malaysia and Japan.

    Amongst China’s top 10 destinations by flights, Malaysia (+79%) and Japan(+69%) will have the largest yoy increase in number of flights over the nextsix months, followed by Vietnam (+49%), the US (+42%), Thailand (+39%),Australia (+37%), the Philippines (+34%), Singapore (+14%), Korea (+12%)and Cambodia (11%). Growth in flights served by wide-body planes willalso outpace that of narrow-body planes, which we expect will be positivefor airports (given airport levy higher landing charges for larger planes).

    The translation of flight increases to passenger volume growth willultimately depend on traveling demand and ticket pricing.

    What are the implications for Beijing and Shanghai airports?

    Based on the announced flight schedule (ex. potential ad-hoc flightadditions/charter flights), scheduled international flights for Beijing Airportcould grow 11% and will continue to outpace that of domestic flights (flatyoy) over the next six months. For Shanghai Pudong, scheduledinternational flights growth (+14% yoy) could also outpace that of domesticflights (+10% yoy). Meanwhile, due to the poor on-time performance ofShanghai Pudong, Hangzhou and Tianjin airports in August 2015 (the threeworst performers amongst China’s 48 major airports), the CAACannounced last week that these three airports will be banned from addingextra flights, charter flights or applying for new flight applications in themonth of October. According to FlightStats, Pudong’s on-time performancein Sep 2015 improved mom to 56% (from 36% in Aug), but still lags that ofBeijing at 71% (from 54% in Aug). We maintain our Buy rating on BeijingAirport as we expect its continued international traffic mix shift to drive2015E-17E EPS CAGR of 20% from higher ASPs and retail revenues. Weremain Neutral on Shanghai Int’l Airport on fair valuations.