According to the U.S. National Travel and Tourism Office, more than 5 million mainland Chinese people are expected to fly to the U.S. each year by 2020, part of a trend that is fueling a boom for both Chinese and U.S. airlines. Walter Dias, United Airlines’ Managing Director for Greater China and Korea, talks about the future of U.S.-China travel
The number of Chinese visitors to the U.S. has grown exponentially in recent years. Can you tell us about those numbers and how you see the trend for the next five years?
In 2000, the total number of arrivals in the U.S. from China was about 250 thousand, although subsequent to 9/11, the number declined to 157 thousand as late as 2003. But since 2003, it has grown at double digits each year. The breakout year was 2010, when the number hit 800 thousand for the first time, an explosive 52 percent increase over the previous year. In 2014 it was about 2.2 million, a 24 percent increase over the previous year. Forecasts by the China National Tourism Administration predict over 6.6 million passengers will be going to the U.S. by 2020. That’s a huge number.
How many of these passengers is United carrying to the U.S. each year?
We don’t break out the numbers, but you can safely say that we have the largest market share between the United States and China. Historically, for a number of different reasons, the Chinese carriers tended not to use all their frequencies. One reason was that there were greater numbers of visitors coming to China from the United States than going the other way. That is changing with these explosive growth rates in Chinese outbound travelers, and in the past 18 months Chinese carriers have been adding new routes to the U.S.
How many U.S. destinations does United serve with flights to and from China, and which Chinese cities?
From both Beijing and Shanghai, which are considered Tier 1 cities in the aviation treaty, we operate four flights a day to the U.S. We also operate three flights a day from Hong Kong and those flights are utilized by people from southern China. In 2014, we launched a service three times a week from Chengdu, and from this summer we will fly four times a week. Eventually, our goal is to have a daily Chengdu service.
We also launched a new service from Shanghai to the closest U.S. point to China, the beautiful resort island of Guam.
The success of the Chengdu flight encouraged us, and we will be operating a Xi’an to San Francisco flight this year. The Xi’an service will be seasonal and three-times-weekly starting on May 10 and ending on October 29, 2016. If we see significant demand, we will look at increasing that frequency during peak periods and possibly also operating it during off-peak periods. We’re going to launch a Hangzhou service to San Francisco effective July 25, 2016, as well. The Hangzhou service will be three-times-weekly, but all year-round.
What motivated United to begin the Chengdu service?
The advent of the 12th Five-Year Plan in 2011 included a focus on growing the economy in the interior. So we monitored what was happening in the second-tier cities – their population, income per capita, the corporate activity in each of those cities. That’s the reason we did Chengdu first. They were building a big IT city in Chengdu, and the city government as well as the Sichuan Province government had been proactive in making it a desirable location for manufacturers. The government hosted a CEO forum with Fortune [in 2013] where they signed an additional US$18 billion of FDI agreements with various multinational companies. That pushed it over the top as far as us wanting to fly there.
We also listen to our corporate customers as to where their people need to fly. In Chengdu, there are companies like Dell, Texas Instruments, Apple and Intel. Another reason we decided to do it in 2014 was because we finally had enough of the aircraft in our fleet that could do the job (see box).
Is the Hangzhou service motivated by the city’s tech status and the need to be linked to Silicon Valley?
There are big companies in Hangzhou now like Alibaba, and a lot of new business is being built around that area as well. So there is a natural set of traffic that will want to go to San Francisco and Silicon Valley. Again, we look very carefully at the demographics and economics of the cities we consider, and Hangzhou is also one of the higher per capita income cities in the country.
Some people see in-flight service on U.S. airlines as having changed in the past 20 or 30 years. In China, airlines still serve food and drinks on domestic routes and allow a free check-in bag. As you grow in China, what changes are you planning to make on China-U.S. flights to stand out from the competition?
Actually, in-flight service is improving dramatically on U.S. carriers as the industry recovers financially. The U.S. industry is now profitable and we are using our returns to reinvest in the product we offer to our customers. We listen to our customers based on where they’re flying from and what they expect to see onboard the aircraft. On the catering side, we make sure that we have a lot of different choices for Chinese-style dishes for all the cabins, whether it’s in first class, business class or economy. When the reservation system shows more Chinese customers on board a flight, we increase the numbers of Chinese meals. In regards to the inflight entertainment system, there are typically at least 50 Chinese movies for passengers. We also make sure we have Mandarin-speaking flight attendants on all the flights serving China. In addition, United now offers Wi-Fi service on 100 percent of our aircraft serving China.
Does the typical Chinese visitor fly to just one city, or do they use your network to visit other cities?
Historically, the China customer would jam in as many destinations as they could in order to say they had been to all these famous destinations. You would see an itinerary with seven cities in 10 days, partly because people felt that it was a once-in-a-lifetime opportunity. The market has evolved a little bit over the past four or five years, and now there are at least four or five destinations on your average leisure trip, so it is less than it was in the past. Probably the most popular destinations are New York, Los Angeles, San Francisco, Las Vegas and Hawaii.
Are Chinese visitors still traveling as groups or do people prefer to travel alone or just with their family?
Group travel is still popular, but people are becoming more adventurous and the younger crowd is definitely more interested in traveling FIT [Free Inclusive Tour]. They are flying over on their own ticket, getting a rental car and have a more open itinerary than group tour package travelers. It presents challenges and opportunities for American companies in the travel industry that cater to Chinese tourists. If you position yourself correctly, you can really take advantage of this trend.
What do you think that U.S. hotels and other providers should do to better court Chinese travelers? What opportunities do see you opening up to U.S. businesses that cater specifically to Chinese?
The biggest challenge is making sure you have sufficient numbers of Mandarin speakers in your properties or in your optional tour operations. Destination cities need to make sure they have more simplified Chinese-language signage at airports and in hotel lobbies. Your marketing product also needs to be in simplified Chinese. Customers from China are becoming more adventurous and looking for different travel destinations and experiences. That’s an opportunity for destinations that haven’t seen Chinese customers before. They will be entering on the ground floor of an historic opportunity.
Chengdu and the 787 Dreamliner
Dias said the only aircraft suitable for United’s Chengdu service was the 787 Dreamliner. “The aircraft is relatively small, about the same size as the 767, but it can fly the mission length of a 747 or a 777,” he said. “Because of this, the 787 is truly a revolutionary aircraft in that it is opening markets that would never have been possible in the past.”
Boeing’s market research and customer surveys have shown that the travel market is fragmenting. People prefer nonstop service over traveling from one big hub to another big hub and then transiting to a smaller flight to their destinations. “Boeing designed and built the aircraft for what the industry calls ‘long, thin’ markets – a long-haul market but with a small amount of traffic, and on which you cannot economically use a 747,” Dias said.
Boeing’s approach contrasted with that of Airbus, which developed the A380 to take hundreds of passengers from one hub to another before connecting to their final destination. With the development of the 787, Dias suggested, Boeing has judged passenger habits and demands better than its European rival.