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China Routes Could Bring in Big Money for Airlines, Cities

While new flights will boost Northwest and US Airways, Detroit and Philadelphia are also set to win.
Author:

Northwest

(NWA)

has flown to China for 60 years, while

US Airways

(LCC)

first expressed interest this year.

Yet last month, both airlines were tentatively awarded new routes to China, as the Transportation Department judiciously handed out six China routes, one to each legacy carrier. Northwest got Detroit to Shanghai, while US Airways received Philadelphia to Beijing. Both flights are set to begin in 2009.

The routes underscore the strong links between an airline's fortunes and its hubs. By and large, the legacy carriers that survived did so because they were dealt hands with good geography when they started out early in the 20th century. Today, what helps Philadelphia helps US Airways, just as the auto industry's transformation impacts Northwest.

China routes can mean annual revenue of $200 million or more for airlines, and they are potentially even more critical for the cities themselves, says John Kasarda, a professor at the Kenan-Flagler Business School at the University of North Carolina.

Detroit, for all its problems, remains the technical and marketing center for the auto industry, which is rapidly expanding in China. In fact, China's leading automaker is

GM

(GM) - Get Report

. Through August, GM had 12% of China's automobile and truck sales.

Toyota

(TM) - Get Report

was second, with 5.6%.

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Philadelphia, meanwhile, may mourn manufacturing's decline and the Phillies' fate, but it is a leader in the life sciences industry, including biotechnology, pharmaceuticals and medical devices. Life sciences involves about 400 Philadelphia-area companies, accounting for 13% of area employment, according to a 2005 survey.

In the 18th century, Kasarda says, the great cities, like Philadelphia, were ports. In the 19th, they were railroad cities. In the 20th, they were highway cities. In the 21st century, they will be cities with international airline connections.

"As important as it was for seaports to connect colonial America to seaports in Europe, nonstop flights to China are equally important," Kasarda says. "They connect executives and the supply chain to China."

In Detroit, which grew as a Great Lakes port, the diminution of auto manufacturing is an old story. But automotive engineering, design, marketing and suppliers have a growing presence, says John Carroll, executive director of the Detroit Regional Economic Partnership. "We call ourselves the brain center of the automotive industry," he says.

While

Hyundai

,

Nissan

and Toyota manufacture in the Southeast, their engineering centers are in Detroit. So are headquarters for nearly 100 suppliers, which increasingly make the parts used in cars. All of the companies are looking to China for growth, Carroll says.

Two years ago, he added, a French maker of robotic manufacturing systems moved to Detroit. "I asked them 'Why come here?'" he says. "They said: 'We want to do business in China, and the decisions on that are made here in Detroit, and we need to be where the decisions are made.'"

To be sure, Detroit has long had China access. Northwest flies twice daily to its Tokyo hub, from which it then goes to Beijing, Guangzhou and Shanghai. It briefly offered Detroit to Shanghai flights in the months before the Sept. 11th attacks. The market is so attractive that China Southern Airways plans nonstop Detroit to Beijing flights starting in 2009. For Northwest, Asia service accounted for 21% of second-quarter revenue, up 7.3%.

In Philadelphia, US Airways began to expand international service in the 1990s. But it was constrained by cramped, aging airport facilities and by a weak hub structure.

Gradually, these problems are being rectified. Charlotte traffic is growing rapidly, the Pittsburgh hub has been eliminated, infrastructure improvements are underway in Philadelphia and the airline's financial picture improved following two bankruptcy filings and a merger with Phoenix-based America West.

To this, add China. "We are about to enjoy the fruits of a very significant air bridge that will connect Philadelphia and Beijing," said Mark Schweiker, president of the Greater Philadelphia Chamber of Commerce. "At either end of the bridge is CJP -- companies, jobs and paychecks."

Besides life sciences, the chemical industry has a big area presence, and "a couple of the big law firms here already have China practices," Schweiker says. But it is not just Philadelphia firms that benefit from China flights.

"The region has a lot of economic resources that will help China grow," Schweiker says. "What we want is to have people in China say that if you want to be successful in business, you have to go to Philadelphia."