When United Airlines pilot Bill Davis began flying from Chicago to China five years ago, most of the passengers were Americans traveling to adopt children. How quickly that has changed. "Now the passengers are mainly businesspeople, tourists in groups and a handful of excited parents-to-be," Davis said. "And the planes get fuller all the time." Davis, a senior first officer, has been an eyewitness to the buildup in travel between the U.S. and China. So far, that buildup hasn't been accompanied by a corresponding increase in nonstop air service, a result of the restrictive five-decade-old bilateral aviation treaty between the two countries. But that's changing, too. American Airlines' flight 289, which will make its maiden trip from Chicago to Shanghai on Sunday, is a clear sign of the change. The 14-hour, 7,000-mile trip by the world's largest airline to the world's most populous country is a result of the landmark U.S.-China Air Services Agreement. The pact, reached in 2004, will allow nearly a fivefold increase in air service between the two countries by 2011. American is a unit of AMR ( AMR).
Until recently, the China-U.S. passenger market was served by two U.S. carriers under agreements reached in 1947, after the conclusion of World War II. Northwest Airlines ( NWACQ) flies to China from a Tokyo hub, which it serves from seven U.S. gateways. UAL ( UAUA), the parent of United Airlines, serves China with two daily routes from Chicago and two from San Francisco. United bought its route authority from Pan American World Airways in 1985. The first move toward route expansion came in 1999, when a deal between the two nations led to UPS ( UPS) getting clearance to carry air cargo to China. UPS began service in 2001. Then came the 2004 agreement. It quickly allowed Northwest and United to add routes and also opened the door for new airlines to enter the market. The Transportation Department chose American and Continental Air Lines ( CAL), the latter of which began a Newark-Beijing route in 2005. Delta Air Lines ( DALRQ) was left out, failing in a bid to gain the authority to serve China from the world's busiest airport, Atlanta's Hartsfield, which lacks nonstop China service. "We were a bit puzzled," acknowledged Sametta Barnett, Delta's director of government affairs. "For whatever reason, the Department of Transportation deviated from its normal review process and decided it would be better to have competition from an existing gateway rather than to open the route from Atlanta and have new service from the Southeast." Casey said Chicago provides a better gateway than Atlanta, with more passengers to China and a higher capacity to provide efficient routing for a bigger segment of the U.S. Barnett countered that Atlanta provides better connections from throughout the Southeast and that an Atlanta-China route would generate $400 million annually in economic benefits.
Currently, the Transportation Department is authorized to award seven weekly flights in 2007 to a carrier already in the market and to designate a new carrier to fly seven more weekly frequencies in 2008. "If the DOT focus before was to make sure there is competition from existing gateways, they've done it, and the Southeast is still underserved," Barnett said. "Now, we are excited about the prospect for the next designation, and we are hopeful that (one) issue that will be raised in the talks is the beginning of laying the groundwork to move the designation up." While the focus in the U.S. is on domestic carriers, the rapid expansion of the Chinese economy is of course being accompanied by the expansion in Chinese air service. Currently, three Chinese airlines offer U.S. flights. Air China flies from Beijing to Los Angeles, New York and San Francisco; China Eastern Airlines flies between Shanghai and Los Angeles; and China Southern flies from Guangzhou to Los Angeles. Under the bilateral agreement, new flights to the U.S. are in the works. The day is approaching when Chinese carriers will enter global alliances. China Southern has indicated it will enter the Skyteam Alliance, there is speculation that Air China will end up in the Star Alliance, and China Eastern has a code-share agreement with American. For the Chinese carriers today, "being in alliances is not front and center for their priorities," said American's Casey. "They have been focused on internal growth and on consolidation and on all the challenges that involves. But they recognize that (joining alliances) is an inevitable outcome."