This week, the media around the world report that Air China (CA) will launch the route from Beijing (PEK) to Budapest (BUD) with a stop in Minsk (MSQ) on the way to Europe. The return flight will connect BUD and PEK directly. This triangle connection shows global ambitions of Chinese economy and that Eastern Europe is an important part of PRC trade growth strategy. This will be Air China’s second destination in the region (besides Moscow) and I guess soon we may expect another destinations launched by Chinese airlines.
Air China plans to fly on this route 4 times per week with the 227-seat Airbus A330-200. I must admit that when I found out about the launch of this route I was initially very skeptical. It sounded very illogical to me and I didn’t see a bright future ahead of such a connection. I couldn’t think of any reason why anyone would like to start flying between Beijing and Minsk. Beijing to Budapest appeared more reasonable to me but still a bit problematic. That is why I decided to investigate the subject deeper in order to understand business idea behind it. Below I would like to show some of my findings.
Before I start I would like to stress that Chinese government often forces state airlines to start flying to various destinations from political reasons. Just recently new routes to Africa have been established. According to specialists, they won’t be profitable and will be subsidized by authorities in Beijing. This could be also an important factor in starting routes to Minsk and Budapest. However, after a brief analysis these two destinations make more sense and here are the reasons why.
Why would Air China want to fly to Minsk?
Minsk is the capital of Belarus. The city has a population of almost 2 million which is a lot considering that the country has 9,5 million inhabitants. Belarus has almost 208 000 square kilometers of land which positons it among medium sized European countries.
President Alexander Lukashenko, who is authoritarian leader, rules the country since 1994. China maintains very good relations with every totalitarian regime on the planet and makes a good business with those countries, which are excluded from international trade. Imposed sanctions are not a problem for Chinese companies and their greed often leads them to ignoring all the moral principles just to reach its goals. That is why “friendship” between China and Belarus is so strong at the moment. However Chinese never offer their help and assistance selflessly. Currently, a large Chinese-Belarusian Industrial Park is being developed. This is a special economic zone just next to Minsk National Airport, which will be the largest of such Chinese projects in Europe. Many of leading Chinese companies decided to invest in it. Sinomach, ZTE, China Great Wall Industry and CAMC Engineering Corporation will all benefit from large tax exemptions and preferential treatment. Park will mainly focus on electronic, biomedicine, fine chemistry, engineering and new materials. Production will be mainly shipped to European Union and CIS countries. This economic zone should be a convenient gateway to Europe. Such a large investment and presence of Chinese companies may be the main reason why Air China decided to fly to Belarus. The Industrial Park is a part of much larger investment planned by China, which is called “New Silk Route”. This envisages a construction of rail from Spain, through France, Germany, Poland, Belarus, Russia, Kazakhstan and Russia, which will enable unhindered commercial exchange between Europe and Asia. The travel would take around 3 weeks and should be a solid alternative for sea freight. As China may be just ahead of a serious recession caused by reckless credit policy and unimaginably fast rising national debt, above plan could be delayed or cancelled completely. At them moment the bilateral trade between Belarus and China is estimated for 3 billion USD.
As a world’s leading exporter of potash (around 20% share in this 20 billions USD market) Belarus also delivers large amounts of this potassium containing crystals to mainland China. It is used in agriculture as a fertilizer.
Currently, authorities in Minsk and Beijing are also discussing about eventual visa free travel for large touristic groups visiting each country. I wouldn’t consider Belarus to be very interesting for Chinese tourist but the time will show if such a move could stimulate growth of the number of travelers.
Minsk National Airport handled almost 2,6 million passenger in 2014 and is a hub for Belavia, a national carrier of Belarus. The capacity of the airport is around 5,8 million passengers per year. Air China route will be the first long-haul connection to Minsk. The airport maintains a couple of medium-haul routes like Abu Dhabi (Etihad) or Astana (Belavia) but so far hasn’t been noticed by large international airlines other than European.
Why would Air China want to fly to Budapest?
Budapest is a large 1,7 million inhabitants city and the capital of Hungary. The country has slightly larger population than Belarus (9,9 million) and has 93 000 square kilometers area. It also has a very authoritarian leader, however the country is fully democratic and being an important member of EU. The launch of the new route from Beijing concurs with current strategy of Hungary, which highlights the need of “Eastern Opening”. Hungary would like to cooperate with China in economics, trade, culture and tourism. Authorities in Beijing also consider Hungary to be an important trade partner and call it even a regional hub for the new Chinese policy for Europe. Bilateral trade reached 8,5 billion USD in 2013 and Hungary’s export to China is worth about 2,2 billion USD. Chinese companies are active in this country, for example helping to build a railway between Budapest and Belgrade. So far they have invested almost 3 billion USD in Hungary.
Budapest is a truly unique and beautiful city and an important travel destination. Last year Hungary attracted about 90 000 Chinese tourists. This figure may rise again due to new connection with Beijing. This is not the first attempt to connect these two countries. From 2004 till 2012 Hainan Airlines flew between Beijing and Budapest, however due to collapse of Malev, the national carrier of Hungary and loss of code sharing partner, Chinese airline was forced to cease the this connection.
Budapest Ferenc Liszt International Airport (BUD) is the largest airport in Hungary. It handled 9,2 million passengers in 2014 which was a healthy 7,5% increase from 2013. After Malev’s bankruptcy the country remains without a national carrier. Luckily Wizz Air started to act like one becoming a leading low cost airline in region. BUD is a hub both for Wizz Air and Ryanair and offers mostly European connections. Additionally Middle Eastern carrier like Emirates and Qatar visits the airport with A330-200 and Airbus A320 accordingly. These are the longest routes currently operated from Budapest. Air China flight to Beijing will change it and will be the first of new airlines form other continents which will begin flying to BUD. This is a part of new development strategy, which may help the airport to attract more long haul flights.