Good news for PVG

For much of the last two years, Shanghai Pudong International Airport (PVG) has been forbidden by the Civil Aviation Administration of China (CAAC) from accepting applications by airlines for either charter flights or new scheduled routes. The restriction is put in place for any Chinese airport that fails to meet the CAAC’s on-time service standards, and applies to both passenger and freighter service.

But PVG has now met the standard for the required three consecutive months, and may once again accept applications by airlines for new routes and charters. This has some interesting implications for the air freight industry.

First, PVG, serving the Yangtze River Delta region, is one of the busiest cargo airports in the world. It is the most important cargo gateway into and out of China, and almost a must-serve location for any airline that operates large freighters. And with demand for air freight rising strongly – up 10% in 2017 over 2016 – the inability to add flights to Shanghai has been a problem for international freight carriers. But despite the freeze on charters and new scheduled frequencies, PVG reported its 2017 cargo handle up 11.2%, to 3.8 million tonnes, making it the third busiest cargo airport in the world. So the question that comes to mind is, if the airport’s handle increased more than 11% in a year during which it could not increase capacity, what happens when the restriction is lifted?

On the other hand, Shanghai Pudong’s problem has been something of a gift to other airports, which have enjoyed the overflow of volume that would likely otherwise have moved through Shanghai. As we previously reported, some of these are relatively close to Shanghai. Nantong Airport (NTG, 130 km north), Wuxi (WUX, 136 km west), and Ningbo (NGB, 150 km south) have all benefited. Whether some of that volume will now move to PVG remains to be seen, but there is another airport, somewhat farther from Shanghai that is worth thinking about.

Three years ago, Luxembourg-based all-cargo carrier Cargolux established a second hub at Xinzheng Airport (CGO) in Zhengzhou, 835 km northwest of Shanghai. The move came following the purchase of a 35% stake in the carrier by Henan Civil Aviation Development & Investment Co (HNCA, an investment arm of the Henan provincial government). While Zhengzhou was home to a huge Foxconn factory, many questioned whether that alone would be enough to support Cargolux’s planned new hub. Discussing its recently released 2017 results, Cargolux said it carried in excess of 250,000 tonnes of freight to and from China, including 147,000 tonnes to and from Zhengzhou – easily enough to justify its investment there.

However, in a recent interview in The Loadstar, Cargolux CEO Richard Forson acknowledged that the carrier was trucking cargo to CGO, because there was lack of cargo infrastructure at other airports. “There are many airlines looking at CGO because Shanghai is completely congested, there are no additional slots and you can’t fly charters there. Beijing too. So airlines are looking for alternatives. As CGO develops and volumes grow, other airlines will be attracted.”

Will the lifting of restrictions at Shanghai cut into the growth of cargo business at Zhengzhou and other airports that have benefited from the ban? Our sense is that if Shanghai starts adding new scheduled or charter services in any quantity, it will simply fall afoul of the on-time requirements again, so while Zhengzhou and the other airports may lose some cargo volume to PVG, the impact will not be too severe.