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Wednesday, August 20, 2014         

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Seeking a China Connection

With China's largest carrier, Hainan Airlines, yet to take to island skies, the state is looking for other carriers to begin service to Hawaii

By Allison Schaefers

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Hainan Airlines, China's largest private carrier, was expected to begin direct service to Hawaii by the second quarter of this year. Since that didn't happen, the state has started hunting new prospects for flights between the islands and China.

Hawaii will be vying with destinations across the globe that want direct air-service linking them with China at the 16th Route Development Forum, a sort of speed-dating event to link airlines with tourism locales, held in Vancouver, Canada, today through Tuesday.

The forum is the state's latest opportunity to entice a China-based carrier to head to Hawaii. But, it's hard to determine how well Hawaii will fare when it comes to recruiting service from Chinese players who are reluctant to absorb the risk of starting new leisure routes and have come to expect that the communities they serve will pay to play.

Hainan Airlines' Chairman Chen Feng, who was in Hawaii at the end of August to meet with Gov. Linda Lingle and participate in a clean energy summit, said Hawaii is a "symbol for beauty and high-quality life" and that it could become an important base for air travel between China and the U.S. However, Feng said travel restrictions need to ease and more support is needed from Hawaii before liftoff.

Discussions between Hawaii and Hainan stalemated after the carrier asked for marketing money and discounts and waivers on everything from landing and gate fees to crew housing and transportation. The carrier also wants travel agents in Hawaii and China to guarantee seats on planes.

LET'S MAKE A DEAL

Airports offer airlines perks to entice them to expand. The Honolulu Airport offers none. Hawaii Tourism Authority offers up to $6 million a year for airlines and travel wholesalers for route development plus some free hotel rooms and transportation for crew. Here's a sampling of perks at airports across the nation:

» Seattle Tacoma-International Airport: Reductions in landing fees and other charges for the first three years for all carriers that offer new routes.
» Lambert-St. Louis International Airport: Suspends landing fees and gate rents for new carriers for nine months and six months for existing carriers that add flights.
» Phoenix Sky Harbor International Airport: Offers $285,000 to $900,000 for airlines that start new international flights
» Portland International Airport: Gave Delta Air Lines $3.5 million to continue nonstop flights to Tokyo through May.
» Philadelphia International Airport: Put up a $9 million revenue guarantee for Delta flights to Paris that began this summer.
» Tampa International Airport: Waives its $3-per-passenger inspection service fee for new or expanded international service.

Source: Hawaii Tourism Authority, Associated Press, Dallas Morning News, Arizona Republic, St. Louis Business Journal, St. Petersburg Times

"We are a very small company and we are afraid to take the risk," Feng said of his fast-growing firm, which operates nearly 500 domestic and international routes. "We want our friends from Hawaii to share the risk."

While Lingle has made ease of travel a top priority, perks are not provided at state-owned airports, said State Tourism Liaison Marsha Wienert.

The Vancouver event will bring together more than 3,000 decision-makers from 300 airlines and 600 airports around the world to pitch new routes and services. It bills itself as the world's largest route forum for those who want to play let's make a deal to get new air services, protect existing ones or influence future international routes.

During the conference, Hawaii representatives will participate in back-to-back, 20-minute meetings with potential carriers. While Hawaii will meet with airline representatives from all over the world, the state's negotiations with three of China's top carriers, including Hainan Airlines, will be a top priority since direct air-service is considered a key to growing this market.

"One of them (the other two Chinese airlines) could decide to do it (come to Hawaii) before Hainan because they are all bigger and have more resources," said Brad DiFore, director of airport consulting services for Sabre Airline Solutions and a marketing contractor with the Hawaii Tourism Authority. "My suspicion is that they (Hainan) will let someone else do it."

Although China's outbound travel market is expected to hit 52 million this year, only about 74,000 are expected to make their way to Hawaii. Tourism officials have said that the visa interview process required of Chinese nationals who want to visit the U.S. -- one of the main barriers to increased Chinese travel to the U.S. -- has improved. Wait times are down and approval rates are up to 4 out of 5, said Lingle. But the requirement is off-putting for China-based carriers because many travelers, especially vacationers, still perceive it as an arduous process, DiFore said.

As a result, there are still some big mainland markets that Hainan does not serve, he said.

"Visa restrictions are as big a hindrance as anything when they look at this opportunity (Hawaii) versus Chicago," DiFore said. "Visas are easier for business travelers to obtain."

As for providing perks to Chinese airlines to fly here, the state government is not inclined to give in on that point.

Hawaii got burned when it offered airport incentives during the Gulf War and during the Cayetano administration, Wienert said.

"There was no appreciable increase in flights," she said. "And, more importantly, it created angst from those airlines who were not eligible that had flown routes through the hard times."

Still, destinations from Pittsburgh to Seattle to Tampa, Fla., have beefed up the perks they offer.

Hainan received airport incentives in 2008 when it began offering direct service between Beijing and Seattle, said Joel Chusid, general manager of North America for the airline.

"There are marketing funds that can be used over three years and reductions in landing fees and some other charges," Chusid said. "They were important to us since the route was unproven. It has been a good partnership with the airport and the airline."

But Hawaii is unable to offer similar airport concessions since its revenue sources are tied up in guarantees for bonds that are being used to modernize the airport, said David Uchiyama, vice president of brand management for the Hawaii Tourism Authority.

"We have not done any incentives, since any type of program like that we would have to have funding that would allow us to provide the same type of incentive for all carriers that would ask for it," Uchiyama said.

Instead, Hawaii has leveraged HTA money with funds from visitor industry partners, such as hotels, to help carriers create demand and improve load factors, he said. This approach has cultivated additional flights and routes, Uchiyama said.

Hawaii has offered Hainan millions of dollars in non-airport incentives ranging from HTA marketing funds to free or discounted flight crew housing and transportation, Wienert said. Even so, the carrier has not committed to an isle start date, she said.

"One of the chances that you take is that they will pull out," Wienert said. "Other destinations are negotiating. Las Vegas sees the potential, too."

Hainan has also looked at starting routes in Boston, Chicago, Newark, N.J., and Toronto, USA Today reported. After they left Hawaii, Feng and the rest of the delegation were also seeing the sites and meeting with officials in Florida and California and Canada.

But Hawaii remains a preferred destination, Wienert said.

"I think we can compete with the best of them because we have the demand. The demand for Hawaii is a little different than Des Moines, Iowa, which probably needs a huge incentive package," she said.





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