Surging domestic traffic growth in China is creating headaches for the government, as airport and ATM infrastructure fails to keep pace with airline expansion.Last week, the CAAC stated that efforts would be made to “cool down the overheated development of air transport”, which include stricter control on market entry, regulating transport capacity and developing international air routes”.

The regulator has moved quickly on the capacity issue, ordering airlines to slash domestic services to Beijing by 9% from next month, as the capital struggles with congestion. Meanwhile, domestic services at Shanghai, Shenzhen and Guangzhou have effectively been capped for the past two years, according to officials.

The CAAC has also granted East Star Airlines, one of several new entrants, rights to operate international services (to Hong Kong and Macau initially), which could prompt a flood of similar requests.

The CAAC forecasts average passenger traffic growth of 14% each year to 2010 and 11% from 2011 through to 2020. But traffic growth this year reached 16.7% in the first half - and the stronger second half is ahead - prompting concerns that the market is overheating.

Unless congestion at China’s main airports is addressed, airline revenues could be affected, while the CAAC’s stated policy of liberalising domestic route rights in 2010 could also be jeopardised.
——-