Direct Flight + Shangai = Big Yaun

Air routes to mainland China

Bobby L. Hickman

September 7, 2007

There’s no doubt that Delta’s quest for a direct air route to mainland China is important to the airline as it returns to profitability. But aside from those Georgians inconvenienced by changing planes en route to Asia, what’s the benefit to the rest of us?

According to Delta, the benefit is at least $400 million a year in economic development on the southeastern United States. The proposed direct route to Shanghai translates into increased trade, investment and tourism opportunities with one of Georgia’s important business partners, according to the effort’s government and community supporters.

Doug Blissit, Delta’s vice president of public affairs, says the $400 million figure was derived from a 2005 study the airline commissioned during its earlier bid for a direct flight to Beijing. Much of the expected benefit in a new route is driven from the increased investment that a new non-stop creates. “Economic development follows non-stop flights,” he says. “We have 80 international destinations, and we’ve found that investment follows those routes.”

The 2005 study projected $387 million in benefits from an Atlanta to-Beijing route. Some $205 million was expected from increased visitor expenditures, with the average person spending $257.64 per day during a typical 10-day visit. The study also found increased airport usage would lead to more employment by Hartsfield-Jackson International Airport and Delta.

Delta estimates that a proposed Shanghai route for 2007 would have a $400 million economic impact on the Southeast. A direct route to Beijing, which Delta is seeking for 2008, could add another $400 million. “The majority of the investment will probably be in north Georgia,” Blissit says. “We also know there are cities in Florida that expect to benefit from improved access to China.”

Delta is generally considered the front runner for the next non-stop route to Shanghai. The U.S. Transportation Department has indicated it wants to award the route to a domestic carrier that does not currently serve China, and Delta is the only such applicant for the 2007 route. However, Delta faces more competition from airlines with established Asian networks, all of which are seeking the new Beijing route that begins service in 2008.

At a July press conference announcing the Beijing application, Delta COO Jim Whitehurst said, “Both routes will fill critical gaps in service between the Southeastern United States – the five million people in the Atlanta area and 60 million in the Southeast – and China, the largest country in the world in terms of population. It will position Delta and Atlanta as a powerful gateway to the Far East, along with our existing services to Tokyo and Seoul.”

Whitehurst also said the non-stop applications are important “because this is the most underserved region of the U.S. in terms of service to China,” with every non-stop flight to China now originating from the Northeast, the Midwest or the West Coast.

During the announcement, Ben DeCosta, general manager of Hartsfield-Jackson, said China’s full trade with Georgia in 2005 was valued at $12 billion, a 29 percent increase over previous year. In 2006, more than 26 million pounds of cargo were transported from Hartsfield- Jackson to China by air.

Atlanta Mayor Shirley Franklin visited Shanghai and Beijing in September 2006, stating that residents of both cities want closer ties to the Southeast. “The airport impacts our region in excess of $19 billion a year,” Franklin says.


The sooner, the better?

Hans Gant, senior VP of economic development for the Metro Atlanta Chamber of Commerce, says the chamber has been working with political and business leaders to gather support across the Southeast, and filed its own separate application to support the Atlanta-Shanghai route. “The ties Atlanta and the Southeast have to China enhances our business and cultural opportunities. The sooner we have this route, the better.”

Jorge Ferguson, the chamber’s vice president of global commerce, says promoting an Atlanta-China route was one of the goals of last year’s trade mission to Asia. “Last September, when we visited China’s Minister of Aviation, we made it clear one of our objectives on the trip was to promote the importance of Atlanta-Shanghai service.”

Henry Yu, president of the National Association of Chinese-Americans (NACA) in Atlanta, and Lani Wong, the local NACA chair, were among more than 25 delegates on Franklin’s Asian junket. Yu says NACA Atlanta has been promoting U.S.-China relations for almost 30 years. “Initially we were promoting cultural and educational exchanges. But the last few years, in conjunction with China’s growing economy, we’ve spent a lot of time on the business side.”

Yu, who is also SunTrust Bank’s managing director of global trade solutions, takes two to three trips a year to China. On his most recent trip, he flew from Atlanta to Newark, and then took a 16-hour non-stop flight to Hong Kong.

Aside from the convenience factor, Yu says the campaign for a direct flight is important to the Chinese because it demonstrates how important China is to Georgia. “If I’m a potential Chinese investor and I see that Georgia has been aggressively pushing for a direct route, that shows commitment.”

According to Yu, the direct flight will also help Georgia businesses gain entry to the growing central and western areas of China. “Property values in central China are one-fifth to one-tenth less than in coastal China,” he says, “and the difference in salaries and wages also big. A direct flight opens opportunities for Georgia to play a key role in the central cities’ expansion. We need to leverage Georgia’s brands: CNN, Coca-Cola, the 1996 Olympics; all those things have opened the door for us. And the Chinese people love U.S. brands.”

A direct route also increases the interest of Chinese investors in Georgia. “To compete and grow, they need to go outside of China, and that’s much easier with a direct flight,” Yu says. They can come here and set up joint ventures with local companies. They want to be closer to the customer.”


The power of tourism

Ken Stewart, Georgia’s commissioner of Economic Development, says that tourist development would benefit from the direct route. “There’s a growing middle class in China looking for places to go. With the direct route, we’ll be well positioned to work with the Asian tour companies to provide stops. It’s going to open up some opportunities for the second largest industry in the state.”

Stewart also says adding the route between Atlanta and Shanghai is significant because of connectivity. “The connectivity that having a direct, non-stop flight provides is critical not just for people but for freight. Companies looking to expand in the global economy “look for places with quick, easy connectivity. There is no other direct connection flight to China out of the Southeast. You’ve got 65 million people in the Southeast who would be opened up to China, and the business center in China that’s opened up to the Southeast.”

Georgia’s port trade with China is already growing quickly. In October 2005, the Georgia Ports Authority and Shanghai’s International Ports Group signed an arrangement. China and Hong Kong now account for 40 percent of the trade that occurs through Georgia’s port system. “China went from the sixth-ranked to third trading partner for Georgia, just from 2005 to 2006,” Stewart says.

More than $10 billion in imports went through the Savannah customs district (which includes Brunswick) last year, a 25 percent increase over 2005. Savannah is now sixth among all U.S. container ports with Asian imports, and Georgia’s ports are the fastest growing on the East Coast. “ A lot of that is driven by 22 direct shipping routes we have with Asia, including China,” Stewart says, adding that Georgia has been “pretty successful thus far, and what this connection is going to do is accelerate the trade and investment we have with China.”

Stewart flew on the inaugural Delta route from Atlanta to Seoul. The return flight brought back 55,000 pounds of freight — engines for the Hyundai Group that came through Atlanta en route to Montgomery, Ala. “Once you get direct freight and direct air, you get connectivity that’s significant for economic development,” Stewart says.

He cites General Protecht’s $50 million expansion that will create 350 jobs in Barnesville. General Protecht and other Chinese companies “like to invest in an integrated cluster of industry, distribution, retail and residential,” Stewart says. “They like to build a whole community. Those communities can easily exceed an investment of $100 million. We’re in talks with the leaders of one community that’s interested in expanding.”