The aviation industry in China is poised to see strategic shifts among carriers, according to a recent report by Embraer. The company underscores the importance of moving away from congested, highly competitive trunk routes towards underserved secondary markets to achieve sustainable profitability.
Passenger traffic in China has surpassed pre-pandemic levels and is projected to reach 1.5 billion by 2035, yet profit margins remain under pressure due to intense route overlap and competition. Embraer highlights that over 65% of domestic flights and 75% of available seat kilometers are concentrated on major city pairs. High-speed rail further diminishes the viability of short-haul routes, pushing airlines toward fare discounts and larger aircraft that often exceed demand.
Strategic Market Segmentation
The report distinguishes between "red ocean" markets—cities saturated with competition—and "blue ocean" opportunities in Tier 2, 3, and 4 cities, which include domestic non-HSR routes and secondary international links. These markets often function with monopoly or duopoly conditions, enabling airlines to rebuild yield discipline and avoid fare wars. Embraer advocates targeting these segments for long-term growth and profitability.
“The recovery in passenger numbers has proven China’s market potential, but it’s clear that volume alone cannot restore airline profitability,” said Patrick Peng, managing director of Embraer China. “Our analysis shows that the future of profitability lies in operational excellence and strategic choices.”
Embraer’s analysis has identified over 900 underserved city pairs, with 185 domestic non-HSR pairs capable of supporting at least three flights weekly. Smaller airports like Huizhou, Dalian, and Quanzhou present viable opportunities for service expansion using appropriately sized aircraft, aligning fleet strategy with market needs.
