JAKARTA (BLOOMBERG) - China's airline industry could be showing the first signs of recovery after dramatically shrinking over the past month as the spreading coronavirus led to thousands of flight cancellations.

Scheduled airline capacity within China is up more than 25 per cent - by 1.3 million seats - week on week, thanks to a rebound in domestic capacity, according to OAG Aviation Worldwide.

Air China appears the most optimistic, as it has added back 306,000 seats, almost double its capacity from the previous week, analyst John Grant wrote.

In total, 7,923 flights will be reintroduced this week, but there could be last minute capacity adjustments and cancellations, according to Mr Grant.

Scheduled international capacity continues to decline, however, and China now ranks as only the 28th biggest international aviation market, behind Austria, he wrote. China was third just six weeks ago. The number of seats dropped by 25,000 from the previous week to 422,000, with 10,000 lost for Japan alone.

"With Chinese travellers recognised as high retail spenders at airports, the damage to commercial revenues at Japanese airports will be significant," Mr Grant said.

For Hong Kong, departing capacity has slumped by a quarter of a million seats a week, pushing the financial hub to 48th on the largest international market rankings, according to OAG.