Chinese carriers take flight amid global slump

Some 13.2 million trips were taken on flights during the recently-concluded National Day holidays.
Some 13.2 million trips were taken on flights during the recently-concluded National Day holidays.PHOTO: REUTERS

BEIJING - With the rest of the global aviation industry reeling from the fallout of the coronavirus pandemic, China has bucked the trend with a rapid recovery and passenger loads close to last year's.

Some 13.2 million trips were taken on flights during the recently-concluded National Day holidays, about 91 per cent of last year's average.

Other airlines can only look on enviously, with the International Air Transport Association (IATA) warning on Tuesday that carriers would need more government support to weather the crisis. The industry burns some US$300,000 (S$406,000) every minute, IATA said.

Despite airlines warily restarting operations, capacity and flight slot restrictions have meant the airliners will collectively lose US$77 billion in the second half of 2020, while a slow recovery next year would likely lose them US$5-6 billion a month.

But China is in "better shape" because of its large domestic market, and having restarted flights, said Iata chief economist Brian Pearce.

"(For) Chinese airlines, (the domestic market) constitutes a major portion of their revenue so they're in much better shape," he told a regular media briefing.

"But, for the majority of the rest of the world, particularly airlines dependant on international markets, there's very little difference."

The sector's recovery also got a boost from the mega National Day holiday. Usually a week long, it was extended by a day this year because it coincided with the Mid Autumn Festival.

"Due to the recent stable domestic epidemic control situation... passengers' willingness to travel has increased significantly," the Civil Aviation Authority of China said.

In some major tourist destinations, passenger loads have reached or are close to pre-pandemic levels, the regulator said.

"For one of the largest markets in the world to be operating with capacity close to January's levels reflects a major structural change of focus towards domestic services," wrote aviation data firm OAG in a blog post this week.

Last month, a HSBC Global Research report suggested that China's "Big Three" -- China Eastern, China Southern and Air China -- could be in the black for the quarter ending Sept 30.

Still, the three carriers posted losses of US$4 billion in the first half and any profit is unlikely to stem the bleeding by year's end.

Earnings will also be hampered by a lack of international travellers and unlimited flight passes that some airlines have offered, analyst Ivan Su of Morningstar in an interview with CNBC.

These passes, which allow passengers unlimited flights within a set time period, are unlikely to generate as much income as individual tickets.

Furthermore, while airlines in China often rely on domestic passengers for capacity, domestic travel is not as profitable as international flights.

"While Chinese aviation will garner good internal traffic numbers, airlines there will be losing out not just on international traffic, they'll be losing out on serious revenue and yield," said independent aviation analyst Saj Ahmad.

"Let's face it, China may have big domestic demand, but it is nowhere near as profitable as the domestic US market."

Given the global aviation slump, China possibly emerge from 2020 as the top performing market, he said, noting that the resumption of international travel, and the new form it might take, all remain questions to be answered.