In Depth: Domestic Carriers Add Global Routes as Foreign Rivals Quit China Amid Sluggish Demand, Russia Ban
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Since China dropped the Covid-era restrictions that slowed international flights to a trickle, the experience of domestic and foreign airlines has diverged sharply.
Many foreign carriers are scaling back their operations in China and in some cases completely withdrawing from the domestic market, largely because the need to avoid Russian airspace has sent their costs spiraling and made them uncompetitive against Chinese rivals who can still fly over the country’s northern neighbor.
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- Foreign airlines are reducing or suspending routes to China due to rising costs from avoiding Russian airspace and low post-pandemic demand.
- Chinese airlines are expanding overseas routes, particularly to the Middle East, to utilize excess capacity from an underperforming domestic market.
- Despite increased international routes and slashed fares, Chinese airlines face challenges due to overcapacity and lower passenger load factors compared to pre-Covid levels.
The content explores the divergent experiences of domestic and foreign airlines post the easing of China's Covid-era restrictions, highlighting the contrasting strategies and outcomes. The initial divergence emerges as foreign carriers, strained by the necessity to avoid Russian airspace due to geopolitical tensions, face heightened costs, leading to reduced competitiveness relative to Chinese rivals [para. 1][para. 2]. Conversely, Chinese airlines, exempt from such airspace limitations, are expanding their international routes, particularly to the Middle East, with major state-owned carriers like Air China, China Southern Airlines, and China Eastern Airlines launching new routes to countries like Saudi Arabia, Qatar, Turkey, and the UAE [para. 3][para. 4].
Despite expectations for a post-pandemic travel surge, the anticipated "revenge travel" was short-lived. Economic sluggishness has kept business travel low, while domestic travelers increasingly opt for high-speed rail, causing less than anticipated demand absorption for the increased flight capacities [para. 4][para. 5]. This has prompted many foreign airlines to reassess their China operations. For example, Virgin Atlantic announced the suspension of its London-Shanghai route starting October, citing Russia's airspace ban which impacts flights from certain countries due to the ongoing Ukraine conflict [para. 6][para. 7].
The shift in market dynamics is evidenced by statistics from VariFlight, revealing that by the end of June, Chinese airlines operated 76% of China-Europe flights, a stark contrast from the 50-50 pre-pandemic split [para. 8]. Some European airlines, like Air France-KLM, have reduced their flight frequency and number of destinations to China, significantly cutting back their operations compared to pre-pandemic levels. This reduction is partly attributed to the additional costs and complexities of rerouting flights to avoid Russian airspace, which has led to increased operational expenses and flight prices [para. 8][para. 10][para. 11].
Demand for international travel to and from China remains lower than expected post-pandemic. For instance, Australian carrier Qantas Airways also suspended its non-stop service to China, reallocating capacity to other Asian markets due to insufficient demand recovery [para. 12][para. 13]. Domestically, China's airfares were about 15%-20% cheaper from early 2023 through July of the same year than in 2023 due to supply surpassing demand, which reflects the carriers' struggle to fill flights despite increased capacity [para. 14]. The load factor for Chinese airlines, a measure of seat occupancy, is projected to rise slightly by the end of the year but will still remain below pre-Covid levels [para. 14][para. 15].
Chinese carriers continue to adjust their strategies, including significant fare reductions even during traditionally high-demand periods. The average peak season ticket prices dropped significantly year-on-year, underlining the struggle against excess capacity especially with wide-body aircraft typically used for long-haul flights [para. 16][para. 17].
New routes to the Middle East highlight strategic shifts, with Chinese airlines adding destinations like Riyadh, Doha, and UAE capitals to their schedules. This aligns with the Civil Aviation Administration of China's goal to restore international flights to 80% of 2019 levels [para. 18][para. 19]. However, these efforts are insufficient to absorb the overcapacity of wide-body planes originally intended for U.S. and European routes, leading to continued financial losses for major state-owned airlines in the first half of 2024 [para. 20]-[para. 24]. Comparatively, smaller private carriers like Juneyao Airlines have managed to achieve profitability during the same period, highlighting the varied impacts within the industry [para. 24]. Given the ongoing overcapacity, these challenges are likely to persist as airlines continue to receive new aircraft deliveries postponed by the pandemic [para. 25].
- Air China Ltd.
- Air China Ltd. (601111.SH) has increased its available seat kilometers by 21% compared to the first half of 2019 but faced a 1.7 percentage point drop in passenger load factor. The company is expanding international routes, particularly to the Middle East. However, it continues to face overcapacity issues and financial losses, totaling 7.48 billion yuan ($1 billion) in the first half of 2024.
- China Southern Airlines Co. Ltd.
- China Southern Airlines Co. Ltd. has launched several new international routes, including direct flights between Guangzhou and Doha in April and its second direct route to Turkey in June. It also announced new nonstop routes to Riyadh in the second quarter of 2024. The airline is focusing on increasing international flights due to a domestic travel slump and is part of the CAAC's goal to restore international flights to at least 80% of 2019 levels.
- China Eastern Airlines Corp. Ltd.
- China Eastern Airlines Corp. Ltd. (600115.SH) is among China's "big three" state-owned airlines. The company has launched new nonstop routes to Riyadh, Saudi Arabia, as part of its expansion into the Middle East. However, like its main competitors, it is facing overcapacity challenges and financial losses, with the airline expecting to add more planes over the next three years, exacerbating these issues.
- Hainan Airlines Holding Co. Ltd.
- Hainan Airlines Holding Co. Ltd. (600221.SH) launched its first Middle East route in January, connecting the capital of Hainan province with the UAE. This move aligns with the CAAC's goal to restore international flights to 80% of 2019 levels by year-end. The expanded routes aim to boost trade and potentially divert passengers from direct China-Europe and China-U.S. flights.
- Juneyao Airlines Co. Ltd.
- Juneyao Airlines Co. Ltd. (603885.SH), a private airline, posted strong profit growth in the first half of 2024, with net profit soaring 509% year-on-year to 489.4 million yuan. Unlike the "big three" state-owned airlines, Juneyao operates less capacity, which has contributed to its profitability despite the broader industry challenges.
- Virgin Atlantic Airways Ltd.
- Virgin Atlantic Airways Ltd. announced it would suspend flights between London and Shanghai from October, ending a route it has operated since 1999. This decision is due to Russia barring airlines from the European Union and other countries from its airspace in retaliation to sanctions following its invasion of Ukraine.
- Air France-KLM
- Air France-KLM is operating four direct routes to and from China from Paris and Amsterdam between late March and October, with 44 scheduled flights per week. This is half the number of flights and destinations it offered in 2019. General Manager Wouter Vermeulen cited the challenge of avoiding Russian airspace, which has significantly increased operational costs and flight prices.
- Qantas Airways Ltd.
- Qantas Airways Ltd., the Australian flag carrier, suspended its only non-stop service to the Chinese mainland on July 28, allocating capacity to other Asian markets. Although not directly affected by the Ukraine war, Qantas had paused and resumed its Sydney-Shanghai service during the pandemic and then suspended it again due to lower-than-expected demand.
- February 2022:
- Russia barred airlines from the European Union and a host of other countries from its airspace in retaliation to sanctions imposed following its invasion of Ukraine.
- October 2023:
- Qantas Airways Ltd. resumed its Sydney-Shanghai service.
- January 2024:
- Hainan Airlines Holding Co. Ltd. launched a direct route between the capitals of Hainan province and the UAE.
- By March 31, 2024:
- Direct flights between China and the U.S. were allowed to reach 100 a week, but were still well below the pre-pandemic level of 340.
- April 2024:
- China Southern Airlines launched a direct route between Guangzhou and the Qatari capital of Doha.
- May 2024:
- Wouter Vermeulen, general manager of Air France-KLM for Greater China, stated that flying around Russia is 'a big challenge' in restoring China-Europe routes due to increased operational costs.
- May 2024:
- Qantas Airways Ltd. stated that demand for its Sydney-Shanghai service had not recovered as anticipated.
- June 2024:
- China Southern Airlines launched its second direct route to Turkey.
- End of June 2024:
- Chinese airlines operated 76% of flights on China-Europe routes.
- July 28, 2024:
- Qantas Airways Ltd. suspended its only non-stop service to the Chinese mainland.
- As of Aug. 7, 2024:
- The average prices of economy-class tickets on domestic and international flights during the traditional summer peak season had dropped 20% and 26.7% year-on-year, respectively.
- August 2024:
- The publication date of the article.
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