In Depth: Domestic Carriers Add Global Routes as Foreign Rivals Quit China Amid Sluggish Demand, Russia Ban

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].