Chinese Airlines Are Preparing To Take Advantage Of The Border Opening

Analysts predict that Chinese airlines will be the early winners of the country’s international reopening, having kept most widebody planes and personnel ready while foreign carriers struggled with capacity constraints following previous border openings.

According to a McKinsey analysis of Cirium data, less than one-fifth of China’s widebody fleet of about 500 planes is in storage, with most planes active but flying fewer hours than usual on domestic routes and limited international and cargo flights.

During the pandemic, Chinese airlines kept the majority of their pilots and cabin crew, and airports kept about 90% of their employees, which should help carriers avoid the chaotic ramp-up seen in North America and Europe, according to Steve Saxon, a Shenzhen-based McKinsey partner who leads the firm’s Asia travel practice.

“The profitability is going to be good in the short term… because even if the Chinese carriers activate quite quickly, what we’ve seen around the world is the demand comes back faster than supply,” he said. “And that typically means that prices are therefore high.”

According to ForwardKeys data, Chinese carriers sold approximately 62% of tickets to and from China in 2019, while foreign carriers sold 38%, reflecting the strong outbound market dominating traffic flows.

During the pandemic, state-owned Air China, China Southern Airlines, and China Eastern Airlines received financial assistance and kept narrowbody planes active on domestic routes so that they could be quickly redeployed to Asian destinations.

“The Chinese airlines have a front seat,” Singapore-based independent analyst Brendan Sobie said of the recovery, citing advantages including a large sales base in China and the ability to deploy capacity quickly on routes with the most demand.

“Foreign airlines don’t have that flexibility and it will be hard for them to forecast and project how fast demand returns on their China routes,” he added.

During the pandemic, many foreign carriers retired large numbers of widebody planes and struggled to add capacity even before China opened.

Carriers such as Lufthansa, United Airlines, Singapore Airlines, and Qantas Airways said this week that they were reviewing their China flight plans but did not announce any immediate increases.

According to Tianfeng Securities, the Chinese travel industry expected the border to open in March and was unprepared for the Jan. 8 date.

According to VariFlight data, international flights to and from China are only 8% of pre-pandemic levels, and carriers need confirmation of traffic rights and airport slots as they look to ramp up capacity.

Ticket prices remain high, and other initial travel challenges include an expected backlog of passport renewals and visa applications, as well as new testing requirements for Chinese travelers imposed by countries such as the United States, Japan, India, and Italy, according to Saxon.

He anticipates that international capacity to and from China will increase to 20% to 30% of pre-pandemic levels by March, and possibly 50% by summer.

According to Skyscanner data from this week provided to Reuters, July is the most searched month for travel to China, a large market for both business and leisure.

“From a pricing perspective, there may be some short-term fluctuations due to large amounts of demand, but we anticipate that airlines will mobilise aircraft and crews quickly and reintroduce capacity to keep prices attractive,” a Skyscanner spokesperson said.

(Adapted from Reuters.com)

Advertisement

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s