China-Japan/Philippines territorial disputes simmer as China-Japan air traffic lowest since 2004

It comes as a welcome sign that diplomatic, if back door, talks are beginning between China and Japan as well as the Philippines, two nations with territorial disputes with China that have flared in recent months, causing air traffic capacity between the nations to make double-digit percentage drops.

While some of the extreme public protests in China against Japan have become more subdued, consumer sentiment continues to be affected, as airlines on each side extend capacity cuts and offer special fares to stimulate traffic.

For individual carriers, the cuts are not as pronounced as at the market level given their large networks. Profitability will undoubtedly be affected, but if diplomacy prevails and the status quo is restored, these summer 2012 incidents will be a blip but reminder of the region's fragility. Imminent leadership issues in China and Japan have played no small part in the recent surge of nationalistic rhetoric and, as those political events are put to rest, so hopefully the often-orchestrated demonstrations of nationalistic fervour will be quietened too.