17-Mar-2020 5:33 PM

China aviation & travel looking to turn the corner post-COVID-19

Analysis

The coronavirus is a fact of life now. Its ramifications are immense, but it will diminish - and then pass.

While we adjust to this new and changing world, it's important to try to see through the fog to what might be the next phase. These are early days, but by tracking developments from now on, we hopefully can perceive trends that point to a more stable environment.

In the first of a new weekly CAPA Membership series, we look in depth at forward or leading indicators of future demand. The aim is to provide insight into signs of stabilisation through the COVID-19 crisis in aviation/travel markets worldwide.

We begin our series with an outlook for China. The world's second biggest aviation market, China, was first into this crisis, so we ask: are there signs of stabilisation there? And if so, could this provide a guide to other markets that are now in free fall?

This report is prepared with thanks to our partners, CAPA Membership, OAG, ForwardKeys, PredictHQ and Skyscanner.

Summary

Chinese airline capacity levels have stabilized domestically, but international capacity is still declining.
Chinese outbound travel bookings have significantly decreased and show no signs of recovery.
Cancellations and postponements of meetings and events have increased dramatically, impacting airline demand.
Inbound travel to China has fallen to 5-8% of pre-crisis levels, but bookings may start to stabilize.
Chinese airline share prices have not fallen as much as international rivals, reflecting investor hopes of state intervention.
It is too early to determine if the Chinese air travel market has stabilized, and international markets are yet to stabilize.

Key points:

Capacity: Chinese airline capacity levels appear to have found a floor - domestic at -71% year-on-year and international at -81% year-on-year. Importantly, this is a capacity-led stabilisation at this point. There are a lot of empty seats flying around. A potential bright spot is that the Chinese airlines have filed more capacity for the Labor Day holidays in early May than in recent weeks;
Outbound: the outlook for the Chinese outbound travel during March and June is pessimistic, and at this moment no signs of recovery can yet be seen. There is a 'glimmer of hope' through shorter Chinese booking lead times to Asia. Due to their very late booking trends, Chinese travel could bounce back relatively fast to Asia, once the coronavirus settles. There are no signs yet that the outbound is recovering;
Meetings and events: the volumes of cancellations and postponements increased dramatically in Mar-2020 and are a key driver of airline demand. There is no slowing yet to the cancellations of meetings and events;
Inbound travel demand to China has fallen to just 5-8% of levels before the crisis. The year-on-year declines started to stabilise by the week commencing 10-Feb-2020, although the market into China is still very much suppressed;
Fares: the uplift in average fares in the past 6 weeks reflects the very low number of bookings and the short range nature of these bookings;
Chinese airline shares prices: they have not fallen as far as those of international rivals, reflecting investor hopes of potential state intervention, and are therefore not a true indicator of the underlying demand picture or outlook;
Summary: it is too early to call a stabilisation of the Chinese air travel market. Capacity has stabilised domestically, but it will take more weeks to understand if planned capacity increases are being met by demand.
International markets are yet to stabilise, and recovery will be delayed by the spread of COVID-19 abroad. Short haul markets should come back first, if the situation in those countries stabilises.

1. The starting point: Airline forward capacity planning (CAPA-OAG)

China domestic seat capacity bottoms out at -71%

According to CAPA Membership Schedule Analysis data, domestic airline capacity levels in China appear to have bottomed in mid February. This insight is drawn from the latest weekly flight schedules filed with OAG with aircraft configuration data applied from the CAPA Fleet database, to produce the Schedule Analysis tools.

Seat capacity levels reached a nadir in the week commencing 17-Feb-2020, at just 4.2 million seats - a reduction of 71.1% year-on-year.

Schedules filed with OAG and linked to aircraft configurations in the CAPA Fleet database show that airlines have quickly put back close to four million seats per week and will offer approximately 8.6 million this week (week commencing 16-Mar-2020). This will rise to over 10 million seats next week (week commencing 23-Mar-2020), but this is still some 22% below 2019 levels.

China weekly total domestic seat capacity (mil)

Chinese airlines have lowered their capacity plans for late Mar-/early Apr-2020 comparing schedules filed this week against last week. But interestingly, China's airlines have updated their expectations for the national Labor Day's holiday period (1-5 May-2020) by filing more capacity for this period than in prior weeks.

CAPA understands a large number of bookings for the Labor Day period were made in November and December 2019, so airlines may be hopeful of slowing cancellations during this period, or perhaps they have expectations of pent-up demand following the deeply affected Chinese New Year period. It is important to note, however, that this is just the filing of future schedules, and these decisions can - and do - change.

We will monitor the changes from week to week.

China's international seat capacity may have bottomed - at -81%

China's international seat capacity appears to have bottomed in the week commencing 09-Mar-2020, a drop of 81.0% year-on-year.

An additional 20,000 seats were added back this week (reduced by 80.4% year-on-year) and a further 100,000 are expected to be added back next week (week commencing 23-Mar-2020) - a net reduction of 77.8% year-on-year.
Capacity levels in international markets are now expected to be just below 2 million seats per week, compared to expectations a week ago of close to 2.5 million seats.

Airlines are filing more optimistic figures from the May Labor Day period onwards, with year-on-year reductions of just 12-15% year-on-year. If this occurs - and the passenger numbers come back in line with the underlying capacity increases, it will be a remarkable outcome.

China weekly total international seat capacity (mil); plans for significant increases

More seats - but most are flying empty

Driving the capacity stabilisation, albeit at significantly reduced levels, has been a series of government support measures via the CAAC to encourage airlines to recommence air services.

These include direct payments per ASK for airlines prepared to operate directly to foreign markets. For more information, read: Coronavirus: China offers to pay airlines to return to the air.

Feb-2020 airport traffic data reports are starting to emerge and make for grim reading

Beijing Capital International Airport reported that passenger traffic fell 86% in Feb-2020, to just 1.1 million, as aircraft movements dropped by 70.6%.

Further south, Guangzhou Baiyun International Airport's traffic fell 84%, to just 966,796 passengers in Feb-2020. Airlines slashed their capacity into Guangzhou last month, providing approximately 3.4 million seats per month to/from the city. This equates to a load factor of just 29%.

The China experience - traffic falls of as much as 80-90% - could become the norm for other airports/airlines/countries entering lockdown events around the world. This is clearly not a sustainable situation.

CAPA Membership Capacity data recap:

Chinese airline capacity levels appear to have found a floor - domestic at -71% year-on-year and international at -81% year-on-year.
A potential bright spot is that - perhaps with encouragement from the CAAC - the Chinese airlines have filed more capacity for the Labor Day holidays in early May than in recent weeks.
Importantly, this is a capacity-led stabilisation. There are a lot of empty seats flying around, as we review in the coming sections.
Traffic falls of 80-90%+ can be expected for countries/airports/regions experiencing lockdowns.

2. Forward bookings: Chinese outbound forward bookings have tumbled (ForwardKeys)

Furthermore, the Outlook for Chinese forward travel looks negative, according to the large data and business intelligence company, ForwardKeys.

Outbound Chinese tourism bookings (as at 8 March) were 89.4% behind the same period in 2019.

The decline is reflected in all segments: fully independent travel (FIT) and group travel for both business and leisure purposes.

Forward bookings for Chinese air arrivals in worldwide regions, March - June 2020 (% change year-on-year)

Forward bookings in Asia yet to find a floor

Forward bookings for the next four months to China's top five destinations in Asia have steadily decreased week-by-week and are yet to find a floor.

Top destinations by volumes for Chinese arrivals to Asia, March - June 2020 (% change year-on-year)

Forward Bookings Recap: A "glimmer of hope"

According to ForwardKeys:

The outlook for the Chinese outbound travel during March and June is pessimistic, and at this moment we see no signs of recovery.
The rapid spread of the virus around the world is holding back travelling from all the regions.
We see a 'glimmer of hope' through shorter Chinese booking lead times to Asia. Due to their very late booking trends, we should see Chinese travel bounce back relatively fast to Asia, once the coronavirus settles.

3. Meetings and Events: Cancellation of meetings and events is a huge drag on demand (PredictHQ)

As government and corporate travel advisories curtail travel, a big casualty is the Meetings and Events sector, which is a major contributor to forward bookings. As meetings and events are cancelled a vicious circle is created, because a key driver of air bookings is removed.

According to the demand intelligence company PredictHQ, who aggregate data about millions of events from hundreds of data sources, event cancellations and postponements have skyrocketed as the novel coronavirus has spread across the world.

In Feb-2020, there was a 500% increase in major and significant event cancellations and postponements worldwide.

This has risen to an 875% year-on-year increase in Mar-2020.

Major + significant event cancellations and postponements worldwide (% change year-on-year)

The largest cancelled event worldwide (by attendee count) so far is in China - the Beijing International Automotive Exhibition with 820,000 estimated attendees.

Major and significant events rarely get cancelled or postponed in China, according to PredictHQ, but approximately 130 events were removed in China in February alone.

Major + significant event cancellations and postponements in China

Most of the cancelled/postponed events in China are large expos that drive tens of thousands of airline ticket bookings.

The 10 largest cancelled or postponed events in China due to the coronavirus

Rank	Event	Link for PredictHQ data
1	Sino-Pack:	https://events.predicthq.com/events/5qbpqDqjooXq
2	PH Value	https://events.predicthq.com/events/fjGq6BLRY9HyLwtULy
3	Productronica China	https://events.predicthq.com/events/8ECy76kSy3bmnHTsJ9
4	Printing South China	https://events.predicthq.com/events/4RFd3scZqWWWQaKZYX
5	Window Door Facade Expo China	https://events.predicthq.com/events/x9EEt2WiBNfTCY56yW
6	China International Door Industry Exhibition	https://events.predicthq.com/events/YhoXMFyDH3As7tMQtF
7	China International Equipment & Manufacturing Industry Expo	https://events.predicthq.com/events/P99iu3EHcJt2v6XTXk
8	China International Petroleum & Petrochemical Technology & Equipment Exhibition	https://events.predicthq.com/events/KgBDzXJXEshnUnbFq6
9	Dental South China	https://events.predicthq.com/events/xGTqY2wGidbxcybVfF
10	Semicon	https://events.predicthq.com/events/bkUq3rv8vHndyt7Ksa

There are still more than 35,000 significant and major events scheduled over the next three months, according to PredictHQ, as well as millions of smaller events, but the picture is changing daily.

Meetings and Events Recap:

According to PredictHQ:

Meetings and events cancellations are costing billions of dollars.
The volume of cancellations and postponements increased dramatically in Mar-2020.
They are likely to continue for some time, especially as the virus spreads into new countries.

4. Inbound travel: inbound to China slumped - but bookings may start to stabilise

Skyscanner, the global travel search provider, has a unique view into global travel trends via its Travel Insight platform, which aggregates insights from over 100 million travellers a month.

According to Skyscanner, demand into China first started to drop compared to the same period last year in the second week of January. These reductions in redirect activity started to accelerate from all inbound markets from mid January.

By the week commencing 10-Feb-2020 the year-on-year declines had started to stabilise, albeit at a very low base. Total 'redirects' (booking referrals from searches from itinerary/price searches on Skyscanner) have hit -90.5% year-on-year in the past week, which was a slight improvement on the -91.7% reduction the prior week.

Skyscanner added, "at this point, the market into China is still very much suppressed as the impact of COVID-19 has spread around the globe".

China inbound Summary: Economy Return Trips Only: Performance during Last Week: week ended 8 March 2020

Skyscanner notes there has been an uplift in average fares in the last 6 weeks reflecting the low number of redirects (bookings) and the short range nature of these redirects. In other words, passengers appear to be booking for near-term travel and paying a premium.

China inbound Summary: Economy Return Trips Only: Performance during Last Week: week ended 8 March 2020

Bookings from all source regions to China are massively down, including all Asian inbound traffic, led by East and Southeast Asia (-95.8%) in the latest week.

Performance by Origin Region: Year-on-year redirects by week

Inbound data Recap:

According to Skyscanner:

Demand into China first started to drop compared to the same period last year in the second week of January.
These reductions in redirect activity started to accelerate from all inbound markets from mid January.
By the week commencing 10-Feb-2020 the year-on-year declines had started to stabilise, although at this point the market into China is still very much suppressed as the impact of COVID-19 has spread around the globe.
The uplift in average fares in the past 6 weeks reflects the low number of redirects and the short range nature of these redirects.

5. Inbound quarantine restrictions in place in China

COVID-19 cases in China appear to have stabilised in recent weeks just above 81,000.

COVID-19 cases in China appear to be flattening out

The coronavirus mortality rate in China also appears to have stabilised, at around 4%, while the rate is rising in other countries towards this level.

COVID-19 mortality rate in China vs rest of the world, since 05-Mar-2020

There are no inbound travel bans to China from any country at the present time. However, under current restrictions, every inbound traveller must undertake self-quarantine for 14 days.

For individuals from high risk regions/countries, including Italy, South Korea, Iran, Japan, France, Spain, Germany and the US, CAPA understands nationals from these countries will be taken to designated hotels for 'concentrated quarantine' for 14 days.

CAPA understands the self-quarantine advice was issued by various Chinese provincial governments, depending on the severity of impact on that the region. The 'concentrated quarantine' steps were initially introduced on foreign arrivals to Wuhan/Hubei Province, but have increased to travellers from the listed countries as the virus has spread globally.

China is easing some movement restrictions, which could result in an uptick in domestic travel activity, to be monitored in future updates.

5. Airline share prices as a helpful forward indicator

Chinese airline share prices have fallen since the start of 2020, but nowhere near as sharply as those of their international counterparts, due to strong government support (direct ownership) of the sector. China's civil aviation recorded its largest monthly loss of USD3.5 billion in Feb-2020, including USD3 billion alone in losses for the country's airlines during the month.

Hainan Airlines has broken from the pack following news on 20-Feb-2020 of the possibility of a takeover by the Hainan Province Government. But the rest of the Chinese airline sector could also be rationalised in a central-government reorganisation of the industry.

Chinese airline share price index to 13 March (Indexed to 01-Jan-2020)

Chinese airline stock prices reflect investor hopes of impending state intervention and are therefore not a true indicator of the underlying demand picture.

The Verdict: too early to call, but some glimmers of hope

It is too early to call a stabilisation of the Chinese air travel market. Capacity has stabilised domestically, but it will take more weeks to see if planned capacity increases are being met by demand.

International markets are yet to stabilise and recovery will be delayed by the spread of COVID-19 abroad. Short haul markets should come back first, if the situation on those countries stabilises.

CAPA will update the data presented in this report and add more data points as they become available.

Please visit the CAPA website for a Daily COVID-19 wrap and other analysis reports. CAPA Members can access all capacity data presented here via the CAPA Membership service - for details contact membership@centreforaviation.com

About our Data Partners

This report is prepared with thanks to our partners ForwardKeys, PredictHQ Skyscanner and CAPA Membership. We encourage you to check out their resources and services at the links below.

ForwardKeys is a big data and business intelligence company offering a new approach to traveller operational business. ForwardKeys leverages global flight reservations plus other data to monitor and qualify traveller flows, understand global demand, and forecast trends, analysing millions of daily flights. For more information click here.

The demand intelligence company PredictHQ aggregates data about millions of events from hundreds of data sources. PredictHQ's 'Aviation Rank' tool helps users know which events will impact airline demand so revenue teams can make decisions better, faster and at scale. PredictHQ's proprietary ranking algorithms incorporate historical aviation bookings with PredictHQ event data and identify which will have the most impact on air travel. For more information click here.

Skyscanner, the global travel search provider, has a unique view into global travel trends via its Travel Insight platform, which aggregates insights from over 100 million travellers a month. Travel Insight is a powerful business planning and analytics data source that is particularly beneficial for helping airlines to run more profitably, airports to find new customers, and destination and marketing agencies to understand demand. For more information click here.

OAG

OAG is a leading global travel data provider, that has been powering the growth and innovation of the air travel ecosystem since 1929. 

Every day, OAG supports millions of journeys across the globe, enabling a simpler, seamless and more enjoyable travel experience. With the world's largest network of schedules and status data, and leading-edge analytics tools, OAG enables its customers to make smarter decisions, better adapt to change and create exceptional customer experiences.  

Find out more: https://www.oag.com/

CAPA Membership provides global aggregated aviation news, analysis and data as it happens, with access to a comprehensive suite of tools that can be customised to clients' needs. For more information click here.

Have an insight to share?

Contribute to our industry's understanding of the COVID-19 crisis by sharing your aggregated data points with us. We will gladly add them to the next edition. Please contact Derek Sadubin, Managing Director, CAPA, at ds@centreforaviation.com

Thank you.