China’s domestic airline capacity is surging well beyond pre-pandemic levels
The continuing strength of China's domestic market is helping to drive improvement in Chinese airline financial results, and is also helping to offset the slow recovery in key international markets.
Domestic capacity is now significantly beyond 2019 levels, as growth has not only resumed since the COVID-19 pandemic, but has accelerated.
Because China was more cautious in removing pandemic-era travel restrictions, its airlines are trailing others in the Asia-Pacific region in terms of financial recovery.
However, the "big three" airlines from mainland China have either narrowed their losses considerably in the first quarter, or have returned to profitability.
Economic trends and political issues are hindering international demand, but the domestic market is not as affected by these factors, so the impressive capacity growth rate continues.
This is one of the world's most important domestic markets, as the rankings tables for routes and overall capacity in this analysis illustrate.
- Domestic China passenger numbers were up by about 18% in Mar-2024 versus 2023, and up by 13% versus 2019.
- China’s annual domestic traffic reached a new high in 2023, and appears set to do so again in 2024.
- China Southern Airlines achieved a net profit in the first quarter, while both China Eastern Airlines and Air China reduced their losses.
- There are 67 airlines in mainland China, and the big three account for a combined 42.9% of domestic capacity.
- Four of the world’s top 10 domestic routes are between Chinese cities, and six of the top 15.
China's domestic traffic and capacity were up significantly in the first quarter, compared to both 2023 and 2019 levels
The graph below shows that for the week of 6-May-2024 China's domestic capacity was about 14% higher than in the same week in 2019.
It was also higher than 2023 capacity for most of the first quarter of 2024, but is now trending at about the same level.
Mainland China: domestic capacity, as measured in weekly seats, 2019-2020 and 2023-2024
The next chart looks at monthly domestic passenger numbers, using CAAC numbers. The 2021 and 2022 years have been excluded to get a clearer look at the key trends.
Monthly passenger numbers were still below 2019 levels until Apr-2023, when they overtook the pre-pandemic total.
Since then the gap has increased, with monthly passenger numbers about 35% higher year-on-year in the first two months of 2024, and 17.8% higher in Mar-2024. For the first quarter, traffic was up by 29% versus the same period in 2023.
The Mar-2024 total is 13% higher than the same month in 2019.
China: monthly domestic traffic, as measured in passenger numbers, 2019-2020 and 2023-2024
Domestic traffic has been boosted by the trend of increased leisure travel within China, which has also occurred in other countries since the COVID pandemic.
The chart below shows that annual growth was strong before the pandemic, with domestic passenger numbers increasing in the 9%-11% range in seven of the 10 years through 2019.
Then there was a dip from 2020 to 2022 during the pandemic period, before domestic passenger numbers set a new high in 2023.
And the further increase in passengers in the first quarter of 2024 indicates that another high point will be reached in 2024, with the annual growth rate much higher than in the pre-pandemic years.
China's annual domestic passenger totals from 2010-2024, with annual passenger growth rates
Growing domestic demand has helped lift financial results for mainland China's dominant airlines
The "big three" Chinese airlines have the largest capacity shares in the domestic market.
The chart below shows that China Southern Airlines, China Eastern Airlines and Air China account for a combined 42.9% of weekly domestic seats.
Shenzhen Airlines and Hainan Airlines account for about 5% of seats each, but the other airlines are all at less than 4.5%.
There are a total of 67 airlines based in mainland China, according to CAPA - Centre for Aviation data.
China: domestic capacity, by airline share, measured in seats for the week of 6-May-2024
First-quarter earnings reports from the three largest Chinese airlines all showed improvement.
China Southern achieved a net profit of CNY756 million in the first quarter of 2024, reversing a CNY1.9 billion loss in the same period a year earlier.
China Eastern recorded a net loss of CNY803 million, a significant reduction of its loss of CNY3.8 billion in 2023.
Air China narrowed its loss to CNY1.7 billion (USD), versus a loss of CNY2.9 billion in the same period in 2023.
LCCs still have a relatively small share of the Chinese domestic market
China has several LCCs operating domestically, and these airlines account for 12.9% of domestic seat capacity.
This is below the Asia Pacific average LCC domestic capacity share, which is 30.9%.
The average for the Northeast Asia region (including China, Japan, South Korea and others) is 15%.
China: domestic capacity by business model, as measured in seats for the week of 06-May-2024
China's major domestic routes are among the world's busiest, and it is the second largest market
The next chart shows the top 10 domestic routes in mainland China, led by the Beijing-Shanghai and Guangzhou-Shanghai routes.
Mainland China's top 10 domestic routes, as measured in seats for the week of 6-May-2024
Guangzhou Baiyun International Airport is the leading hub in terms of domestic capacity, followed by Beijing Capital International Airport.
Beijing Daxing International Airport (PKX) is sixth on the list, and the two Shanghai airports are at fifth and seventh.
Mainland China's top 10 airports, as measured in seats for the week of 06-May-2024
This rankings table (below) shows the world's top 15 domestic city pairs, and it provides a good illustration of the scale of China's domestic trunk routes.
Four of the top 10 domestic routes are between Chinese cities, and six of the top 15. This is easily the most from any country on this list - Japan is next, with four of the top 15.
Top 15 domestic routes globally: as measured in seats for the week of 6-May-2024
This means that mainland China has the second largest domestic market in the world, in terms of capacity.
Countries and territories ranked by domestic capacity, as measured in seats for the week of 06-May-2024
Even at its current scale, China's domestic market still has more room to grow
China's domestic capacity has more than bounced back - it has soared beyond 2019 levels.
This, in part, reflects a return to the pre-pandemic growth trajectory, and is also partly due to the weaker international recovery as more capacity can be diverted to domestic.
The prominence of Chinese domestic routes on the global top 10 list underlines the significance of the country's capacity recovery, both from a global and Asia-Pacific perspective.
There are, of course, some headwinds facing Chinese airlines. These include economic slowdown, currency devaluation, and high fuel prices - factors that also affect many other Asia-Pacific airlines.
The impressive development of high-speed rail networks is another long term challenge to China's domestic air services.
But there is obviously still plenty of potential for further growth in this market. When China's international market eventually recovers fully it may cause some domestic capacity to be diverted back to international routes - although such a recovery appears some way off yet.