For Asian airlines, China market is 'the elephant that isn’t in the room'
The uncertainty surrounding the reopening of Mainland China’s air travel market remains the major wild card in the outlook for the Asia-Pacific airline industry. Restoring Chinese international traffic flows will be essential to the region’s full recovery, but there are very few details regarding when – and how – this will occur.
Growth in outbound and inbound travel had made China one of the most important markets for many of the region’s airlines before the pandemic. However, international capacity in Mainland China is at skeleton levels due to its strict COVID-19 travel policies.
Airlines are tentatively planning for China restrictions to ease sometime in 2023. Despite some limited moves by the Chinese government recently, there is not yet a timeline for more meaningful steps to reopen cross-border travel.
This limits the international recovery for some of the Asia-Pacific region’s airlines. Even if these airlines fully restore other routes, they will still be missing a large chunk of their pre-COVID operations.
- The Chinese market accounted for about 40% of Asia-Pacific traffic in 2019.
- The Chinese government has relaxed some measures, including the 'circuit-breaker' rule.
- China likely to take cautious approach to broader international reopening.
- Lack of Chinese traffic will be recovery challenge for Asia-Pacific airlines.
- System bottlenecks need to be resolved before China demand returns.
Absence of Mainland China traffic is holding back the region’s international recovery
China-related traffic accounted for as much as 40% of the region’s pre-pandemic total, including domestic and international traffic, Mr Menon said during CAPA’s Asia Aviation Summit in Singapore on 3-Nov-2022. The region’s heavy exposure to China is one of the main reasons the Asia-Pacific recovery is lagging other parts of the world.
Mainland China’s international capacity remains at just 8.2% of pre-pandemic levels – the lowest recovery among major markets in the Asia-Pacific region.
Mainland China: international capacity, as measured in weekly seats, 2019-2022
Within the Asia-Pacific region, the Northeast Asia sub-region is furthest behind, with just 30% of pre-pandemic seat capacity in service. This is because some of the major markets in Northeast Asia – Japan, mainland China, Hong Kong and Taiwan – have been slowest in Asia-Pacific to reopen.
This leaves Mainland China as the most notable holdout.
Some measures have been eased, but a broader reopening still appears distant
China’s government restricts airlines to a handful of flights on specified routes, in addition to other COVID-19 measures such as quarantine on arrival. There has been a slight easing in recent weeks, with some more flights allowed and a reduction in quarantine time.
Another change is the removal of the so-called 'circuit-breaker' rule, which suspended flights if they carried a certain number of positive COVID-19 cases.
However, these modifications will likely not shift the needle much in terms of airline capacity.
There will be political and health logistics aspects to China’s reopening timeline, according to Manu Bhaskaran, CEO of Centennial Asia Advisors. On the political side, any broader moves are unlikely before the next People’s Congress in Mar-2023, Mr Bhaskaran said at the AAPA annual assembly in Bangkok on 11-Nov-2022.
China will want to improve its vaccination rates among seniors before allowing more cross-border travel to resume, said Mr Bhaskaran. Greater availability of the most effective vaccines and increasing intensive care hospital capacity may also be precursors.
The Chinese government is gradually putting these building blocks in place, said Mr Bhaskaran. He notes that the government will take a “very cautious, conservative approach…there won’t be a rush to reopen.”
For this reason, Mr Bhaskaran believes it is unlikely that there will be a major surge in international travel to and from China before late in 2023. China will probably follow a phased approach to removing restrictions, he said.
Japanese airlines are operating much-reduced schedules into Mainland China
All Nippon Airways (ANA) is hoping that it will be able to improve Mainland China traffic gradually following the limited moves by the Chinese government to allow more international flights. While ANA is currently only operating 20% of its pre-pandemic capacity into Mainland China, the airline is aiming to increase this to approximately 30% by the end of Mar-2023, said Junichi Miyagawa, ANA’s executive VP for alliances and international affairs, during the AAPA event.
Chinese traffic represents the largest missing piece of international demand for Japan Airlines, according to Ross Leggett, the airline’s deputy senior VP for route marketing, international relations and alliances. Although JAL has been able to expand its routes into China recently, frequencies remain very low.
Airlines have had to adjust plans due to the prolonged absence of China
Malaysia Airlines is only operating 17% of its mainland China capacity, said the airline's CEO Izham Ismail. The airline estimates that its China services will not significantly return until at least the second quarter of 2023 – and if it occurs earlier it will be a bonus, said Capt. Izham during the AAPA assembly.
The China market is extremely important to the Philippines, said Alexander Lao, chief commercial officer for Cebu Pacific. Mainland China was the Philippines’ second largest source of tourists before COVID-19 and was on pace to be number one, said Mr Lao at the CAPA Asian conference.
Philippines: visitor arrivals by market, 2019
Moves by China to “double-down” on its zero-COVID policy have reduced optimism that it will reopen more broadly soon, Mr Lao said.
“Ultimately, the question for airlines [is] if China doesn’t reopen [in the short term], are there going to be other new markets or sources of customers?”
It is still “anyone’s guess” when China will reopen, agreed Lim Ching Kiat, managing director for air hub development at Singapore’s Changi Airport Group. However, this does not necessarily matter for now, he said at the CAPA event: “In the near term, our work is cut out for us” rebuilding other markets and routes after the pandemic. "There’s more than enough work for us to do while waiting for China to open”, he said.
As one example, Southeast Asian leisure destinations need to lure back European tourists that increasingly turned to Caribbean and Latin American destinations while many Asian countries were closed during the pandemic, said Mr Lim.
Faster return of China traffic would have exacerbated air travel bottlenecks
The eventual return of Chinese traffic will put more pressure on an aviation system that is already under strain keeping up with international travel recovery, panel members at the CAPA conference said.
Mr Lao noted that there are bottlenecks in many places at the moment, “and that’s even before China comes back.” He questioned whether there are enough ground handling workers and resources at some airports to handle the potential increase in Chinese traffic.
It is likely that when China does reopen for international travel it will do so in a phased manner, said Liz Ortiguera, CEO of the Pacific Asia Travel Association. A gradual opening of this type “would actually be good for the [travel] industry”, she said.
Ms Ortiguera cited one hotel executive who told her, “Thank goodness China didn’t open up at the same time as [other markets]”; because the travel industry is facing staffing shortages in many countries.
“Now is the time we need to prepare for when [China] does open up, and make sure we have that [capacity ready]”, Ms Ortiguera said.