China's secondary city long haul flights: policy changes and higher fuel prices could slow growth

Growth of China's secondary city long haul flights has been so underpinned by subsidies that it has become conference coffee break talk to exchange stories of what exuberant incentives are on offer, often for fanciful flights.

Secondary city long haul flights will average 31 each day in 2018, up from 12 in 2015. Foreign airlines initially led secondary city long haul development, but now it is firmly Chinese airlines developing this segment – and in particular the HNA Group, which operates 31% of Chinese-flown secondary city routes.

Subsidies for outbound Chinese passengers holidaying in Australia, Europe and the Americas brought little benefit to Chinese economies but were encouraged by local governments.

Now, China's major state-owned airlines are appealing to the central government to curtail subsidies, according to Aviation Week. The state-owned airlines may be ganging up on HNA, but subsidies and the rush for traffic rights has brought disorder to China's carefully laid hub developments.

Even without a policy change, rising fuel prices will drive a shake-out of services, most of which were launched during fuel's rock-bottom prices. There is some potential benefit to other airlines, but most passengers on subsidised flights are unlikely to pay more.

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