Holiday traffic plummets

Covid-hit Chinese airlines turn to livestreaming as flight sales dwindle

Workers move around a Xiamen Airlines Boeing 737 MAX aircraft at Boeing facilities at Grant County International Airport in Moses Lake

State-owned carriers are racking up record losses

Willie Walsh, the director general of the International Air Transport Association (IATA), told an industry forum in Saudi Arabia this week that the airline sector could return to pre-pandemic levels in 2023, a year earlier than previous forecasts.

Two countries could be waiting much longer for signs of the recovery, however. International air travel has largely dried up in Russia after governments introduced flight bans in the wake of Vladimir Putin’s invasion of Ukraine. And strict measures to control Covid have been disastrous for the Chinese airlines, which are struggling with some of the worst commercial conditions in their history.

Losses for China’s three leading carriers – Air China, China Eastern and China Southern – doubled to Rmb16 billion ($2.4 billion) over the final quarter of last year and analysts are predicting many more months in the red if the government persists with its ‘zero-Covid’ containment policy. Results last week for the first three months of this year confirmed that the situation is getting worse, with the trio reporting net losses of just over Rmb21 billion between them – much worse performances than the same period last year.

A weaker Chinese currency (see WiC583) and rising fuel prices are pushing up costs at a time when Covid curbs are torpedoing demand for travel.

International travel has largely been extinguished and domestic flows have also fallen sharply on the same period last year. That was evident again over the week-long Labour Day holiday (which finished on Wednesday last week). China’s aviation regulators were predicting that air travel would drop by 77% compared with last year and overall tourist trips fell to 160 million, down by 70 million on last year, according to data from the Ministry of Culture and Tourism.

Part of the problem is that many of the tourist hotspots were closed because of virus control measures. Even in places that tried to stay open to visitors, such as Jiuzhaigou National Park and the West Lake in the city of Hangzhou, tourist traffic was weak, the tourism ministry reported.

Hotels and guesthouses had been braced for a disappointing week, despite slashing prices in a bid to drum up interest. Hotel occupancy rates in Sanya, a destination on Hainan Island popular with duty-free shoppers, were only about a fifth of capacity, for instance.

Many residents didn’t venture out because of warnings from their local governments not to travel. Some of those who did make the effort then chose to camp out at night in a bid to stay outdoors and avoid busier areas. Others opted for day trips closer to their homes, although these journeys were often restricted as well. “Prevention and control have reached a high standard,” one resident of Hangzhou told SixthTone, a news site. “We drove from village to village, and even though they were only a few minutes-drive apart, we were still asked to show various QR codes and the checkpoints were very strict.”

The holiday period highlights how there’s no sign of a fuller recovery for the travel and tourism sectors yet. People staying at home during the pandemic has moved more of the spending online, however, which has translated into much better times for other industries. Listed companies in the warehousing, transportation and postal sectors reported a surge in net profit in 2021, as companies raced to keep people supplied during lockdowns.

Back in the airline world, HSBC analysts aren’t expecting much to change until next year, especially in China’s international traffic. Even then the forecast is for no more than half of the passenger flows of 2019, the year before the pandemic began.

A recovery might come quicker in domestic air travel, assuming that there is a phasing out of the lockdowns and travel restrictions currently imposed on cities around the country. If that happens, pent-up demand for tickets could drive up the share prices for China’s carriers, HSBC thinks. But growth in seat capacity is going to struggle to keep up, forcing up fares for passengers.

Few of the airline bosses will be hopeful about that happening in the foreseeable future, however, with the Politburo Standing Committee vowing again last week to “unswervingly adhere” to the current Covid policies.

In the meantime the carriers are scrambling to plug some of the shortfall in ticket sales. One option is to rely more on their cargo operations, with the carriers reconfiguring their fleets to increase freight capacity. Demand for air cargo has been one of the very few positives in the sector for much of the last 18 months, although IATA warned last week that global freight volumes fell in March and April because of Covid-related disruption in manufacturing and supply chains, as well as the impact of the war in Ukraine.

That is putting pressure on the airlines to find more creative sources of revenue, an area where many of the carriers have been experimenting since earlier in the pandemic.

The catering team at Xiamen Airlines has been selling packaged meals to company cafeterias, for instance, while Sichuan Airlines has been trading on the provincial reputation for fiery food with a hot-pot delivery service. Hainan Airlines and China Southern have both been tapping into the livestreaming trend as well, with broadcasts from their flight attendants selling items including beauty and skincare brands.

“All our goods are cross-border products, because of cooperation between China Southern’s cross-border e-commerce team and bonded warehouses, and all of them have been exempted from tax, so the prices are lower,” one of the cabin crew broadcasters explained to her livestream viewers.

However, as far as airline shareholders are concerned this definitely looks to be a cosmetic solution…

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