With an Over-Capacity in Post-Pandemic Domestic Airline Market, International Routes Present New Opportunities (AI Translation)

【周刊提前读】民航疫后国内运力过剩 国际航线出现新机遇

In 2024, China's civil aviation sector is grappling with rising passenger numbers but declining profits. During peak travel seasons, ticket prices have dropped. Data from July 17 indicates the average price of domestic air tickets is 787 yuan, a 17% year-on-year decrease. International tickets averaged 2,303 yuan, down 25.37% year-on-year.[para. 1] Following the Spring Festival, airlines have engaged in price wars, leading to a situation where high volume has resulted in lower prices.[para. 1]

The Civil Aviation Administration of China (CAAC) reported that passenger traffic in the first half of 2024 exceeded 350 million people, a 23.5% increase year-on-year.[para. 2] However, Flight Master data shows that average fares have decreased, with domestic routes at 832 yuan and international ones at 1,780 yuan, representing declines.[para. 2]

The China Air Transport Association (CATA) noted that international routes have not yet recovered fully, causing reduced ticket prices and insufficient load factors in the domestic market.[para. 3] As a result, the industry saw a loss of 7.2 billion yuan in the second quarter, with cumulative losses in the first half reaching 4.71 billion yuan.[para. 3]

Airfare levels for 2024 are reported to be 15%-20% lower than those in 2023.[para. 4] Foreign airlines are retreating from the Chinese market, with Virgin Atlantic and Qantas halting operations on certain routes. This move highlights the shift where domestic airlines dominate international routes, leading to lower prices.[para. 5]

On China-Europe routes, Chinese airlines now hold 72.4% of the market share, compared to 53% in 2019. This shift is influenced by factors like the Russia-Ukraine conflict and subsidies for international routes from some Chinese cities.[para. 6]

Competition from China's high-speed rail network, which now extends its effective range to 1,000-1,200 kilometers, is also squeezing civil aviation's market share. Senior aviation consultant Yu Zhanfu noted high-speed rail's advantages, such as punctuality and cost-effective pricing for second-class seats, have contributed to diverting passengers from air travel and suppressing airfares.[para. 8]

In the international market, domestic airlines have ramped up their capacity, redirecting operations to countries with more open air rights, such as the United Kingdom.[para. 9] This has led to lower load factors and ticket prices, putting pressure on profitability.[para. 9][para. 9][para. 9]

China's airlines are also increasing capacity in non-traditional markets, specifically in the Middle East, aligning with national strategic plans and benefiting trade between China and the Middle East.[para. 10] This shift helps to diversify investments but also highlights regional disparities in the recovery of international routes.[para. 10]

For the three major state-owned airlines, an excess supply of wide-body aircraft has led to operational pressures.[para. 11] Despite the massive deployment of capacity and falling ticket prices, load factors have not returned to pre-pandemic levels.[para. 11]

In terms of competition with high-speed rail, civil aviation has struggled, particularly for routes within a 1,000-1,200 kilometer range. The high-speed rail network's expansion has compounded this challenge, reducing air traffic on shorter routes.[para. 12]

To combat rising operational costs, primarily due to fuel prices, and increased financial liabilities accrued during the pandemic, airlines are attempting to improve efficiencies and expand capacity despite facing structural and economic challenges.[para. 14]

Overall, while the civil aviation industry in China has seen a rebound in passenger volumes, insufficient demand, rising operational costs, and intense competition from high-speed rail have kept the sector from returning to profitability. The industry faces an array of challenges, including geopolitical factors, oil price volatility, and structural changes in air travel preferences, which continue to create a complex and challenging environment.[para. 14]