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China’s three major airlines are on track to extend a lossmaking streak to a fourth year, as analysts warn that the country’s uncertain economic growth and fewer direct US flights are weighing on demand for international travel.
The three carriers’ total combined estimated net losses of up to Rmb14.3bn ($2bn) are significantly less than the combined loss of Rmb108.7bn in 2022, according to their preliminary results. But the Chinese airlines are struggling in comparison with US and European carriers, which have been reporting booming profits on a rise in airfares.
One year after China lifted its Covid-19 control restrictions, China Eastern Airlines on Tuesday evening said it expected to report a net loss of up to Rmb8.3bn for the year ending in December. Last week, Air China forecast a net loss of up to Rmb1.3bn for 2023, while China Southern Airlines said it expected to lose as much as Rmb4.7bn in the same period.
Weak demand among business travellers and China’s restrictive visa policies have frustrated the post-pandemic rebound, China Eastern said in an exchange filing late on Tuesday. “The overall international routes recovered slower than expected,” the airline said.
The carriers are struggling to resume direct flights to the US at a time of increased tension between Beijing and Washington. While the number of international flights recovered to about 70 per cent of 2019 levels as of this month, flights to the US remained at just 18 per cent, said HSBC analysts.
The airlines have been unprofitable since the pandemic began, when Beijing introduced some of the world’s most restrictive travel and quarantine rules. The Hong Kong-listed shares of the three big airlines have fallen between 37 and 45 per cent over the past year, against the backdrop of a nearly 29 per cent drop in the benchmark Hang Seng index.
Chinese President Xi Jinping and US President Joe Biden agreed to increase flights significantly during Xi’s visit to the US in November. China-US flight volumes increased last year, from 10 per cent of 2019 levels in October to about 20 per cent last month, said Chen Xin, head of China leisure and transport research at UBS.
Yet economic challenges in China “potentially affecting consumer sentiment and reducing spending on travel” will continue to fuel uncertainty in international flight recovery, said Jason Sum, an equity research analyst at DBS.
China’s economy grew 5.2 per cent last year, slightly higher than its official target but at a much slower pace than before the pandemic.
Parash Jain, HSBC’s head of shipping, ports and Asia transport research, forecast all three carriers could return to profit this year if international travel recovered.
“We expect the recovery in international capacity to accelerate in 2024, propelled by the easing of external bottlenecks such as visa policies,” he said.
China this month announced new visa-free travel arrangements with Singapore and Thailand. Last year, Beijing introduced visa-free policies for some countries including Germany, Italy and Spain.
Industry body International Air Transport Association said it expected China’s overall passenger traffic to recover to 2019 levels this year.
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