What China’s Air Market Can Tell Us About The Future

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Airlines in Europe and North America are preparing for air travel’s recovery. Networks are being adjusted, despite a highly unpredictable demand. That requires accurate, forward-looking forecasts, and good predictability of customer behavior. These can prove challenging under normal circumstances, while a feared virus makes matters significantly more difficult. All eyes are on China, as it is a leading indicator of how air travel demand will recover in the months to come.

A relatively fast rebound in passenger numbers can be attributed to the vast size of the domestic market in China. Photo: Getty Images

Current Situation

China eased its air travel restrictions at the beginning of April. This move resulted in a partial air travel recovery, with passenger numbers rising by 7.9% from March. Yet, the number of passengers in April was still 68% lower than what they used to be a year ago. The 16.72 million air travel passengers in China recorded last month is a small improvement, compared to March, when 15.13 million passengers traveled by air. Importantly, however, since the easing of the lockdown, passenger numbers continue to rise steadily, a trend providing the industry with hopes for recovery.

Data from Cirium confirm such a trend. The daily percentage decline in tracked flights from the five biggest Asia-Pacific countries compared to the equivalent period a year ago shows the slow recovery of the Chinese market. Air travel in China bottomed in mid-February when roughly 75% of all passenger jets remained grounded. Currently, the amount of flights tracked is 45% of what it was in May 2019. Interestingly, not only fewer aircraft take to the skies, but they also fly shorter. Daily flight hours per active aircraft is down to 5.5 hours a day versus 9.5 hours a day before the pandemic.

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Jet flights tracked behaved differently across regions. India remains ar 0%, with all flights banned. Source: Cirium

At the moment of writing, approximately sixty percent of global fleets remain grounded.

Other Regions

The Chinese air travel market is the only and probably the most accurate indicator that could help us predict the demand recovery in other regions. The reduction of jet flights tracked in North America has bottomed at 75%, the same as in China. However, already today, it is evident that recovery will be slower than in China, as the number of tracked flights in North America today remains close to the bottom. With the virus not entirely under control, it will likely take 3-4 months for the number of daily flights to match the current Chinese levels (45% less than a year ago). In August/September, we could see the number of flights in North America being roughly half of what it was a year ago.

Several jet flights in each region have differed, due to varying measures aimed at slowing down the spread. Source: Cirium

Europe’s recovery will be different, as flights were more drastically restricted during the peak of the outbreak, with operations falling close to zero. We are likely to see a rapid increase in the number of flights to roughly 30-35% of 2019 levels. However, once European air travel returns, the recovery could be slower than in China due to inconsistent policies across countries.

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Supply-Demand mismatch

Despite a partial demand recovery, the disconnect between demand and supply remains. The number of flights in China increases more rapidly than the number of air passengers (-50% year-on-year (YoY) vs. -70% YoY in April). That, in turn, results in lower load factors. Additionally, pressure on low airfares remains.

The situation in North America seems worse. Currently, air passenger numbers range between 6-9% of its 2019 levels, while the number of flights is 25% of what they used to be. Load factors are, on average, four times lower than last year, despite 70-80% network reductions implemented by many carriers.

Optimism about a rapid industry recovery should remain very cautious. It will likely take years, not months, for the demand to return. Additionally, achieving profitability in the short term may prove very challenging.

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What are your thoughts on the future of Chines aviation? Let us know what you think in the comment section.

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