Chinese to skip flying overseas in 2024 even as domestic travel booms

CHINA’S aviation market has been picking up as the pandemic trauma fades, relations with other countries improve and international routes expand. But many analysts are concerned about the outlook for 2024.

Despite steps by China to get people flying overseas, like resuming group tours, the appetite for international travel is limited. A sluggish economy, weaker currency and high ticket prices are among the factors keeping people at home.

Morgan Stanley noted that China’s international recovery has been slower than expected due to soft demand. Seat capacity between China and the US, for example, was only at 22% of 2019 levels in the week through Dec. 26, it said.

“Non-domestic demand resumption remains uncertain,” analysts Qianlei Fan, Tenny Song and Jasmine Qiu wrote earlier in December. “It may take longer than expected for demand to recover from 70-80% of pre-COVID levels.”

Morgan Stanley doesn’t expect China’s international air travel to fully recover until 2025, a view shared by Bloomberg Intelligence.

“International demand on China routes is set to stay subdued due to economic challenges at home and reduced inbound business sentiment,” BI’s Tim Bacchus and Eric Zhu wrote. “Manpower, capacity, ticket prices, FX rates and visa issues may hit overseas travel too.”

The Lunar New Year break in February should provide a welcome boost. China’s main holiday is usually one of the busiest times on Earth for travel, but it was muted in 2023 as restrictions had only recently been lifted and there was a wide COVID outbreak, making people even less willing to risk going abroad.

“This will be the first Chinese New Year without worrying about COVID,” said Parash Jain, head of transport research for Asia Pacific at HSBC Holdings Plc. “The only place where the post-COVID recovery will be talked about is China’s international travel. Everywhere else is done and dusted.”

Air travel within China has been a different story, even stronger than before the pandemic. In the third quarter, which includes the busy summer season, passenger traffic hit a record 180 million, according to the aviation regulator.

However, even that now may be fading.

“After upbeat performances during peak seasons, China’s air travel demand appears to have been weaker than expected since late October,” the three Morgan Stanley analysts wrote in their latest note, dated Dec. 28. “Looking at 2024, we think margin pressure will linger especially for low seasons amid the soft economic outlook and weak income expectation from households.”

China has loosened visa restrictions to coax people to travel — both inbound and outbound — and inject life back into its economy. Citizens from several countries including France and Germany can now visit without a visa, and China has also said it is cutting the cost of applying for travel documentation through 2024.

The international travel recovery is still only likely to be gradual, “with passenger numbers lagging seat increases as challenges to outbound and inbound business persist,” BI’s Mr. Bacchus and Mr. Zhu said. “The overseas market won’t rebound to 100% of 2019 levels by yearend.”

The top three carriers — Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp. — should at least achieve strong profits in 2024, while low-cost Spring Airlines Co. and Hong Kong’s Cathay Pacific Airways Ltd. are set to benefit as international traffic creeps higher, according to the BI analysts.

China Eastern could post the biggest turnaround after being the only member of the trio set to post a loss for 2023, they said, as tour groups return. BI sees a swing of 10.5 billion yuan ($1.5 billion) over 2023 projections for the airline.

Developments in China’s relationship with the outside world should also help prise open doors to international travel, not least President Xi Jinping meeting with US leader Joseph R. Biden in San Francisco in November. That trip helped smooth ties and accelerate the reintroduction of more flights. European services are also expanding.

“A faster-than-expected restoration of China-US flights is a key catalyst for the recovery of international flights and thus easing overcapacity on domestic routes,” HSBC’s Mr. Jain said.

The scars of COVID are reflected in the stock markets. Nine of the 10 worst-performing stocks on the Bloomberg World Airlines Index are Chinese, all falling more than 22% since the start of January. The other in the worst 10 is Southwest Airlines Co., down about 13% through Dec. 28. —