China domestic aviation revives slowly after virus shutdowns
The aviation industry is watching domestic capacity in China as a harbinger of demand recovery in other markets
China’s domestic flights rose by about a fifth in March from the previous month, the aviation regulator said, but that was still less than half the flights before the shutdowns due to the coronavirus, showing the sector is recovering only gradually.
The aviation industry is closely watching domestic capacity in China as a harbinger of demand recovery trends in other markets around the world that are still in a capacity cutting phase as the pandemic spreads.
The number of daily flights climbed 20.5% in March to 6,533, Jin Junhao, an official at the Civil Aviation Administration of China ( CAAC), told a press conference on Thursday. That was still just 42% of the daily flights before the coronavirus struck.
Most of the increased travel demand in March was from labour abundant regions such as southwest and northwest China to coastal areas where labour demand was tight, he said.
Major state-backed carriers this week warned that fares remained low, fewer seats were filled than usual and cautious travellers were waiting until the last minute to book.
The rebound in China has been hampered by the slower-than-expected recovery in broader economic activity.
Air China, China Southern Airlines and China Eastern Airlines Corporation said this week they were looking to defer airplane deliveries despite a gradual rebound in capacity, according to analysts who listened to post-results teleconferences.
China Eastern said it had aimed to operate 40%-50% of its domestic flights in March but there was demand for only around 30% based on bookings, according to BOCOM International analyst Luya You.
“On the flight arrangements, we’re making real-time adjustments based on market conditions,” China Eastern said, responding to a Reuters request for comment. The other airlines did not respond immediately.
CAAC ordered local and foreign airlines last week to drastically reduce international flight capacity to and from China over fears of re-introducing the coronavirus.
The regulator has also put restrictions on the number of domestic flights per day in the second quarter, although subdued demand means the curbs don’t have an impact, analysts said.
“I think a full-fledged Q2 domestic rebound is not too likely, but we could see more stabilisation. Operations will probably remain around 30%-50% of normal for time being,” said You.
Air China forecast a rebound in the domestic market in June, with an international market recovery taking until August at the earliest, analysts said.
China Southern had 45% of its aircraft idle in March, an improvement from 52% in February, but the carrier said it was filling fewer seats at lower fares, Daiwa analyst Kelvin Lau told clients in a note.
Meanwhile, China’s ports and shipping firms are bracing for a second wave of supply chain disruptions that may be deeper and more prolonged than during the country’s coronavirus lockdown as the global spread of the virus chokes off international demand.
With Beijing reporting only sporadic domestic transmission of the coronavirus since March, workers have been allowed to return to posts, factories are restarting and ports are rushing to clear a backlog of cargoes.
But with virus outbreaks now overwhelming healthcare systems and shutting logistics channels in other major economies, exporters and industry analysts warn that global demand for products made and shipped out of China looks set to plunge.
“We expect the near-term impact on trade growth in coming quarters likely to be the worst ever, as economies stall and external demand faces imminent collapse on large scale quarantine measures across major economies,” said Rahul Kapoor, vice president at IHS Markit.
China’s container processing volumes fell 10.6% in the first two months of 2020 compared to the year before, while exports dropped 17.2%.
And while volumes rebounded in March as manufacturing and logistics operations rebooted, exporters fear that outbound shipments may be in for an even steeper slump in the months ahead.
“There is widespread concern among ports and shipping companies that the coronavirus overseas will hamper demand and in return take a toll on production in China,” said secretary general at China Ports & Harbours Association Ding Li. The export slump could drag on throughout 2020, said Julian Evans-pritchard, senior China Economist at Capital Economics, estimating China’s second-quarter exports could contract as much as 30% year-on-year.