British Airlines, Qantas and Finnair are some of the airlines cutting flights to China.
Nicolas Economou | Null Photo | Getty Images
The world’s major airlines are cutting back on service and, in some cases, pulling out of China altogether. This is because flight costs are rising due to longer routes to Asia due to the closure of Russian airspace, and demand is sluggish.
For example, Virgin Atlantic and Scandinavian Airlines will completely withdraw from China, according to their websites. Virgin Atlantic will operate all flights to Hong Kong in 2022 and close its Hong Kong office, ending the airline’s 30-year presence in Asia’s financial hub.
Seven major airlines have left the country in the past four months, travel news site Skift reported.
John Grant, chief analyst at aviation intelligence firm OAG, said the situation “is likely to get even more pronounced before it gets better.”
British Airways has been steadily reducing the size of its jets in China, Grant said. Routes that used to fly Boeing 747 jumbo jets were replaced by B777s and eventually by the smaller B787, he said. This is another way to reduce capacity, but it “keeps a point” on the airline’s route map, Skift said.
Frankly, it’s a no-brainer.
John Grant
OAG Chief Analyst
rising costs
Following Russia’s invasion of Ukraine, the EU and the UK, along with other Western countries, imposed a total grounding of Russian aircraft. Russia responded similarly by closing its airspace, forcing many European airlines to fly longer routes to reach Asia.
Longer flights require more fuel and result in higher airfares. But Chinese airlines are not subject to Russia’s airspace embargo, so they can fly the same routes faster and cheaper than European carriers.
Three days after Russia invaded Ukraine, Finnair announced that flights to major Asian cities (Tokyo, Shanghai, Seoul, Bangkok, Delhi and Singapore) would be longer. The airline will reduce flights to China and add flights to Thailand this winter.
Aaron Lamp/Bauer Griffin | GC Images | Getty Images
Additionally, “airlines have had to operate with four crew members due to extended operating hours when in some cases they could have used two or three crew members,” Grant said. “When you have a flight crew shortage and limited hours, that’s an expense.”
Grant said European airlines have found better uses for aircraft deployed in China.
For example, when British Airways discontinued its Beijing route, it reallocated planes to Cape Town, he said. He said the “loading factor,” which measures how many seats a plane is occupied, jumped from 55% on the Beijing route to 90% on the Cape Town flight.
Decrease in demand
As major airlines pull out of China, some are adding capacity to other parts of Asia, showing that the Russian airspace issue itself is not a deal breaker.
Demand inside and outside China is also a big issue, Grant said. While China’s economic problems have hindered overseas travel, international interest in visiting China has waned, and the number of visitors to Japan has also declined.
According to the Chinese government, China received about 49.1 million tourists in 2019 before the pandemic, but as of July this year, about 17.25 million foreigners had arrived in China.
When Qantas announced in May that it would cancel its Sydney-Shanghai route, it cited “low demand” as the reason. Australia’s flag carrier still flies from Sydney, Melbourne, Brisbane and Perth to Hong Kong.
U.S. airlines have not been hit as hard by the Russian airspace issue, but they too are retreating, Grant said.
“In fact, U.S. airlines are making the difficult but very commercial decision to discontinue service to China and redeploy aircraft elsewhere,” he said. “Frankly, this is to be expected and is a reflection of the market.”
“There is no real interest by U.S. airlines in doing anything more at this point,” he said. “It’s as if China has a presence in the market and is holding on to the spectrum that they have to secure when they come back and not be blocked because they say they don’t have any slots available – they’ve done it before. There is something.”
CNBC reached out to China’s aviation authorities for comment, but did not receive a response.
China Airlines struggles
The slump in demand is also plaguing China’s domestic airlines.
Grant said Chinese airlines will recover, but only in the long term. “However, its largest airline lost US$4.8 billion in 2022, while all major international legacy airlines were profitable last year, losing ‘only’ US$420 million. But they have a long way to go.”
This winter, China-based airlines will operate 82% of all flights between China and Europe, up from 56% before the pandemic, he said. Grant said Chinese airlines overall increased capacity to Europe compared to pre-pandemic, even though market and trade flows were much stronger at the time.
A screenshot of Lufthansa’s website for the Oct. 26 flight shows that all nonstop flights from Frankfurt to Beijing are operated by Air China.
CNBC
“Chinese airlines are desperate for cash and want to be seen as returning to ‘normalcy,'” he said.
And more flights are planned, Grant said.
“There are approximately 18 new routes scheduled to open between China and Europe this winter…all by Chinese airlines,” Grant said. “That’s crazy. There’s no real demand for it.”
