Analysis-Foreign airlines lose interest in China as domestic carriers expand overseas By Reuters

By Lisa Barrington

SEOUL (Reuters) – Chinese airlines are gaining market share on international routes, industry data showed, as foreign rivals are deterred by weak travel demand in China and rising costs and longer flight times due to the need to avoid Russian airspace.

Foreign airlines, led by Western carriers such as British Airways and Australia’s Qantas Airways, are withdrawing services or choosing not to restart flights to China after the pandemic, while Chinese airlines are expanding overseas operations.

The proportion of international flights to and from China operated by the country’s carriers is higher than before COVID-19 grounded much of global aviation and continues to grow.

British Airways said on Thursday it would stop flights from London to Beijing for a year from the end of October for commercial reasons and last month suspended one of its twice-daily London-Hong Kong flights for the same period.

Since the outbreak of the Ukraine war in 2022, Chinese carriers have continued to take shorter northern routes to Europe and North America over Russia’s vast airspace.

In contrast, airlines from Europe, the US and other countries have been banned from Russian airspace by Moscow or their own governments or choose not to fly over for safety reasons.

This has extended the cost advantage held by Chinese airlines and allowed them to take a larger share of the international market at a time when fierce competition on domestic routes has put pressure on ticket prices and profitability.

“Chinese carriers typically have costs up to 30 percent lower than their international rivals,” said John Grant, senior analyst at travel data firm OAG. “Chinese airlines are desperate for strong currencies and have embarked on extensive expansion.”

British Airways’ four-day-a-week Beijing-London flight takes about 2-1/2 hours longer than China Southern’s daily flight on the same route launched last year, according to flight tracker Flightradar24.

British Airways will continue daily London-Shanghai flights and in May relaunched a codeshare with China Southern.

Virgin Atlantic said last month it would drop the London-Shanghai service indefinitely from the end of October due to longer flight times.

British Airways and Virgin Atlantic will be able to use London Heathrow take-off and landing slot values ​​for other routes that may be more profitable.

Qantas cited half-empty planes and low demand for China travel when it suspended its Sydney-Shanghai flights in July, while Asian carrier Royal Brunei Airlines cited “market conditions” as the reason for suspending its twice-weekly flights in Beijing from October.

FOREIGN CARRIERS ARE WITHDRAWING

Chinese airlines including China Southern, China Eastern and Air China (OTC:) in July operated 90 percent of the number of international flights they operated in July 2019, according to Cirium data analyzed by Reuters.

Foreign carriers operated only 60% of flights before the pandemic, indicating a retreat.

For example, the only non-stop flights between Mexico and China are from Chinese airlines, after Aeromexico did not resume connections after the pandemic. Aeromexico did not respond to a request for comment.

Lufthansa CEO Carsten Spohr said last week that the group’s weakness in Asia did not stem from a lack of economic opportunities but from “overcapacity provided by Chinese carriers”.

But in the Middle East, where China is building links, Dubai’s Emirates fully restored China capacity, Kuwait Airways increased frequencies and Bahrain’s Gulf Air began flights to two Chinese cities for the first time in May.

China’s international traffic has grown since pandemic-related restrictions were lifted in early 2023, but has recovered more slowly than other countries due to a weakened economy and a return to domestic travel.

In July, there were 23% fewer flights from China than in the same month in 2019, Cirium data shows.

POLITICAL PROBLEMS

Some flights to and from China have been blocked by political issues. Passenger flights between India and China have not resumed at all after the pandemic due to a border dispute.

Flights between China and the United States are at about a fifth in 2019 after a bilateral air services agreement was suspended in 2020.

Reciprocal flight authorizations have gradually increased, but US airlines operate only 35 round-trip flights a week out of the 50 allowed, Cirium data shows, while Chinese carriers have increased to 49 a week.

United Airlines said last month it had reallocated capacity to other parts of the Asia-Pacific region due to “dramatically” lower demand for China travel.

In April, major US airlines and aviation unions asked the US government to stop approving flights by Chinese carriers in a letter citing Beijing’s “anti-competitive policies” and Russia’s overflight disadvantage.

“If China’s aviation market growth is allowed to continue unchecked … flights will continue to be divested to Chinese carriers,” the letter said.