Chinese Airlines Losing Billions

Chinese Airlines Losing Billions.

During the recent China International Forum on Aviation and Tourism, some very interesting statistics were revealed regarding the growth of commercial aviation in China, especially for international travel. These were revealed by the chairman of the China Aviation Association, as well as several executives from Chinese airlines.

Among these facts:

Between 2011 and 2018, the average annual growth rate of passenger traffic on China’s international routes was 17%

There are nearly 40 domestic airlines, and Chinese airlines fly more than 5,000 international flights per week to more than 170 cities in more than 60 countries

China’s international aviation industry has been losing money for three years, with a loss of 21.9 billion CNY (~3.1 billion USD) in 2018

A China Eastern executive revealed that on intercontinental routes in 2018 their unit revenue was less than 0.4 CNY per kilometer, which is under 0.057 USD per kilometer (that’s about 0.09 USD per mile); as a point of comparison, Delta’s unit revenue per available mile is over 0.16 USD per mile, so it’s nearly twice as much

How Much Longer Can This Go On?

China is obviously a massively growing market, with a huge number of outbound tourists. You’d think that this huge increased demand would pave the way for a more profitable aviation industry, but the increase in supply has outpaced the increase in demand. One has to wonder when this pattern will stop.

Delta (and to a lesser extent American and United) loves to talk about how the “big three” Gulf carriers are capacity dumping using government subsidies, though the reality is that we’re seeing the same for Chinese airlines. Now, in fairness, China doesn’t participate in the Open Skies agreement, so it’s a little bit different, but still.

Of course Delta has no problem investing in China Eastern, which is majority owned by the Chinese government.

Bottom Line

Chinese airlines lost over three billion USD operating international routes in 2018. Their unit revenue is really bad as well. It will be interesting to see what gives, as the number of international routes operated by Chinese airlines continues to grow.

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