Almost three years after mainland China closed its borders to quell the spread of COVID-19, quarantine restrictions were finally lifted on Jan. 8, putting international travel back on the agenda. The country has also reopened its border with Hong Kong, removed restrictions on international flights and begun to process passport applications.
Listen in as Routes’ Editor-in-Chief David Casey and Chen Chuanren, ATW Asia-Pacific & China senior editor in Singapore, are joined by ASM consultant Hang Zhao in Shanghai to discuss the changes and the outlook for China’s international market over the coming weeks and months. Which destinations stand to recover the fastest? When will international airlines return? Are airlines and airports operationally ready for a traffic spike?
Rush transcript
David Casey:
Hello everyone, and thank you for joining us for Window Seat, our Aviation Week air transport podcast. I'm Routes editor-in-chief, David Casey, welcome onboard. This week I'm joined by my colleagues, ATW Asia-Pacific and China senior editor, Chen Chuanren, who is based in Singapore, and ASM consultant, Hang Zhao, who is in Shanghai. It's great to be with you both. On this episode we'll be taking a look at the reopening of mainland China's aviation market.
Back in 2019, China was one of the world's largest outbound travel markets, with over 150 million outbound travelers. Since then, stringent COVID-19 safety tests, including quarantine on arrival, have all but eliminated the country's international market. However, on January the 8th, China reopened its borders to international visitors for the first time since March 2020. Incoming travelers will no longer need to quarantine, marking a significant change in Beijing's policy after pursuing a zero-COVID strategy for almost three years.
Restrictions on international flights under the "Five One" policy have also been removed, while China's border with Hong Kong has also reopened. However, as COVID rates continue to surge in parts of China, it's unclear whether the outbreak nationwide will tamper the recovery and demand as Lunar New Year holiday approaches. A number of overseas governments, including the U.S. and European Union member states, have also begun to introduce new testing requirements for Chinese travelers.
But despite the new rules being imposed, the good news is that China is once again open to international travel, and the recovery in the Asia-Pacific region and beyond can now begin in earnest. To find out more about China's reopening and what this means, in the short and longer term, I'm delighted to be here with Hang and Chuanren.
So, Hang, I'd firstly like to come to you. You are based in Shanghai. Can you give us your perspective on how the relaxing of both domestic and international restrictions have been received in China, and what the appetite for travelers at the current time?
Hang Zhao:
Right. So, it all comes really in a sudden way, at the beginning of December. Suddenly the domestic restrictions has been removed, and following that, later in December, the government decided to reopen the border of China from 8th of January. So that gave a lot of confidence for us to face new challenges, and the past three years challenges on the depression of the whole industry here in China. It is quite interesting because the Year of Rabbit will be coming end of January, but the restriction was removed at early December. To me, that feels like it's giving us more sufficient time for the industry to come back and getting more profitable revenue, and achieving more profitable operations during the spring festival traditional travel season.
This year, the travel season will be starting on the 7th of January, which is already started from two days ago, and will be continuously moving on for the whole month, until half of February. All the airlines have been rapidly increasing the domestic schedules, and also, including the internationals, most of the airlines rapidly recovering on the original routes, especially for those traditionally strong market on international as well.
So, the first thing which we can feel and observe with those airlines is increasing the frequencies as they have not been able to operate for the past three years. Air China has strengths on the U.S. market, China Southern announced the recovery of the Australian/New Zealand, and also China Eastern is looking back to Europe. So those long haul destination markets were taking on the trend of the recovery. But compared to the short-haul and mid-hauls, the regional destinations like Hong Kong, Taiwan, Macau, that have traditional strong links with mainland recovered most, and also for the Southeast Asia traditional destination of Thailand, is more welcoming of the Chinese passengers coming back to the market. We've also been, of the multiple of the countries, reannouncing new restrictions regarding the passengers from China, that indeed could influence effect on the demand of the recovery. For example, South Korea and Japan market. But however, to our feelings, this will not be maintained for long,
David Casey:
You mentioned then about the international market and we've seen some governments reacting to China's reopening by putting in new measures. Chuanren, I just wanted to get your thoughts on that. In South Korea and Japan, there's been new measures, and China has therefore retaliated and stopped issuing short-term visas to individuals from South Korea and Japan. Do you think we're going to see more of that, in terms of those restrictions on outbound travel from China, or do you think China's market is too big? And the countries that do rely heavily on tourism and that leisure travel, will inevitably end up just opening up quicker than perhaps is apparent at the moment?
Chen Chuanren:
I think there's more than a dozen countries that have slapped a restrictions on Chinese travelers or travelers coming from China. But I think that is also, I would say, a precautionary measure, especially in countries such as Japan and South Korea. Simply because at a time when China plans to reopen, Seoul and Tokyo are experiencing a slight surge in cases. Personally, I'm feeling that it is, just to make sure that they do not exacerbate the problem in Seoul or Tokyo, for example. Similarly, in Europe and the U.S., they are afraid that there might be a new variant that may cause more problems to the healthcare systems over there. But science has shown, such as the European CDC, has shown that the variant in China is already present in Europe. So based on that notion, I do not think there will be any further restrictions being applied by any countries.
What's happening in China, on the suspension of issuing of visas for Korea and Japan, I think that's partly political, and also probably to send a message to the rest of the world. But so far you see countries such as Thailand, Singapore, who are still ready to receive Chinese travelers, but they themselves, have other plans in place. For example, at one point, Thailand wanted to make sure that everyone is vaccinated and they want the proof of vaccination for every international traveler. But they have, of course, U-turned that decision. Simply because it's probably too much of a requirement to ask for the airport staff to do so. Singapore is taking a slightly different measure. Number one, to ensure that everyone traveling is adequately vaccinated, and number two, to also make sure that the Singapore Shanghai airport, is ready to handle the influx of traffic... So they are not opening up to all the requests to increase capacity from China, but instead, are taking a more phased approach to ensure that the airports in Singapore is ready to handle them with a good service.
David Casey:
Thanks for that, Chuanren. So Hang, just to jump back to you and pick up on some of the things that Chuanren was saying there, particularly about the international market. Can you just give us a little bit of color on what's happening there now, in terms of carriers adding back capacity, particularly those Chinese carriers, and which are the destinations that you expect to recover the quickest, at least in the short term?
Hang Zhao:
That's actually quite an interesting question, we've been asking for three years... When we are facing, when will we be coming back for the China market reopening? I've been always asking about when do you expect the international market will be recovered from China? So, when the restrictions were removed early in December, the first thing reacting on the domestic market, according to the OTA statistics, the surging inbound for the travel season period of Chinese New Year is increasing 400%, compared to the previous three years.
That is the highest surging amount ever. And also, just the wake after the domestic restriction was removed, all the domestic flight fares were increasing as well. So the fare level, by that wake, is reaching to 750 RMB, which is triple the time than a week earlier. That is only because previous months, including September/ October, including November, that was the most challenging time for the whole country, as a transportation industry, because nobody was asking to move, everyone was staying at home.
So the whole industry was depressed for really long time. But to the international market, it comes back to more rational consideration compared to the domestic market, because the airlines have more pressure on forecast on the demand for international traveling. But the tourism sectors have really better forecast of the demand for international traveling. At the beginning of the international reopening, we can observe the most demand is coming from the inbound traffic rather than the outbound, because a lot of travelers and overseas Chinese citizens would like to have a way to travel, which has been paused for already three years. So that first day, we have a lot of inbound traveling rather than outbound. And secondly, the traditional link in between China and Hong Kong must be the most rapidly recovered, than the rest of the international operations. Due to the traditional links in between China, Hong Kong, Mainland Hong Kong, and also Taiwan including Macau.
Another thing for the traveler demand is we could also be sharing the similar experience from the other country markets. The short haul/medium-haul original traveling demand will be coming back first, and also we've been looking for Japan, South Korea, in Korea Southeast Asia, Singapore, Thailand... The demand will be coming back more than the rest of the places. Despite those new restrictions announced by some of the countries, but however, it is quite positive to look at the spring festival travel seasons, to look back, a little bit of increasing, slightly increasing on those travelings. The most welcomed international destinations used to be Thailand, and probably will be Thailand as well. And we can see that Thailand is already prepared to welcome in the Chinese tourism coming back during the spring festival period. Lang Ho maybe have slightly different stories. China/U.S. market is traditionally the most profitable market ever, but the China/U.S. market was also a really strong bilateral regulated market as well.
So, airlines willing to come back on those profitable strong market, including China. And also the U.S. carriers will also benefit on the recovery as well. China/Europe will be another story, but I can see that the Middle East destinations will benefit from the China/Europe market flows recovery, and the demand recovery. I think the most easiest recovery of the long-haul markets should be Australia and New Zealand. That's because of the open sky arrangement and also China Southern has really strong connections before, between Guangzhou, as the route of Guangzhou has been proposed for a really long time.
So that's the different view. However, if you look at the CSA guidance of the recovery plan, the recovery will be taken in three phases. It's actually started from December to early January, 7th of January, for the first phase. The overall capacity of China operation will be recovered to 70% of the 2019 level, and the second phase will continue from January to February. They'll be recovered to 88% of the 2019 level. And then moving on to March, there will be a seamless [inaudible 00:13:50] phase of the recovery. So that guidance is giving the whole industry, including the airlines, the guidance on how much inbound they would falling back to in every market, including domestic and international. By the way, we are happy to say that, probably summer of 2023, will be the time for both domestic, especially for international, to fully recover to the 2019 level.
David Casey:
Well let's certainly hope that recovery does happen as you've suggested it might. Chuanren, in terms of the recovery and the traffic increase that we're likely to see over the coming weeks, in Europe in particular last summer, we saw a lot of airlines and airports caught off guard by the sudden influx in passenger numbers, and they just weren't ready to cope with that operationally. Do you think Chinese airports and airports in the wider Asia-Pacific are actually ready for Chinese reopening or do you think we're going to see some operational issues as well?
Chen Chuanren:
Actually, that problem might happen in Asia-Pacific. I was just in Bangkok a week ago, and I've seen a similar backlog of long queues in immigration lines, baggage handlings taking about half an hour to 45 minutes. That is even before China has opened. So, I expect the situation will be pretty serious in used to be saturated airports, such as Bangkok, Manila. Therefore, I feel that airports and airport authorities should be ready to say no to airlines requesting for the increase of capacity and frequencies, and make sure that they have enough manpower on the ground to pick up bags and have enough people at immigration counters.
Similarly, but having said that, you see airports such as Hong Kong that has been empty for the longest time, to finally see Chinese passengers coming through its gates and connecting through Hong Kong, to whichever destination that Cathay Pacific brings them to. So to be honest, the greatest beneficiaries will be Cathay Pacific, if you ask me, in this whole reopening exercise. Cathay Pacific has already announced that they will increase, almost tripling, their capacity from China, if my numbers are right, about 20-something to 61 flights. So that is a huge number. But yes, my advice to airports is to quickly get your manpower in place and make sure that Asia-Pacific learn the lessons from Europe and the U.S. and doesn't make the same mistakes again.
David Casey:
Thanks for that, Chuanren. Hang, do you agree with that? I know you've been traveling as well, domestically within China. Are you seeing that airports are operationally ready for this rebound?
Hang Zhao:
I think probably, I absolutely agree with China's points, regarding on the manpower, regarding everything... Because we just feel, the whole December month that everyone in China was afraid and got infected by COVID... I personally got COVID during December. So short on staff, short on manpower, causes problems for our industry. And that reflects to another reason why CSA proposed a three phase of recovery because everyone needs to be ready... We have such big amount of demand.
So yes, absolutely that was happening in China as well. But in my own experience today, I just traveled domestically from Shanghai to Xi'an City in China. So what I've been feeling is the airports are already fully packaged with passengers. The queues were there, the flights was fully occupied, about 95% load factors. So that's randomly one flight I took, but I saw long queues onboarding to every gate of the airports. So, that is the spring festival feelings coming back, rather than the past three years, the spring festival was totally empty. But, yes, we need to be prepared, I absolutely agree with that.
David Casey:
Before we wrap up, I just had one more question in terms of connectivity, and there's probably one for you Hang, as well. Has China, in some regards, left it's reopening too late. We've obviously seen other international carriers, particularly in the Asia-Pacific region, pivot their networks and look for other markets. Now, I do expect some of the major routes that were profitable, really profitable pre-pandemic, to return to some of those major cities in China. But, if some of there may be secondary cities that had international connectivity that's been lost during the pandemic, do you think that's going to be slower to return, and as a result there will be less connectivity from those cities?
Hang Zhao:
Partially, you are right about the secondary hubs, but another story is considering the volume of secondary hubs in China, that's already huge compared to the rest of the world. So coming back off the international, it not only will be focusing on the traditional hubs of Shanghai, Beijing, probably Guangzhou, and moving to the new hubs, including Southwest Chengdu, Chongqing, Xi'an, in the Southeast area... The Southwest area will also benefit on the recovery of the international operations. And also we have, almost 50 more airlines operating in China. And everyone has their strong hubs and strengths operating in places that give them more choices to recover on the internationals, especially for the profitable routes of the regional operations. Hong Kong, mentioned about Thailand, Singapore... Those routes probably will be the last choice of the original hubs from China will be everywhere... Operating will be benefiting on that. So, yes, probably we have a few consideration regarding long hauls, but the regional operations of International Asia-Pacific will be probably considering two... Both first hub and the secondary hubs in China.
David Casey:
Thanks, Hong. And Chuanren, did you want to comment on that as well?
Chen Chuanren:
Yeah, I would use Singapore Airlines, as an example, to your question about serving secondary hubs in China. So before the pandemic, Singapore Airlines is the largest foreign carrier, in terms of destinations in China. So again, if I remember properly is about 20 other destinations in China, including those operated by the LCC Scoot. Based on my conversations with the Singapore airline group... In fact, even during the pandemic, the flights to the secondary airports were actually full. Just that they can't increase capacity to these cities simply because of the ‘Five One’ restrictions.
So now that China has removed the Five Ones, Singapore Airlines are able to increase capacity... But the question now is whether they have enough crew and aircraft to do so. That being said, we have heard airlines such as Thailand, Thai Airways, taking the Airbus A330s out from storage just to serve the Chinese market. Just to serve, even the Indian market, which is also another up-and-coming market. But China itself, I don't think China is too late to the game. It's an important market to these countries and these airlines, and therefore, they will always reserve or divert resources to serve the Chinese market.
David Casey:
Thanks for that. Well, unfortunately we're all out of time today, but it's been fantastic to hear your thoughts on what the future holds for this aviation market and its recovery. And we'll be continuing the discussion about the recovery of China, and the wider Asia-Pacific industry, at Routes Asia 2023 which is taking place in Chiang Mai, Thailand, from the 14th to the 16th of February. So look out for coverage from the event on aviationweek.com and find out more about how to attend on routesonline.com. In the meantime, Hang and Chuanren, thank you for joining me today. And thank you our listeners for joining us on Window Seat. And if you've enjoyed the podcast, don't forget to like and subscribe wherever you listen. This is David Casey, disembarking from Window Seat.
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