[BEIJING] Stubbornly cheap international air fares for Chinese travellers are hurting attempts by the country’s biggest carriers to claw their way back to profitability.
Ticket prices have lingered between 22 per cent and 34 per cent below 2019 levels, according to a note from Bloomberg Intelligence, citing ForwardKeys data. While that has helped boost China’s outbound travel recovery, it has been a double-edged sword for carriers’ profitability, analysts Eric Zhu and George Ferguson said.
“Fares’ lack of pricing backbone has helped stimulate travel intent, but constrains Chinese air carriers’ ability to rebuild their margins,” they wrote in the note published on Tuesday (Oct 28).
China’s three leading airlines – China Southern Airlines, Air China and China Eastern Airlines – remained unprofitable through the first half, with low passenger yields squeezing margins, they wrote.
The depressed airfares and moribund yields have weighed on China’s aviation sector for years and the trio of top airlines have lost a combined 206 billion yuan (S$37.6 billion) since 2020.
Investors are set to get the latest snapshot of the state of travel demand this week as the state-run carriers report results for the third quarter – typically their most profitable period of the year.
China Southern, the country’s largest airline by passengers carried and fleet size, said on Monday that third-quarter revenue climbed to a record 51.4 billion yuan and net income jumped 20 per cent year on year.
The summer period is typically profitable for Chinese airlines, even in years where they have reported an annual loss.
Air China and China Eastern are set to release earnings on Thursday. BLOOMBERG
