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

By Lisa Barrington

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

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

The proportion of international flights to and from China operated by the country’s airlines is now higher than it was before the novel coronavirus shut down much of global air traffic, and it continues to rise.

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

Since the outbreak of war in Ukraine in 2022, Chinese airlines have continued to take shorter northern routes to Europe and North America through extensive Russian airspace.

In contrast, airlines in Europe, the United States and other countries have been banned from using Russian airspace by Moscow or their governments, or have chosen not to fly over it for safety reasons.

This has expanded the cost advantage enjoyed by Chinese airlines and allowed them to capture 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 airlines typically have costs 30% lower than their international competitors,” said John Grant, senior analyst at travel data firm OAG. “Chinese airlines are desperate for hard currency and have embarked on a massive expansion.”

British Airways’ four-day-a-week Beijing-London flight takes about two and a half hours longer than China Southern Airlines’ daily flight on the same route it launched last year, according to flight tracking site Flightradar24.

British Airways will continue its daily flights between London and Shanghai, and in May it relaunched a codeshare agreement with China Southern Airlines.

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

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

Australia’s Qantas cited near-empty planes and low demand for travel to China 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 to Beijing from October.

Foreign airlines are declining

According to flight schedule data from Cirium analyzed by Reuters, Chinese airlines including China Southern, China Eastern and Air China operated 90% of the number of international flights in July that they did in July 2019.

Foreign airlines operated only 60% of flights before the pandemic, indicating a decline.

For example, the only direct flights between Mexico and China are from Chinese airlines after Aeromexico stopped resuming flights 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 stems not from a lack of economic opportunities, but from “excess capacity provided by Chinese airlines.”

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

China’s international traffic has been growing since pandemic restrictions were lifted at the start of 2023, but it has recovered more slowly than other countries due to a struggling economy and a shift toward domestic travel.

Data from Cirium showed that the number of flights from China in July fell by 23% compared to the same month in 2019.

Political issues

Some flights to and from China have been disrupted due to political issues. Passenger flights between India and China have never resumed after the pandemic due to a border dispute.

Flights between China and the US have fallen to about a fifth of their 2019 levels after a bilateral air services agreement was suspended in 2020.

Reciprocal flight permits have gradually increased, but U.S. airlines are operating only 35 round-trip flights per week out of the 50 allowed, according to Cirium data, while Chinese airlines have increased their flights to 49 per week.

United Airlines said last month it was reallocating capacity to other parts of the Asia-Pacific region because demand for travel to China had “substantially declined.”

In April, major U.S. airlines and aviation unions asked the U.S. government not to approve any more flights by Chinese airlines in a letter citing Beijing’s “anti-competitive policies” and the disadvantages of Russian flights.

“If the Chinese aviation market is allowed to continue to grow without restrictions… flights will continue to be ceded to Chinese airlines,” the letter said.