Chinese Airlines Soar to New Heights: How They’re Outpacing International Rivals and What It Means for Your Investments
By Lisa Barrington
SEOUL (Multibagger) - Chinese airlines are rapidly gaining traction on international routes, as revealed by recent industry data. The disparity in market share is widening, with foreign carriers, particularly from the West, deterred by tepid demand for China travel, escalating costs, and extended flight durations due to the necessity of avoiding Russian airspace.
The Current Landscape
Western airlines, including British Airways and Australia's Qantas Airways, are scaling back services or opting not to resume flights to China post-pandemic. In stark contrast, Chinese airlines are aggressively expanding their overseas operations.
The proportion of international flights to and from China operated by Chinese carriers has surged beyond pre-COVID-19 levels and continues to climb. British Airways, for instance, announced it would suspend its London-Beijing flights for a year starting late October, citing commercial reasons. The airline had already reduced its London-Hong Kong services.
Strategic Advantages
Chinese airlines have benefited significantly from the geopolitical landscape, particularly since the Ukraine war in 2022. Unlike their Western counterparts, Chinese carriers continue to use shorter northern routes over Russian airspace to reach Europe and North America. This strategic advantage has not only cut costs but also allowed Chinese airlines to capture a larger international market share.
"Typically, Chinese carriers have up to 30% lower costs compared to their international rivals," says John Grant, senior analyst at travel data firm OAG. "Chinese airlines are desperate for hard currencies and have embarked on wide-ranging expansion."
Comparative Performance
To illustrate, British Airways’ Beijing-London flight is approximately 2.5 hours longer than China Southern’s daily flight on the same route, which launched last year, according to flight tracker Flightradar24. British Airways will maintain its daily London-Shanghai flights and has recently reintroduced a codeshare with China Southern.
Virgin Atlantic also announced it would indefinitely suspend its London-Shanghai service from the end of October due to extended flight times.
Market Dynamics
Despite the retreat of Western carriers, Chinese airlines are thriving. In July, Chinese airlines like China Southern, China Eastern, and Air China operated at 90% of their international flight capacity compared to July 2019, according to Cirium schedule data analyzed by Multibagger. Conversely, foreign carriers operated only 60% of their pre-pandemic flights, signaling a significant pullback.
For example, the only direct flights between Mexico and China are now operated by Chinese airlines, as Aeromexico has yet to resume its services.
Regional Differences
While Chinese airlines dominate the Asia-Pacific region, the Middle East presents a different scenario. Emirates has fully restored its capacity to China, Kuwait Airways has increased its flight frequencies, and Bahrain's Gulf Air initiated flights to two Chinese cities for the first time in May.
Political and Economic Factors
China's international traffic has been on an upward trajectory since lifting pandemic-related restrictions at the beginning of 2023. However, it has recovered more slowly compared to other countries, hindered by a sluggish economy and a shift towards domestic travel. Cirium data shows that in July, the number of flights out of China was 23% lower than in the same month in 2019.
Political issues have also played a role. For instance, passenger flights between India and China have not resumed due to a border dispute. Similarly, flights between China and the U.S. are operating at about a fifth of their 2019 levels following the suspension of a bilateral air services agreement in 2020.
Industry Concerns
Major U.S. airlines and aviation unions have voiced their concerns, urging the U.S. government to halt the approval of additional flights by Chinese carriers, citing Beijing's "anti-competitive policies" and the Russia overflight advantage.
"If the growth of the Chinese aviation market is allowed to continue unchecked ... flights will continue to be relinquished to Chinese carriers," reads a letter from these stakeholders.
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Analysis and Breakdown
What This Means for You:
- Investment Opportunities:
- Chinese Airlines: Given their cost advantages and expanding market share, Chinese airlines present a compelling investment opportunity. Look for stocks like China Southern, China Eastern, and Air China to potentially outperform due to their strategic positioning.
- Western Airlines: Conversely, Western carriers might face profitability challenges on international routes to China, making them a riskier investment.
- Travel Costs and Options:
- Cheaper Flights: If you plan to travel internationally, especially to and from China, you might find more affordable options with Chinese airlines due to their lower operational costs.
- Limited Options with Western Airlines: Expect fewer direct flights and possibly higher prices if you prefer flying with Western carriers.
- Geopolitical and Economic Impact:
- Geopolitical Factors: Be aware that geopolitical tensions can impact flight routes, travel times, and costs. This can have broader implications for international trade and economic relations.
- Economic Shifts: The dominance of Chinese airlines in international travel could signal a shift in economic power, affecting global markets and trade dynamics.
By understanding these dynamics, you can make more informed decisions about your investments, travel plans, and how geopolitical factors might impact your personal finances.