During this summer vacation, the ticket prices for China’s civil aviation have decreased by 17% compared to last year, and are even 1% lower than in 2019 before the pandemic. The three major state-owned airlines in the first half of the year have a combined expected loss ranging from 57.6 billion to 74.8 billion yuan. By the end of May, official data from the Chinese Communist Party showed that over the four years from 2020 to 2023, the cumulative losses in civil aviation have reached 420 billion yuan.
According to a report by Caixin on July 23rd, the price war among airlines has disrupted the conventional wisdom that “the earlier you buy, the cheaper the ticket”. Recent data from Flight Butler shows that during the summer, the average price for domestic flights in China (economy class, excluding taxes) is 787 yuan, a 17% decrease compared to last year and 1% lower than in 2019; while for international flights (economy class), the average price is 2303 yuan, a drop of 25.37% compared to last year and 12.1% lower than in 2019.
The report highlights that this change underscores the fact that international routes have not yet fully recovered post-pandemic, causing oversupply in the civil aviation industry with insufficient demand and surplus capacity without a place to be utilized. Overall, the capacity growth of the civil aviation industry is much faster than the demand compared to before the pandemic.
According to Flight Butler data, as of the end of May, the domestic airlines have added 469 aircraft to their fleets compared to 2019, with an increase of 13.44% in available capacity. Data from the Civil Aviation Administration of China shows that in the first five months of this year, the number of civil aviation passengers has increased by 8.82% compared to the same period in 2019.
The three major state-owned airlines, Air China, China Eastern Airlines, and Southern Airlines, have been lowering prices to attract passengers, but their load factors and aircraft utilization rates have yet to return to pre-pandemic levels.
The China Air Transport Association pointed out in June that with increasing downward economic pressure, insufficient aviation demand is a reality that must be faced in the near future, especially with a marked decrease in the proportion of public commercial passengers traveling and a clear trend towards utilizing high-speed rail instead.
The outlook for international routes is also not optimistic. According to Flight Butler, in the first half of this year, there were 742 international passenger direct flight routes involving 154 foreign destinations, representing 67.8% and 80.2% of 2019 levels, respectively.
The report mentions that while civil aviation ticket prices are dropping, airline costs have significantly increased compared to before the pandemic. Influenced by factors such as geopolitics and the exchange rate of the Chinese currency, airlines’ fuel costs, financial expenses, and operational costs have continuously risen post-pandemic, leading to a substantial increase in airlines’ operational pressure.
The price of aviation fuel has risen by 30%, and fuel expenses account for over 30% of airlines’ fixed costs. The China Air Transport Association forecasts that domestic fuel prices will continue to fluctuate at high levels in the second half of the year, with an average price of around 6400 yuan per ton, approximately 30% higher than the same period in 2019.
Over the past three years of the pandemic, airlines have faced immense operational pressure and an urgent need for cash flow. Financial data shows that during the pandemic, the debt-to-asset ratio of the three major airlines soared: Air China increased from 65.55% in 2019 to 89.48% in 2023; China Eastern Airlines rose from 75.12% to 85.41%; and Southern Airlines increased from 74.87% to 83.18%.
In mid-July 2024, Air China, China Eastern Airlines, and Southern Airlines forecasted that they will continue to incur losses in the first half of the year, with expected losses ranging from 23 billion to 30 billion yuan, 24 billion to 29 billion yuan, and 10.6 billion to 15.8 billion yuan, totaling an expected loss of 57.6 billion to 74.8 billion yuan.
Previously, the latest data released by the Civil Aviation Administration of China on May 31st showed that the industry as a whole incurred losses of 21.07 billion yuan in 2023. Over the four years from 2020 to 2023, the cumulative losses in civil aviation amounted to a staggering 420.1 billion yuan, with airlines accounting for 329.6 billion yuan of the losses.