As the Olympic Games opening ceremony commenced in Beijing at 8 minutes past 8 o’clock on the 8th day in the 8th month of the 8th year of the new century – about as fortuitous a combination of numbers as is possible for Chinese good luck – there will be some in the airline and travel industries who sought gold and are unlikely to earn more than bronze at best…
As the Olympic Games opening ceremony commenced in Beijing at 8 minutes past 8 o’clock on the 8th day in the 8th month of the 8th year of the new century – about as fortuitous a combination of numbers as is possible for Chinese good luck – there will be some in the airline and travel industries who sought gold and are unlikely to earn more than bronze at best.
Air services to China by European airlines have burgeoned over the past decade, as companies saw the opportunities and their governments were able to gain access to previously tightly controlled routes. But traffic growth has recently slowed, for a variety of reasons, not least the difficulty of gaining visas in the lead up to the Olympic Games, as officials became highly concerned at possible security threats. More significantly for the medium term, yield is now becoming a more critical element, as fuel prices challenge long haul operations to the East and demand starts to waver.
In the space of a decade, China has become the world’s fourth largest inbound tourist market, with 132 million inbound tourists in 2007, generating the world’s sixth largest receipts, of USD42 billion in foreign exchange. By contrast of scale however, domestic tourist numbers totalled 1.6 billion, offering some indication of the long term international possibilities.
Tourism numbers inbound to China, by country: Jan-06 to May-08
Source: Centre for Asia Pacific Aviation & China National Tourism Authority
Inbound tourism is now much freer, both generally in gaining entry to the country and in terms of freedom of movement for foreigners. China’s outbound market is still however dominated by leading Chinese travel operators, illustrated, for example by recent events in France. When China responded with displeasure to demonstrations in Paris as the Olympic torch passed through earlier this year, a downturn in travel to France quickly followed, reportedly led actively by intermediaries.
European Inbound tourist numbers to China: May-08
Source: Centre for Asia Pacific Aviation & China National Tourism Authority
(Note: not including Russia)
Three countries’ airlines dominate the Europe-China flow, predictably, the UK, Germany and France. Among the larger markets, the gaping black tooth in the table below is Alitalia. The only non-stop connection with Italy is provided by Chinese carriers.
Finnair and SAS have meanwhile invested heavily in the sixth freedom market, with fast connections over the pole to northern China, along with SWISS and Austrian, each of which also supports growing end to end markets. For Turkish Airlines, the main attraction is the potential source of inbound tourism to Turkey and. Since the potential long term upside overwhelms the reverse flow, many airlines are operating with one eye on the future opportunities for massive expansion.
Weekly airline capacity (seats) from Europe to China, week commencing 04-Aug-08
Source: Centre for Asia Pacific Aviation and OAG
European airlines dominate international capacity overall. China’s fleets still remain more focused on much larger domestic operations, lacking the stature internationally and the ability to penetrate behind gateway markets in Europe. This weakness is a source of discontent for Mr Li Jiaxiang, who last year took over leadership of industry regulator, the General Administration of Civil Aviation. The forthright Mr Li moved into that position from his role as Chairman of the country’s leading flag carrier, Air China.
In both roles he has supported a merger between Beijing-based Air China and Shanghai’s China Eastern Airlines, in order to strengthen the international presence of the local flag carriers, which he fears are being progressively marginalised as China liberalises bilateral access. The CAAC is steadily permitting greater freedom of entry, although it still tends to be relatively miserly in granting access by smaller countries’ airlines.
The Air China move, or any other, is in abeyance. All major policy decisions have been placed on hold while the Games take precedence over almost everything. But once October arrives, we can expect a flurry of activity. The fate of China Eastern will be the key indicator of the country’s airline future. Last year, Singapore Airlines made a so-far unsuccessful friendly attempt to gain a minority equity share, along with management input to China Eastern. But Mr Li and some shareholders headed off that move.
China Eastern needs something. It is in dire straits, undercapitalised and haemorrhaging money in the highly competitive and low yielding domestic market, but the bigger China Southern – the third of the “three pillars” of the Chinese industry – is losing even more and has an extremely gloomy take on its own prospects, unless there is change. Added to this, the past two months have witnessed actual slowdowns in China’s domestic passenger flows, where double digit growth had previously been de rigeur.
Here again, external factors, notably the Sichuan earthquake, have had an effect. An economic slowdown and inflation are also taking a mounting toll. And so far at least, there is little sign of an Olympic-flavoured revival in traffic.
Probably as a result of all these factors, European markets have seen an unwelcome and significant drop in tourism growth rates into China so far this year.
Tourism growth rates inbound to China: Jan-06 to May-08
Source: Centre for Asia Pacific Aviation & China National Tourism Authority
We shall have to wait a few more weeks to determine the future direction of Chinese policy, during which time the likely impact of global economic conditions will also become clearer.
But, lucky numbers or not, the betting would have to be that China will start to take a more circumspect approach to expanding foreign airline access; also that a more robust Chinese airline structure will be high on the agenda for Mr Li and his colleagues in the CAAC. The number 9 spells longevity; that will be their goal for Chinese airlines as 2009 dawns.
Vicky is the co-founder of TravelDailyNews Media Network where she is the Editor-in Chief. She is also responsible for the daily operation and the financial policy. She holds a Bachelor's degree in Tourism Business Administration from the Technical University of Athens and a Master in Business Administration (MBA) from the University of Wales. She has many years of both academic and industrial experience within the travel industry. She has written/edited numerous articles in various tourism magazines.
