Western Airlines Withdraw One After Another, Revealing the Reality of China’s Economy

The image shows a representation of China Airlines. (Photo by Chen Bo / Dajiyuan)

October 26, 2024 - As Russia closes its airspace, major global airlines are reducing or even completely pulling out of flights to and from China. Experts say that this move by airlines is not solely due to the increased operating costs of long-haul routes to Asia, but also reflects the current state of China’s economy.

Since Russia’s invasion of Ukraine, the EU, UK, and other Western countries have imposed comprehensive flight bans on Russian planes. Russia responded in kind by closing its airspace, lengthening routes to Asia for many European airlines.

The longer the route, the more fuel required, increasing flight costs. Virgin Atlantic and Scandinavian Airlines have completely withdrawn from China, while British Airways also ceased its Heathrow-Beijing Daxing route on the same day. Virgin Atlantic stopped all flights to Hong Kong in 2022, closed its local office, and ended its 30-year business presence in the Asian financial center.

According to the travel news website Skift, seven major airlines have withdrawn from China over the past four months.

CNBC, citing John Grant, chief analyst at aviation intelligence company OAG, reported that this trend “will become even more evident before it improves.”

However, as major airlines pull out of China, some are increasing capacity in other parts of Asia, indicating that Russia’s airspace issues are not the only obstacle to operating flights to China.

Declining Demand

Grant noted that reduced demand for flights to and from China is one of the main issues. China’s economic problems hinder outbound travel, while international interest in China remains low, limiting inbound travelers.

According to Chinese government data, China received about 49.1 million visitors in 2019 before the pandemic; as of July this year, about 17.25 million foreign visitors had come to China.

When Qantas canceled its Sydney-Shanghai flight in May, it cited “low demand.” Last month, Lufthansa considered suspending its Frankfurt-Beijing route.

Grant noted that U.S. airlines, although less impacted by Russia’s airspace issues, are also pulling out.

“Indeed, U.S. airlines are making tough but very commercial decisions to abandon China services and redeploy aircraft elsewhere,” he explained. “Frankly, it’s understandable and reflects market dynamics.”

European airlines have also found better uses for aircraft that once serviced China routes. After canceling its Beijing route, British Airways reassigned the plane to Cape Town, where passenger load increased from 55% on the Beijing route to 90% on the Cape Town route.

Grant pointed out that British Airways has continually downsized its aircraft on China routes, moving from the large Boeing 747 to the B777, and eventually to the smaller B787.

According to the South China Morning Post, Dennis Lau, consulting director at Hong Kong’s Asian Sky Group, said, “U.S. and European airlines can more effectively deploy aircraft in other, more profitable markets, such as transatlantic routes.”

Analysis of data from Cirium Diio, a leading airline analysis platform, by Skift shows that in August 2019, Finnair operated 42 weekly direct flights from Helsinki to China. By August 2024, that number had dropped to three.

China’s Struggling Economy and Reduced Business Travel

Analysts say the struggling Chinese economy is one of the concerns for airlines.

David Bach, president of Switzerland’s International Institute for Management Development, told the South China Morning Post, “The frequency of Western airlines’ flights to and from China largely reflects the demand for business travel. So, China’s economic slowdown and the sustained decline in China’s foreign direct investment…have not disappeared.”

Bach added, “There is indeed a reduced need for business leaders to travel frequently to China.”

Trip.com Group reported in August that China’s business travel market grew by 39.2% last year and is expected to reach 2019 levels this year.

However, in the second quarter, revenue per available room and average daily room rates at six international hotel chains with properties in China declined year-on-year. For instance, Wyndham’s revenue per room dropped 17%, and IHG Hotels & Resorts declined by 7%.

Yan Liang, an economics professor at Willamette University in Oregon, told the South China Morning Post, “When business travel decreases, airlines suffer.”

“Companies won’t return to China quickly,” she noted.

Geopolitical Impact

According to Skift, Jue Wang, assistant professor at Leiden University and expert in China’s economic and political policies, stated that, aside from Russia’s closed airspace, tense economic relations between the Chinese Communist Party (CCP) and the West are key factors in recent airline decisions.

“If the investment environment is vibrant and friendly, you’ll see delegations from China (CCP) looking for opportunities and vice versa. But if the environment is bad, such travel decreases. Sometimes, (companies) travel in search of opportunities but find nothing. Even in such cases, people travel more, but if tensions rise, people hesitate to board planes for opportunities.”

Wang emphasized that tensions extend beyond China-Europe relations, with the U.S.-China trade war also affecting economic growth and demand for air travel.

“Some companies are considering relocating production bases from China. Chinese high-tech companies face the risk of U.S. sanctions, and these punitive policies may prompt other countries to disengage from China,” she explained. “We haven’t yet reached the point where the U.S. strictly excludes those who do business with China from its market—but people worry that day may come. They are preparing by moving production out of China or at least actively seeking alternatives.”

Although the number of flights between the U.S. and China will more than double this year compared to 2023, it remains only a quarter of pre-pandemic levels.

Skift’s analysis of OAG data predicts that in 2019, there were over 17,000 outbound flights between the U.S. and China, while in 2024, this number will be only 4,228.

Challenges Facing Chinese Airlines

Low demand is also troubling Chinese domestic airlines.

Grant believes it will take longer for Chinese airlines to recover.

This winter, Chinese airlines will operate 82% of all flights between China and Europe, up from 56% before the pandemic, even though the current market and trade volume are far below previous levels. This is due to a need for cash and a push for publicity.

“Chinese airlines urgently need cash and want to be seen as returning to normal,” he said, adding that more flights are on the way.

“This is crazy—there’s simply no real demand,” Grant commented.

Editor: Lin Yan