Chinese airlines may recover faster than many of their peers as domestic travel in China resumes, according to several investors.
The aviation sector has faced heavy losses after policies to curb the spread of the coronavirus have halted global travel. These measures include border closures and movement restrictions. With this, many airlines sought financial support to remain in business.
China, the first country affected by the coronavirus, has loosened some restrictions allowing people to travel locally as its outbreak remained stable.
“For now, Chinese holidaymakers are opting for shorter distance leisure trips by car or train, and forward bookings are being made with a much shorter booking window (one week),” Eastspring Investments said in a report.
“Nevertheless, while the upturn in Chinese air travel is lagging road travel, Chinese airlines are still ahead in the recovery compared to their American and European counterparts, as they benefit from the recovery in domestic travel,” it added.
According to the asset manager, most Chinese airlines get most of their revenues through domestic travel. This means the airlines “are likely to be more resilient than other regional airlines for the rest of the year,” it said.
Investments
Recovery in China’s air passenger traffic allowed HSBC to retain its “buy” rating on the Hong Kong-listed shares of China Eastern Airlines, Air China, and China Southern Airlines.
Shares of the three carriers have declined this year as they faced significant losses in the first half of 2020. However, those losses may get thinner in the coming months, with passenger growth boosting ticket prices, HSBC said in a Monday note.
“We continue to expect domestic passenger traffic to recover sooner than international traffic, which is favourable for mainland Chinese airlines as they generate most profit on domestic routes,” it said.
“On the other hand, airports generate most of their profit from international traffic, given aeronautical charges (passenger service charges and landing and parking charges) are usually higher for international traffic than for domestic traffic, and international passenger mainly drive duty free revenue at airports.”
Global air industry
The airline industry may lose $84 billion in 2020, according to the International Air Transport Association (IATA). Air travel dropped by 98% in April from last year.
The agency previously predicted 8.2 billion air travelers in 2037. However, the efforts made to curb the spread of the coronavirus badly hit air travel.
“We think airlines are going to probably lose an unprecedented $84 billion in 2020,” Brian Pearce, chief economist for IATA, told CNBC.
“We’re really only just starting to see countries negotiating bilateral openings of markets. For example, the Trans-Tasma bubble between Australia and New Zealand, China and Singapore, as well as China and Korea.”
Despite the situation, Pearce believes a recovery can happen in the second half of 2020.
