More seats than passengers as Chinese airlines expand too fast
Cathay Pacific Airways’ planes were emptier this March than last despite a 19 per cent surge in Hongkongers’ air travel, while the latest traffic figures from mainland China’s ‘Big Three’ state-owned airlines also showed falling capacity utilisation.
Cathay Pacific and subsidiary Dragonair’s planes were 83.9 per cent filled in March, down 3.4 percentage points compared from last March, the company said on Wednesday. It recorded a modest traffic increase of 2.6 per cent in the month, compared to the Hong Kong International Airport’s 4.8 per cent passenger growth that was driven by a 19 per cent surge in trips by Hong Kong residents.
“The growth in passenger numbers was not able to keep pace with the growth in capacity, leading to a drop in load factor,” said Cathay’s revenue management general manager Patricia Hwang.
Load factor is a measure of how much of an airline’s passenger-carrying capacity is used.
The vast potential of China’s outbound travel market has made airlines aggressively increase their offering of international flights by opening new routes and deploying more planes, leading to a spurt in the number of seats on offer.
Cathay’s passenger traffic grew 5.5 per cent in the first quarter while capacity grew 6.5 per cent.
China’s national carrier Air China on Monday reported a 3.1 percentage point drop in load factor to 78.5 per cent in March, even though it carried 4.3 per cent more passengers overall. China Southern Airlines saw a 2.94 per cent drop in load factor that month while China Eastern’s slid 1.4 per cent. All of them have increased their international capacity in the first quarter by around 30 per cent compared to last year.
“Chinese outbound travel fervour, especially to Europe, has cooled slightly since the last quarter of 2015, with terrorist attacks in Paris and elsewhere dampening travel interest. With the economy slowing, people are more prudent with their travel spend. The tightening of the Schengen visa has also made it more difficult for mainland groups to travel,” said Chan Cheong Eu, Hong Kong-based country manager for Greater China South at Qatar Airways.
However, Yu Nan, an analyst at Haitong Securities in Shanghai, said he does not think emptier planes reflect waning travel demand in China, which, he said, is a result of the airlines’ rapid capacity expansion.
“Their strategy is quite clear: to contract domestic capacity and keep up airfare, while on the international side the priority is to win market share even if it is at the cost of load factor. Getting ahead in market share during an economic downturn would give them an edge when the economy picks up – that’s their thinking,” he said.
Bocom International’s Asia head of transportation research Geoffrey Cheng Bik-Hoi agreed the drop in load factor is a result of overcapacity, adding that Cathay was coming off a high base in terms of load factor.
“I wouldn’t say China’s outbound travel demand is tapering off just yet, as the airlines’ first quarter international traffic as measured by revenue passenger kilometres flown is still solid,” he said. Instead, I am more worried about the domestic front.”
Chinese corporate travel agencies said Beijing’s austerity measures continue to dent business travel, the most profitable segment of the domestic air travel market. Air China reported a 2.9 per cent drop in the number of passengers carried on domestic routes for March while China Southern suffered a 5.22 per cent decline.