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Joseph Lo

A leading consultancy has warned that growth in China's much-vaunted domestic commercial aviation market may be slowing, despite hopes the country's strong domestic economy would shield it from the worst of the sector's international decline.

In a report released last week, the Sydney-based Centre for Asia-Pacific Aviation said that despite earlier signs to the contrary, China's aviation system may be showing cracks.

'Exports have slowed markedly this year and economic growth is waning,' it said.

'Despite a good performance up to August, China's domestic passenger numbers grew only 5.6 per cent in September and slipped to 2 per cent in October.'

Likewise, international passenger traffic, which grew at 18.1 per cent year-on-year in the first eight months, slowed to just 3.4 per cent in October.

Airlines around the world have been hit by the global economic recession, exacerbated by the terrorist attacks in the United States on September 11.

So far though, mainland airlines have been more concerned about their bottom lines being devastated by fierce internal competition and illegal tariff discounting than by external economic shocks.

China's aviation authority, the Civil Aviation Administration Commission, earlier estimated that the sector made a combined loss of up to two billion yuan (about HK$1.87 billion) in the first half of the year, largely on domestic competition.

The last time the major mainland airlines made money as a group was in 1999, when they reported 790 million yuan in profits, largely because of the ban on ticket discounting in place at the time.

While it was 'too early to project a serious slowdown (in the mainland aviation sector), November's figures will take on greater significance', said the

report, co-authored by Phil McDermott, Derek Sadubin and the centre's managing director Phil Harbison.

The report said that if the November figures too showed low growth, the warning bells would sound both for China's aviation industry and for the broader economy.

So far, Shanghai-based China Eastern Airlines and Guangzhou's China Southern Airlines, which operates the mainland's largest domestic air-services network, have unveiled last month's figures with mixed results.

On Friday, China Southern said last month's revenue passenger kilometres (RPK), a broad measure of distances flown in aggregate by paying passengers, rose 14 per cent on domestic routes, down from the previous month's 14.1 per cent year-on-year growth.

As recently as June, the airline's RPK growth on domestic routes was as high as 17 per cent when compared year on year. China Southern's overall RPKs for last month rose 15.6 per cent, down from 15.9 per cent growth a month earlier.

For China Eastern the outlook was slightly better last month with the decline in passenger load factors, the percentage of seats filled in its aircraft, falling by only half compared with October, which was the airline's worst monthly decline in at least two years.

Another analyst cautioned that it was too soon to be 'crying wolf' based on the operating results of a single month.

'October was a bad month for all airlines everywhere in the world, because of the massive disruption and subsequent shock waves the terrorist attacks caused. China's air services would not have been immune,' said a Hong Kong-based regional aviation analyst with a European brokerage.

'Connecting services between Shanghai, let's say, and North America would have been delayed just like they were everywhere else in the world, and this would have had knock-on consequences on domestic services,' he said.

The analyst said that, compared with the rate of growth for air services in the US and Europe, the mainland market's outlook was still the rosiest, by far.

'There is no doubt that growth rates in China will weaken, but that's only because the base is getting so much bigger,' he said.

'Even if percentage growth falls by half, let's say, the absolute numbers of Chinese people flying are still going to be higher and higher each month.'



Mainland carriers buffeted by down draught