China reported a rare drop in traffic for May and June. Is this the start of bad times for the country's carriers?
Weakness in the Chinese air travel market is taking industry watchers by surprise and it is unlikely the traditional annual growth rates of 14-16% will return any time soon.
Signs of weakness first started appearing in
Overall, the number of passengers carried by Chinese airlines in May fell 1%. This is well below the rates the Chinese government expected at the start of the year, when it said it was anticipating a 14% rise in passenger numbers in 2008. Last year traffic grew some 16% over 2006.
The Centre for Asia Pacific Aviation says the recent weak traffic figures in
The decline in demand comes at a bad time for Chinese carriers, many of which have not been well prepared for increases in fuel prices. "Financially I think it will be a very bad year," says CAPA executive chairman Peter Harbison. "Even in good times with strong traffic growth, Chinese carriers were struggling to make a profit. Now you are starting to see things reverse with the economy declining and fuel prices increasing."
Foreign carriers serving
Airbus China president Laurence Barron believes the slowdown will only be temporary, however, adding that the European manufacturer is not looking to make any changes to its bullish sales forecasts for
But Hong Kong-based HSBC analyst Mark Webb says the Olympics "rarely provides any significant traffic upside for airlines" and "at the end of the day with demand dropping and all the capacity coming in, the industry obviously faces problems". Morgan Stanley analyst Chin Lim agrees: "Fundamentally we're worried about the Chinese carriers. Revenues will fall and loads will fall. The slowdown I think will carry on for the rest of 2008."
Barron agrees with Chin that high inflation rates and increases in ticket prices may lead to a dip in demand. But Barron adds: "When we talk about slowing things down in
Chinese airlines also do not appear concerned. As Shenzhen Airlines president Li Kun says: "Everybody knows in