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International travel in and out of China remains sluggish despite the lifting of pandemic travel restrictions, and China Eastern Airlines has lost money for three consecutive years.
China Eastern, one of China’s three major airlines, reported a net loss of 6.3 billion yuan ($864 million) for the first six months of the year, an improvement from a loss of 18.7 billion yuan in the same period last year. Revenue rose from 19.4 billion yuan to 49.4 billion yuan.
Flagship Air China also underperformed, with a first-half net loss rising to Rmb3.4bn from Rmb19.4bn. China Southern Airlines also posted a loss.
Inbound flights to China have only recovered to about 34% of pre-pandemic levels in the first four months of this year, according to the International Air Transport Association, an industry group. As an important market for China Eastern Airlines, the level of international long-distance flights in the same period is less than 6% of that before the epidemic.
Citing data analysis from flight tracking site Flightradar24 and global data provider OAG, IATA expects China’s inbound flight capacity to return to pre-pandemic levels by 2024.
DBS equity research analyst Jason Sum said there was “significant pent-up demand” for overseas travel, but stiff competition and visa backlogs were delaying a rebound.
“Profitability is hampered as many airlines compete for the same routes in China,” Sum said. “They have limited room to raise fares.”
In July, China resumed sending group tours to popular destinations such as Vietnam and South Korea, which are crucial to the global tourism industry. However, visas remain an issue.
“China went through a couple of years of lockdown, so passports expired. When things opened up, there was an influx, so they were dealing with a sudden surge in demand for visas and passports,” he said.
U.S.-China flights remain sharply reduced amid heightened tensions between the two countries.
Beijing’s proposal to increase U.S.-China flights has faced opposition this year from U.S. airlines, which have pointed to the cost advantage of Chinese carriers being able to fly over Russian airspace, which has been excluded since the Ukrainian invasion.
In May, the U.S. Department of Transportation issued an order allowing Chinese airlines to increase weekly round-trip flights from eight to 12, matching the number of U.S. airlines flying to China.
China Eastern said on Wednesday it would add three additional weekly flights to Los Angeles and begin operating two weekly flights to New York.
Before the outbreak, Chinese airlines remained profitable. The net profit margins of Air China and China Eastern Airlines in 2019 were 4.7% and 2.6%, respectively.
The weak performance of Chinese airlines stands in stark contrast to the swift return to profitability of U.S. and European groups. As pandemic-era restrictions are lifted, airlines are scrambling to service a boom in international travel.
Affected by the epidemic, China’s economic performance has also cooled. Growth slowed after reopening optimism in the first quarter. The economy grew 0.8% in the second quarter of this year, down from 2.2% in the previous quarter.
Before the outbreak, China was the source of 9% of international travel, according to IATA.
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