Author: Germano Rollero
In the wake of China’s abrupt lifting of Covid travel restrictions on January 8th, 2023, the aviation industry eagerly anticipated a resurgence in international travel. However, factors on both the demand and supply sides have hindered a swift return to pre-pandemic levels. In this exploration of China’s aviation landscape, we gain insights from Germano Rollero, a highly experienced professional with an extensive background at Air China and Etihad. As we delve into the challenges faced in 2023, from passport issues to visa complexities, and examine the lingering impacts on international travel demand, this article provides a comprehensive overview. We extend our sincere gratitude to Germano for his invaluable contribution and join us in dissecting the complexities of China’s aviation revival under his expert guidance.
Slightly more than 1 year ago, on January 8th 2023, China lifted the draconian Covid travel restrictions that isolated the country for almost 3 years. It is a good time to take stock of this first year of Chinese unrestricted international travel and attempt to forecast of what will happen in the near future.
The importance of China to the travel industry cannot be overestimated. In 2019 it represented 17% of the global international travel expenses with 255 billion USD according to the UNWTO, being the first source market in the world by far, overcoming the USA as the second one with “only” 150bil USD.
As is well known, the pandemic put all of this at a grounding halt and the number of Chinese outbound travelers diminished from 155 million in 2019 to 20mil in 2020. At the beginning, this was not immediately felt as the whole world was closed to international travel. However, when all other countries started to reopen in 2022, the lacking Chinese travelers in Europe, Asia and America started to make themselves felt, creating high expectations of China’s great pent-up revenge travel.
Conversely, even if China was not open in 2022, it still accounted for 10% of global international travel expenses in 2022 at 115 bil USD, second only to the United States. All data seem to indicate that this is mainly due to two reasons: firstly, given the size of the population, the number of people who had to travel for work or study or other essential reasons is still considerable; secondly, the cost of international air tickets at the time was still sky-high with long-haul one-way economy tickets exceeding 4/5k USD versus a few hundred dollars before the outset of Covid.
To the surprise of everyone in the industry, who had anticipated a gradual lifting of travel restrictions, the government unexpectedly removed all of them on January 8th. While many hoped for a swift return to the travel volumes of 2019, this expectation was not realized due to several factors related to both demand and supply:
- Demand Side Concerns: Initially, many Chinese citizens remained cautious about COVID-19, believing it unsafe to travel abroad after years of warnings about the virus’s dangers. This sentiment was particularly strong among lower segments of travelers.
- However, there was a notable exception in well-traveled premium passengers, who experienced a significant rebound in travel interest. The Maldives emerged as one of the most favored international destinations immediately following the reopening.
- Supply Side Limitations:
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- The complexity of operational and regulatory challenges meant that airline capacity could not instantly return to pre-pandemic levels.
- This issue was particularly acute in China, where January 2023 saw only 500 international flights per week, a stark contrast to the 7,500 flights per week in 2019.
- A significant number of Chinese citizens were without a valid passport, as many had expired during the Covid period, and the process to obtain a new one at the beginning of the year was notably lengthy.
- Lastly, securing visas proved to be a major challenge. Many foreign consulates, understaffed and overwhelmed, struggled to process even a reduced number of visa applications compared to those in 2019.
The understaffing issues observed in foreign consulates, a result of the rapid changes in travel and business environments, highlight a significant need in the workforce, particularly in sectors involving international operations. As a headhunting firm with operations in China, we have observed a growing demand for professionals skilled in navigating these challenges. Our role in this context involves identifying and connecting such talent with organizations that require expertise in managing the complexities of the current global landscape.
Capacity steadily grew in 2023 and international seats in November reached more than 60% of the levels of 2019, albeit differently for different destinations. The Civil Aviation Authority of China (CAAC) is also making it very clear that the number of international seats will continue to increase in 2024. We are now observing the aggressiveness of the Chinese carriers in adding new international destinations and heightened frequencies, especially to countries which are strategically aligned with China, such as in the Middle East and Africa. Passports issuance ceased to be a problem almost immediately in 2023 and visas are no longer an issue after the recent summer peak season
Even if most of the problems on the supply side have been solved, demand is still weak. Currently, the long-awaited revenge travel that we saw in other markets has yet to materialize. As per the latest figures published by CAAC, international passengers in 2023 have only recovered to 58% of the numbers reached in 2019. However, this differs amongst the different destinations., Reaffirming the troubles with demand, the average international fare for 2024 Chinese New Year (CNY) is more than 40% below 2023 levels and even lower than in 2019, as per a recent report from Tongcheng, a leading Chinese OTA. Even if this is not true for destinations which still experience severe under capacity such as the United States, we can say that most of international travel require deep discounts in order to stimulate interest from Chinese consumers.
According to a recent survey of travelers’ sentiments done by Dragon Trail. The main reasons behind this are economical with most of the respondents saying that they are not planning to travel as their discretionary income was affected during COVID. This is in line with what has occurred in both China’s financial and housing markets which are heavily underperforming. In fact, there is always a strong direct correlation between stock market performance and willingness to travel internationally.
The survey quoted above was taken in September, when the war in Israel had not begun. If it were taken after the war broke out, the number of people mentioning war as one of their main safety concerns would certainly be higher. As per feedback from many industry players, for example, in the two months following the war in Israel, many tours to Egypt and the UAE, the two top destinations in Middle East and Africa were canceled. Middle East is in fact perceived as a non-differentiated area, with the majority of people not actually realizing that war in Palestine does not affect travel to the UAE.
The lackluster international travel demand is forecasted to be subdued well into 2024 according to two recent analyses by Oxford Economics and by Nomura, and it is estimated to completely recover only by 2025. As a result, we are witnessing some international airlines reducing capacity to the market in the first quarter of 2024. Reasons are not only related to outbound travel but also to the lack of foreigners visiting the Middle Kingdom after COVID, as foreign direct investment is drastically reducing and China is perceived as not travel friendly after the heavy-handed measures taken during the pandemic. The recent and unprecedented one-sided visa waivers for many Asian and European countries confirms in fact that this demand needs to be stimulated.
On the other side, domestic travel is performing really well, with demand already higher than 2019. This is in line with the Dual Circulation Policy announced in 2020: stimulating domestic demand while keeping the economy open internationally.
Nonetheless, with all the above headwinds, the long-term future outlook for Chinese international travel remains positive with many financial analysts predicting a CAGR of more than 14% between 2022 and 2032. A few reasons are pointing in this direction: only 14% of the population has a passport compared with 48% of US citizens and higher percentages in European countries; domestic travel is booming, having overcome 2019 levels in terms of number of travelers and spend, making it likely that these domestic travelers will start reaching out to further away destinations; finally, many Chinese OTAs are disclosing that their online searches for many international destinations are already exceeding 2019 queries.
To summarize the main takeaways, we can say that:
- 2023 international travel demand in China was well below expectations.
- Supply will continue to grow steadily in 2024
- Demand for international travel will be slow until the end of 2024 and probably also at the beginning of 2025, not keeping up with supply
- International air ticket prices on average will experience downward pressure in 2024, even if they will still be high for some underserved destinations
- Essential travel (study, work) has always remained strong in China even during the pandemic, and it will still be so in 2024.
- The missing travelers of 2023 are not the ones in the higher segments, but the price-sensitive leisure travelers filling the back of the planes.
- China will keep on remaining the most important international travel market for some time. Its long-term outlook is positive as many people that still do not have a passport will get one sooner or later and as many previous international travelers still have not gone abroad after Covid while they are spending already a lot domestically.
