Keep calm and carry on

Patrick Yeung, head of Hong Kong-based Dragonair, which flies to 20 Chinese destinations, is similarly confident. He says China’s spectacularly high rate of export growth wasn’t sustainable and the country’s recently appointed new leaders will be looking for qualitative rather than quantitative growth in coming years.

“The sustaining of double digit growth or even high single-digit growth may not necessarily be on the top of the agenda of the new government. They will probably look for more domestic consumption… a re-balancing to more consumption-led and less export-driven investment. ” Whatever the ebb and flow of economic conditions and policy behind the now faded Bamboo Curtain, all the evidence points to China continuing as the major driver of airline industry growth across the region and beyond.

Pessimists might doubt that view, pointing to the sagging income of Chinese airlines. According to the Civil Aviation Administration of China’s (CAAC) latest figures, in July they made a combined $1 billion in profits.

In August there was a drop of 17 per cent to $933 million, falling again to $368 million in September. The final quarter was also tough.

That may look like an industry in free fall on the fiscal front but it is hardly disastrous. It is short-term pain in an airline world struggling everywhere. The heady days of 2010, when Chinese airlines grew a staggering 300 per cent, were never sustainable and the CAAC still suggests airline profits overall rose around five per cent to $7 billion in 2012.

What is important is not the past or even, to a certain extent, the present.

The economic ups and downs alluded to by Cathay’s Slosar are a fact of life. What is really important is the future. For all carriers – Chinese and non-Chinese – the statistics point to nothing less than spectacular on-going growth. The Chinese are already third behind Germans and Americans in terms of money spent overseas. China is also the third most visited country in the world, attracting more than 60 million visitors annually. The World Tourism Organization (WTO) says it will become the largest tourist country by 2020 and the number of overseas trips made by Chinese, some 70 million in 2011, will hit 100m by the end of the decade. Domestic and international air traffic demand is still growing at more than 10 per cent annually.

Major operators such as Air China, China Southern Airlines and China Eastern Airlines have moderated fleet growth but continue to expand, particularly internationally. That trend has been witnessed in Australia, particularly with the rapid growth of Guangzhou-based China Southern and its launch of the new Canton route from Sydney to London via China.

Infrastructure investment is another clear indication that no-one thinks there’s going to be any easing off in demand. The CAAC says the country will build 82 new airports and expand 101 existing ones by 2015. Last year alone, the National Development and Reform Commission, the country’s top economic planning agency, approved 24 projects to build new airports and expand existing airports, with an estimated investment of around $16 billion.

There is another factor which could have a profound impact on the future direction of Chinese aviation.

The CAAC’s current administrator Li Jiaxiang is expected to retire in the near future. Insiders in China tip his successor will be current China Eastern chairman Liu Shaoyong, who was also chairman of China Southern between 2004 and 2008. Liu was involved in China Southern’s decision to purchase Airbus A380s and China Eastern’s ground-breaking tie-up with Qantas to jointly set up the proposed Jetstar Hong Kong. There is cautious optimism among the airline fraternity he could preside over major reforms that will see China’s carriers make significant advances in service standards and a deepening of their relationships with foreign partners.

China’s problem isn’t attracting traffic growth. It’s coping with it when it comes. All in all, Asia Pacific airlines needn’t worry about Beijing falling off a fiscal cliff. The real threat to their growth lies west in fragile Europe and east in shaky North America.

That may look like an industry in free fall on the fiscal front but it is hardly disastrous.