Behind the mask: Coronavirus and China

Travel will have to grow despite the clear sense of national tragedy. Deaths quickly outpaced those of SARS, although concentrated in the epicentre of Hubei province and not the larger aviation clusters around Beijing, Shanghai or the Shenzhen/Guangzhou/Hong Kong megahub. Hubei’s Wuhan may have an under-stated aviation presence since the city’s stations are a major junction for high-speed rail. But there are geographical differences. France may feel more impacts since one-third of its Chinese investments are in Wuhan, according to US trade estimates, so perhaps it’s unsurprising that Air France was the only intercontinental airline to fly to Wuhan.

More widely, state-owned Chinese airlines were re-capitalised after the Global Financial Crisis. They will probably expect financial support after this crisis — potentially later creating international disputes on subsidies akin to US airline bailouts after September 11. China in early February alone injected US$241 billion of general liquidity into the country. In the wider political context of trade conflicts, this is one to watch.

Internationally, travel restrictions will need to be lifted through a combination of health assessments and political pressure. Foreign airline exits did not prompt official comment as the crisis unfolded, but later China criticised countries for non-essential abandonment and stoking fear.

China may remember British Airways as the first major airline to completely exit and for a long duration. That is now in the past. The first airlines to return and mount a large schedule will not go unrewarded. Chinese airlines will be expected to lead and return services more quickly.

Spooling up domestic flights could be seen as an economic catalyst for recovery, and returning to full capacity could depend on how quickly Chinese airlines can regain the foreign pilots they abruptly put on unpaid leave. Foreign pilots are mostly captains, meaning an absence creates an imbalance in pilot supply. China is by no means the only market for experienced pilots.

Regaining passenger volumes will first require a sense of normalcy

Uncertainty comes as China this year would look towards its next macroeconomic agenda, the 14th Five-Year Plan, due to commence in 2021. This may be an opportunity to finally re-calibrate aviation.

The sheer volume growth of Chinese aviation over the past decade has forced airlines to prioritise operational growth rather than strategic development. In some years, fleet growth at individual airlines was equivalent to creating a small European flag carrier. Making structural change at such large airlines is not easy, but it will be more difficult the next year.

Growth is sustainable but its current methods are not, in aviation as elsewhere. Chinese aviation is dominated by state-owned airlines with bloated workforces. Besides the benefits of greater productivity, China is out of people: its labour force peaked in 2016 according to national figures.

Global regions have a spectrum of airline business models: Spirit to Delta, Ryanair to Lufthansa, AirAsia to Singapore Airlines. There is less variation in China’s scale between low-cost Spring Airlines and Hainan Airlines, which often ranks above state-owned airlines in passenger satisfaction.

In a market as large and varied as China, there needs to be a range of airlines and propositions. This can stimulate growth or at least ensure current expansion projections can be met. When China last decade gave greater support to low-cost business models, it singled out the opportunity for low-cost carriers in western China, where incomes are lower. That said, many of the most profitable LCCs globally serve relatively rich markets.

There are ample improvements airline management can make flying solo, which are often matters small in headquarters but with disproportionately high impacts to passengers. Yet larger structural changes are difficult or almost impossible due to government constraints.

The size of premium cabins is a delicate issue — cynically because government officials travel in the pointy end. Pragmatically, retaining first class and a large business cabin emulates a Chinese airline on a stereotypical baseline, yet one that is now outdated. Xiamen Airlines’ 787-8s were received with first class while its later -9 deliveries do not have first. China Southern is retrofitting out first class and some business seats on 777s. As elsewhere, aviation will evolve.

China this year was due to loosen commercial constraints on ancillary purchases, allowing airlines to grow revenue and better differentiate themselves. It is a comfortable assertion that airlines may ask for faster market-driven orientation. At the extreme, it cannot be ruled out an airline or political faction may succeed in profound change concerning consolidation at home or abroad.

Chinese airlines have been held back because of implementation, not ideas or willingness. Aviation has a history of emerging stronger out of crises. May it be so once again.