Until the onset of COVID-19, China was the great white hope of Australian international aviation. It was a fast-growing market with buoyant forecasts. Then it all went south very quickly. It wasn’t just COVID-19. Behind the glossy facade were structural shortcomings, unsustainable growth trends, and overinflated expectations.
China was Australia’s biggest inbound tourism market
Before COVID-19, China was Australia’s largest inbound tourism source market in terms of volume and spend. Over 1.45 million Chinese landed in Australia in the 12 months to July 30, 2019. Numbers were forecast to reach 3.9 million in 2026–27.
After a memorandum of understanding signed in late 2016 paved the way for an open skies style deal between Australia and China, nine Chinese airlines ended up flying between the two countries. This was in addition to existing Qantas and Jetstar flights.
The 2016 MOU reaffirmed pre-existing unrestricted caps on sectors between China and Australia’s smaller international airports and permitted unrestricted capacity on flights to Australia’s big international airports.
In a short space of time, scheduled capacity on direct routes between Australia and China almost doubled. China Eastern, China Southern, Air China, and Sichuan Airlines flew to Australia before the MOU. After the signing, Hainan Airlines, Xiamen Airlines, Beijing Capital Airlines, Tianjin Airlines, and Donghai Airlines joined the fray.
Before the travel downturn, China Southern offered almost 2,000 seats a day into Australia, four times the number Qantas offered. China Eastern was offering around 1,500 seats a day to Australia. Air China was offering over 700 seats a day to Australia.
A turbo-charged but febrile airline market
It was a turbo-charged and febrile airline market. Jetstar exited its ex-Australia mainland China before the onset of COVID-19, and Qantas long-struggled to get a significant presence there. Around 45% of the total passenger numbers were Chinese tourists. There was also a substantial education, visiting friends and relatives (VFR), and business markets.
But the prospects of the China – Australia market taking off once again are dim. While COVID-19 battered the market, the Chinese Government’s antipathy towards Australia promises to do more harm than COVID-19 in the longer term.
That antipathy doesn’t have anything to do with the China – Australia airline market. However, the airline market is likely to be a victim, with tourism and education traveler numbers set to ease back significantly.
John Grant, a partner with MIDAS Aviation, likens the China – Australia market to a false market and policy flop.
“It was never really there,” he told a recent OAG webinar. “The damage done to the Australian economy, and going forward in terms of investments people have made, hoteliers, and all of these sorts of things … was it really worth it?”
Passenger numbers unlikely to quickly rebound
China issued a travel warning regarding Australia in mid-2020, saying Australian agencies had been “arbitrarily” searching Chinese citizens and seizing their possessions. That followed the Australian Government warning its citizens, particularly Chinese Australians, they could be at risk of “arbitrary detention” in China.
In May 2021, China’s National Development and Reform Commission indefinitely suspended dialogue with the Australian Government. Since then, relations have gone further downhill.
The ongoing high-level squabbles are expected to restrain the number of Chinese willing or able to travel to Australia when international travel normalizes again. The bulk of passengers traveling in either direction between China and Australia are Chinese nationals. Only about 600,00 Australians traveled to and from China in 2019.
“It’s going to leave a hole,” former tourism and airline executive Simon Westaway told the OAG webinar. But he notes all is not lost. The Chinese inbound market favored high quantity but relatively low spending visitor numbers. The alternative is fewer but higher spending inbound markets.
‘It’s going to have to recalibrate,” Mr Westaway said. “The Chinese market did concentrate on three or four centers – Sydney, Melbourne, southeast Queensland, and a bit of far North Queensland. In other parts of the country, if you found a Chinese tourist, they were probably lost.”
He sees Singapore, Europe, and the United States (already significant pre-existing inbound markets) as alternative markets with good growth prospects.
COVID-19 fast-forwarded an inevitable reckoning
Shortly before suspending its regular international flying, Qantas axed its Beijing flights but retained services to Shanghai. Qantas attributed the decision to decreased business demand and increased competition on the route. It was the Australian airline’s third attempt to make Beijing flights work. Around the same time, Jetstar pulled the plug on its Melbourne to Zhengzhou flights.
Australian airlines have long struggled to get a foothold in China, unable to match their Chinese competitors’ capacity and domestic network breadth. Tour operators in China also tended to put their customers onto Chinese airlines.
That relative lack of exposure to China may now benefit Qantas. Its single Sydney – Shanghai service (yet to resume) usually does okay carrying business traffic. That traffic will continue, even if tourist traffic declines. Qantas also had a codeshare alliance with China Eastern Airlines to give it some feeder traffic in and out of Shanghai.
It’s the Chinese airlines that have the most to lose. The big Chinese carriers like China Southern, Air China, and China Eastern have maintained scaled-back services into Sydney and Melbourne. However, most smaller Chinese airlines have suspended flights, either voluntary or via a CAAC edict.
Hainan Airlines and Xiamen Airlines had traffic numbers to rival Qantas, but Beijing Capital Airlines, Tianjin Airlines, and Donghai Airlines all substantially lagged – even in the good years. Inexplicable routes such as Donghai’s Darwin – Shenzhen service may never return.
As Simon Westaway notes, there will be a recalibration of airline services between China and Australia. Before COVID-19, the sector was overheated and ultimately unsustainable. COVID-19 simply highlighted the problems and fast-forwarded the inevitable reckoning.
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