China domestic maintains status as aviation’s growth driver

A recent OAG webinar underlined how patchy the travel recovery looks set to remain in 2021, with China’s domestic market offering a note of strong positivity.

The mixed picture and uncertain outlook for global aviation as we approach mid-2021 has been underlined by recent data from airline schedules analyst OAG. The company assessed the continuing impact of the pandemic on airports in a revealing webinar last week, with Senior Analyst John Grant and Cartier Global Travel Retail Director Virginie Martignac among the speakers. Encouragingly, after around a month of little growth in airline capacity, there has been an uptick in mid-May. Global weekly capacity was at 64 million seats in the week beginning on the 17th. While this was only 58% of 2019 capacity, it was still double the May 2020 figure. Also, for the first time in three months, European seat capacity reached above the -70% mark (-66%) in May, and North America saw capacity come in under -30% for the first time since the crisis began. Against this, capacity in Asia slipped from -25% in April to -28.5% in May (compared to 2019 levels). Despite some positive signs, noted Grant, and while airlines continue to hold higher levels of capacity in their schedules for future operations, OAG does not expect that rise in capacity to remain in place over the Summer. He said: “Airlines are only planning four to six weeks ahead in their schedules. There will be a lot of capacity to come out – and demand is 15-20% below capacity – so from a demand perspective many markets are down -80-90% compared to 2019 levels.”

With the opening of Beijing Daxing in late 2019 the Beijing system now has more seats than ever. Pictured is the domestic duty paid zone at Daxing.

Aside from recovery in the US market, the bright spot remains China. There, seat capacity is a remarkable +10% ahead of May 2019. Among major world aviation markets, Mexico is next closest at -17% below the same week in 2019. Within China, a glance at the figures (see table) shows how tier one and two airports have bounced back, led by domestic traffic – with Guangzhou International the largest at over 4 million seats this month. Beijing Capital International Airport has lower capacity than it did in 2019 but with the opening of Beijing Daxing in late 2019 the Beijing system now has more seats than ever. Driven by the popularity of Hainan as a destination, Haikou and Sanya have climbed sharply in terms of seats in May. By contrast, Hong Kong and Macau airports remain well down on 2019 capacity for the same month.

Seat capacity at Chinese airports, May 2021 vs May 2019

Guangzhou +34% Shenzhen +21% Xiamen +29% Sanya +49% Haikou +29% Zhuhai +7% Macau -46% Hong Kong -96%

Source: OAG

Commenting during the webinar on how Cartier has rethought its approach to China, Martignac said: “We have shifted the strategy to Chinese domestic and duty paid. Luxury brands everywhere are reinforcing their presence in this market. “We find that the behaviour of the shoppers in these airports is quite positive. They do intend to shop when they travel. The level of transaction and conversion is high still, despite the crisis. The international business will come back – and shopping will be part of the journey – but brands must integrate themselves into the travel journey both inside and outside China. We cannot take for granted that they prefer shopping abroad. They will also shop at home. Therefore we must focus on digitalisation, more localised retail – how we welcome and greet the traveller in the airport shop – and reinforce the fact that we [as a brand] are everywhere, a ubiquitous presence.” In other markets, OAG also assessed how closely travel demand remains tied to government rules and messaging. After the trans-Tasman ‘travel bubble’ was announced in April, bookings surged for Australia-New Zealand travel, resulting in a near +50% increase in airline seat capacity. However, that capacity has been reduced in subsequent weeks and is now lower than it was before announcement.

Cartier reimagined and transformed its boutique at T Galleria by DFS, Macau, Shoppes at Four Seasons last year; the luxury brand remains heavily invested in China, with a strong focus today on domestic duty paid

Grant said: “There is a lot of concern that it [the travel bubble] could be suspended at very little notice, is variable by state and therefore consumer confidence is still very fragile. There was pent-up demand, and there were people who needed to travel, but it’s not sustained demand. “Also, the government announced a very attractive incentive for domestic tourism in Australia at same time as the New Zealand bubble was announced – so many carriers put capacity back into Australia domestic rather than into the travel bubble with all of its uncertainty.” This contrasts with the example of Greece, which has announced that it is open for tourism and will remain open all Summer. Bookings look far more robust through to September than they do between Australia and New Zealand, where demand tapers off for the months ahead. Grant said: “Greece has created a more consistent demand profile. People therefore book early, they want to get the best fares and hotel rates and it shows the importance of clarity of purpose [from regulators]. “We need some significant decisions from regulators on the opening of skies to encourage more demand through Summer in Europe and worldwide. Airlines and airports cannot resource until they know what is happening – it makes planning and for example ordering of stock [by retailers] very uncertain.”

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The Moodie Davitt eZine Issue 296 | 26 May 2021

The Moodie Davitt eZine is published 15 times per year by The Moodie Davitt Report (Moodie International Ltd). © All material is copyright and cannot be reproduced without the permission of the Publisher. To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail sinead@moodiedavittreport.com

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