China's domestic aviation recovers, but only mildly, from virus shutdowns

© Reuters. FILE PHOTO: A ground staff worker cleans a parked passenger aircraft at Beijing Capital International Airport as the country is hit by an outbreak of the novel coronavirus

By Stella Qiu and Jamie Freed

BEIJING/SYDNEY (Reuters) - China's domestic flights rose by about a fifth in March from the previous month, the aviation regulator said, but that was still less than half the flights before the shutdowns due to the coronavirus, showing the sector is recovering only gradually.

The number of daily flights climbed 20.5% in March to 6,533, Jin Junhao, an official at the Civil Aviation Administration of China (CAAC), told a press conference on Thursday. That was still just 42% of the daily flights before the coronavirus struck.

Most of the increased travel demand in March was from labour abundant regions such as southwest and northwest China to coastal areas where labour demand was tight, he said.

The aviation industry is closely watching domestic capacity in China as a harbinger of demand recovery trends in other markets around the world that are still in a capacity cutting phase as the pandemic spreads.

Major state-backed carriers this week warned that fares remained low, fewer seats were filled than usual and cautious travellers were waiting until the last minute to book.

The rebound in China has been hampered by the slower-than-expected recovery in broader economic activity.

Air China Ltd (SS:601111), China Southern (NYSE:SO) Airlines Co Ltd (SS:600029) and China Eastern Airlines Corp Ltd (SS:600115) said this week they were looking to defer airplane deliveries despite a gradual rebound in capacity, according to analysts who listened to post-results teleconferences.

China Eastern said it had aimed to operate 40%-50% of its domestic flights in March but there was demand for only around 30% based on bookings, according to BOCOM International analyst Luya You.

"On the flight arrangements, we're making real-time adjustments based on market conditions," China Eastern said, responding to a Reuters request for comment. The other airlines did not respond immediately.

CAAC ordered local and foreign airlines last week to drastically reduce international flight capacity to and from China over fears of re-introducing the coronavirus.

The regulator has also put restrictions on the number of domestic flights per day in the second quarter, although subdued demand means the curbs don't have an impact, analysts said.

"I think a full-fledged Q2 domestic rebound is not too likely, but we could see more stabilisation. Operations will probably remain around 30%-50% of normal for time being," said You.

Air China forecast a rebound in the domestic market in June, with an international market recovery taking until August at the earliest, analysts said.

China Southern had 45% of its aircraft idle in March, an improvement from 52% in February, but the carrier said it was filling fewer seats at lower fares, Daiwa analyst Kelvin Lau told clients in a note.