Chinese airlines turn to Asia as long-haul losses pile up

Over the past decade, the number of seats on USroutes operated by China's top three state-owned carriers rose fourfold, but such breakneck expansion came at a price. The nation's international aviation industry has been in the red for at least three years, withlossesreaching 21.9 billion yuan ($3.13 billion) in 2018, according to recent China Air Transport Association data.

In response,Chineseairlinesare increasingly seeking growth closer to home. Out of 105 international routes thatChinesecarriers plan to add to over 800 existing ones for the new winter-spring season, most focus on EastAsiaand SoutheastAsiawith some European routes also thrown into the mix.

"Chinesecarriers are now taking a more commercial approach to international services," said John Grant, senior analyst at aviation data firm OAG. "If you could fly an aircraft for four hours and stay profitable compared to a 12-hour sector and not make any money, then you could do that thrice on a daily basis, thus making a better business sense."

For example, China Eastern has recently received approvals to open new routes from tier-two cities of Qingdao and Chengdu to South Korea's Cheongju-si and to Osaka in Japan. It will also fly Shanghai to Aomori Prefecture in Japan and from Xining to Japan's Nagoya.

Loong Air too received approval last month to open a new route linking Chengdu with Jakarta. Air China has been operating a Beijing-Phnom Penh route since the start of this year and China Southern has been flying from Guangzhou to Cebu in the Philippines since January.

Theairlineshave not responded to requests for comment.

And as demand on North American routes weakens, fourChineseairlineshave dropped six US-bound flights so far this year, according to aviation data provider Variflight. For example, Air China suspended Beijing-Hawaii flights in August while XiamenAirlinessuspended its Xiamen-Shenzhen-Seattle route.

After a decade of double-digit growth,Chinesevisitor numbers to the United States have fallen last year and the USNational Travel and Tourism office forecasts another 5 per centdecline this year as a combination of a stronger dollar, China's cooling economy and trade tensions between Beijing and Washington take their toll.

USTravel Association Chief Executive Roger Dow told Reuters the USshare of the globallong-haulmarket has shrunk to 11.7 per centlast year from 13.7 per cent in 2015.

In all, while the number of seats on flights to North America operated by China's top threeairlines, rose 2.9 per centin the past three years, the capacity on SoutheastAsian and European routes jumped 30.6 per centand 34.6 per centrespectively.

"The demand on North American routes is not as strong as before, soairlinesare shifting their capacity on these routes to places like Japan, South Korea and SoutheastAsia, to protect their fares," Luya You, transportation analyst at BOCOM International said.

She added Air China and China Southern management expected Japan and Korea to contribute most capacity growth next year with slower growth in North America.

Long-haulflights tend to be more lucrative forairlinesbecause there is less competition from low-cost carriers than on short routes, which means higher fares can more than make up for the higher cost of fuel, bigger planes and bigger crews.

However, asChineseairlines, backed by state and local government subsidies, chased market share they have driven theirlong-haulrates so low that they stand to make more money on international routes closer to home, experts say.

OAG's Grant says they can do that without much additional investment because latest generation wide-body aircraft can also work well on shorter routes.

At the end of 2018, China's top three carriers had orders for 60long-haulplanes, mostly Boeing 787s and 777s and Airbus A350s, all of which can be easily reassigned.

"Undoubtedly, SoutheastAsiais where they are going to reallocate their order over the next couple of years," Grant said.