Aviation connects people, cultures, and businesses across every continent. It facilitates international trade and promotes tourism. Therefore, it generates economic growth and social benefits. However, China’s aviation industry has been severely hit in the first half of 2022. In this context, the Chinese government has issued a bailout. But in fact, it hasn’t helped much.
According to Upstream News, all three major airlines on July 15 released preliminary data for the first half of 2022.
Air China announced that it expects a net loss attributable to shareholders of about 3 billion dollars. This figure tripled the loss recorded in the same period last year when the company lost more than 1 billion dollars.
In June, Air China’s consolidated passenger turnover plummeted 48% year-on-year. Its passenger capacity input fell 41% as against a year earlier. The airline reported a freight turnover decrease of 0.3% year on year, and freight capacity input went down 13% yearly.
According to China Southern Airlines’s preliminary calculations, the net loss attributable to the shareholders in the first semester is estimated at up to 1.8 billion dollars. The company was also hard hit in the same period last year, but the loss was smaller, at 148,000 dollars.
In June, the passenger turnover of China Southern Airlines decreased 26% year-on-year, and the passenger capacity input dropped 17% year-on-year. China Southern Airlines’ freight capacity input in June decreased by 14% year-on-year.
China Eastern Airlines announced in the preliminary calculations that the net loss attributable to the shareholders would be about 17 to 19.5 billion (2.5 billion to 3 billion dollars) for the first half year of 2022. This loss also increased from last year’s period when the company reported a loss of 770 million dollars.
The company said that the aviation industry faced unprecedented difficulty in the first semester of this year, with civil aviation transport plummeting. The passenger traffic was 118 million, only equivalent to 37% during the same period of 2019.
In June, China Eastern Airlines reported passenger turnover went down 58% year-on-year, and passenger capacity input fell by 53% year-on-year. In terms of freight, the company’s volume of goods and mail fell 30% year-on-year.
On July 15, some low-cost airlines also reported loss-making results. Calculating year-on-year loss, Juneyao expects a loss of 240 million to 285 million dollars and Spring Airlines expects a loss of 178 million to 193 million dollars.
The day before several airlines released their forecasts, Shenzhen Airport, Guangzhou Baiyun Airport, and Shanghai Airport also released performance forecasts. These three airports are expected to have a total loss of more than 296 million dollars.
ST HNA, which has just completed bankruptcy and reorganization, released a performance forecast on July 14. The company is expected to lose 12 billion yuan to 13 billion yuan (about minus 1.8 billion to 1.9 billion dollars) in net profit in the first half of 2022.
In the announcement, ST HNA also disclosed the net assets attributable to shareholders of listed companies. It will be around minus 480 million to 630 million dollars by the end of the first half of 2022. As a result, ST HNA, in the first half of this year, was insolvent again.
The Chinese airlines are stuck between a rock and a hard place. You might ask why they got into that situation. Let’s explore the following two reasons.
First: Due to the epidemic’s impact, the number of passengers traveling is minimal
The number of daily passenger flights has been less than 5,000 since mid-March. Compared to 2019, the average daily flight volume for the whole year was more than 12,000 flights.
According to the statistics of Feichangzhun, due to epidemic prevention and control, large-scale cancellation of airport flights has become the norm. Domestic airlines operated 161,400 passenger flights in March, down nearly 45% from February.
The Civil Aviation Resource Network reported that, in April, the number of passengers of the six listed airlines declined compared with the same period in 2021 and the previous month. The six airlines completed around 5.600 million passengers in April, which only recovered to 13% of the same period in 2019.
The six domestic listed airlines are China Southern Airlines, Air China, China Eastern Airlines, Hainan Airlines, Spring Airlines, and Juneyao Airlines.
Shanghai flights are almost completely suspended based on each airline’s passenger traffic volume. The Juneyao Airlines passengers only recovered to the same period of 2019 was 7%, and the recovery of Spring Airlines is only about 20% of the same period in 2019. The recovery of passengers from the three major domestic airlines is less than 20%, and the recovery of Hainan Airlines is less than 10%.
In addition, because the international situation is still sluggish, the investment capacity is still not high, and the total number of passengers on international routes in April was about 87,000.
It is also worth noting that in the ranking of the TOP20 airlines in terms of international arrivals in April, no Chinese airline was on the list. It was the first time a Chinese airline was not in the ranking.
From the perspective of the passenger load factor trend of each company, they are all lower than the level of the same period last year and the previous month. Except for Spring Airlines, the passenger load factor of the other five airlines is below 60%.
At the same time, the passenger load factor of the six airlines’ international routes is still low, remaining in the range of 43% to 63%.
The six airlines’ cargo and mail transportation volume was 213,000 tons, down 28% from the previous month.
Due to the sharp drop in passenger flights, the belly hold capacity of passenger aircraft has declined. As a result, the decline in cargo volume of various airlines has intensified. The total cargo and mail carrying capacity of the six companies in the month were 213,000 tons. It was the lowest value in the first four months of 2022, compared with the previous month was 296,000 tons, which decreased by 83,000 tons.
Airlines apply promotions to attract passengers, but the situation has not improved much.
To improve the flight execution rate, Shenzhen Airlines was the first to launch the “One Book Flight” campaign on April 13, which offered not to cancel flights within three calendar days before the flight departure date, including the departure day. If canceled, a coupon of an additional 15 dollars would be issued to the passenger. Exceptions include weather and public safety reasons.
Judging from the air ticket order data of Flying Changzhun, after a week on the same route, the number of flights marked “One Book Flight” was higher, and the order volume increased by 30% week-on-week.
Some airlines have also launched Wuyi city tours or low-cost tours to attract passengers. China Airlines had a special ticket of 50 yuan or 7.5 dollars from Chongqing to Qianjiang. The fares for Nanning-Haikou and Chongqing routes start from 120 yuan or 17.8 dollars.
However, the passenger traffic recovery rate in May was only 23%. Even during the May Day holiday, civil aviation’s average daily passenger volume was less than 300,000. China’s civil aviation industry fell into an unprecedented difficult time.
Besides the airline’s efforts, the Chinese government issued a bailout. But it has not been as effective as the airlines expected.
On May 16, the Civil Aviation Administration of China announced the government plan to provide financial support for domestic air companies.
This financial support policy for domestic flights would originally be implemented for two months (May 21 through July 20) and for an average of 4,500 flights per day.
Lan Xiang, head of the Qunar Big Data Research Institute, expected that by introducing this subsidy policy, domestic airlines would relieve their difficulties and stop this year’s loss.
However, a person from an airline said that the industry has been struggling in the past three years. After deducting expenses, the actual subsidy would not be enough.
Just ten days after the implementation, China’s regulator on May 30 announced the bailout would be suspended on June 4.
The Civil Aviation Administration pointed out that the suspension of this subsidy was based on market recovery. Civil aviation subsidies aimed at stimulating the recovery of flight volume, and the recovery of flight volume in May was relatively good.
But flight attendant Li Ming said that, although the occupancy rate has increased, the profit has not improved.
Although flight ticket prices have decreased, it hasn’t stimulated demand. The Chinese government’s bailout was only implemented for two weeks. Airlines decided to increase ticket prices to compensate for losses.
Sina cited data from an OTA platform reported that, from May 14 to May 20, the average price of a one-way ticket (excluding tax) was 89 dollars. And from May 21 to May 27, the average cost of a one-way ticket (excluding tax) was 113 dollars, a 27% increase.
On May 18, Wang Shan bought a flight ticket from Mangshi, Yunnan, to Yangzhou, Jiangsu, on May 24, for 338 dollars in total. But in mid-May, the fare was about 119 dollars.
Wang Shan said that, since 2018, she had flown dozens of times on the route from Yangzhou, Jiangsu, to Mangshi, Yunnan. From her experience, the cost of this route has never been so high.
Except for the winter and summer holidays, the air tickets were not as expensive some years before. For example, the air ticket was only 30 or 45 dollars last August. Even during the most expensive winter and summer vacations, it was only more than 297 dollars. But May wasn’t the peak season. The air ticket price increased to 475 dollars in only two days.
According to Times Finance inquiries, air ticket prices have risen on major domestic popular travel routes recently.
Ctrip’s website showed on May 23 that the price of a direct flight from Guangzhou to Beijing in the third week of May was 454 dollars.
Aifeigou travel applet shows that, taking China Southern Airlines from Guangzhou to Beijing flight as an example, the flight price jumped to 454 dollars in the third week of May. The average price since the beginning of this year was 155 dollars, compared with last year’s average of 175 dollars.
The increase in aviation kerosene prices also forces airlines to increase ticket prices
As the Paper reported, the fuel surcharge increased five consecutive times from February to July, and the ticket price increased by ten times.
In the past two years, all domestic routes have waived fuel surcharges. As of February 5, fuel surcharges were resumed.
The fuel surcharges jumped from 3 dollars in February to 30 dollars for segments above 800 kilometers or 1,300 miles from July 5. And for segments of 800 kilometers or 1,300 miles and below, each passenger will be charged 100 yuan or 15 dollars.
According to the trip data, the fuel surcharges for domestic routes in previous years only reached 12 and 22 dollars. In fact, the fuel surcharges are more expensive than the air ticket in some segments.
Wang Sen (pseudonym), who had just bought a ticket, found that a flight from Zhengzhou to Lanzhou on July 12 cost only 35 dollars, but the fuel surcharge amounted to 37 dollars.
Chen Li (pseudonym), a student at a university in Guangzhou, also feels the same way. She planned to travel to Lijiang at the end of July and chose a connecting flight with a ticket cost of 119 dollars.
However, the transfer flight must be charged twice for the fuel surcharges, costing 59 dollars. Chen Li had to give up the transfer.
Since 2022, the market price of aviation kerosene has shown a steady upward trend.
The “Longzhong Information” statistics showed that the ex-factory price of CNPC aviation kerosene was around 1,160 dollars per ton in May. It was 1,240 dollars per ton in June.
According to a report of Sinolink Securities, in July, the ex-factory price (tax included) of domestic aviation kerosene was 1,450 dollars per ton, a year-on-year increase of 119% and an increase of 104% from 2019.
Sinolink Securities also pointed out that the fuel cost of airlines and other transportation companies accounts for a relatively high proportion. If the price rises sharply, the company’s charge will increase significantly.
Fuel costs can also be seen in airline earnings reports. In China, Southern Airlines’s 2021 annual report stated that, assuming that the fuel consumption remains unchanged, if the average fuel price increases or decreases by 10% during the reporting period, operating costs will increase or decrease by 379 million dollars.
The Red Star Capital Bureau has noticed that the increase in fuel surcharges is also pushing passengers to choose other transport means. In particular, passengers who prefer low-cost airlines could turn to high-speed rail.
Xu Li (pseudonym) from Suzhou said she had just bought a round-trip flight from Suzhou to Beijing. The fuel surcharge was 74 dollars. Meanwhile, the one-way ticket for the Beijing-Suzhou high-speed rail is 81 dollars for a second-class seat, which is almost the same as the fuel surcharges. Xu Li said she would choose the high-speed rail for her next trip.
Zhang Mingyang, a research fellow from Tongcheng Research Institute, said in an interview with China News that fuel surcharges have reached a record high. It would weaken the competitiveness of civil aviation relative to high-speed rail to a certain extent.
Qi Qi, an expert on the civil aviation resource network, said that in 2022, due to the rebound of the epidemic in traditional civil aviation passenger sources such as Shenzhen, Guangzhou, and Shanghai. Domestic passenger traffic would continue to be at a low level since the founding of the People’s Republic of China. Therefore, the disclosure of losses in the civil aviation industry would continue.
Second, problems with flight safety have been constant in the Chinese aviation industry since March
The largest accident in three decades shocked Chinese aviation.
The Boeing 737-800 was traveling from Kunming to Guangzhou on March 21 when it suddenly plummeted at an almost vertical angle. It pulled up for a moment before eventually plunging down into a hillside in Guangxi province, killing all 132 people on board.
This is China’s worst aviation disaster in almost 3 decades.
In April, the Civil Aviation Administration of China released a preliminary report 30 days after the crash.
The country’s air-safety regulator of China denied rumors of a deliberate crash. It said investigators found no evidence of “anything abnormal.”
But it confirmed that at the plane’s last moment, air traffic control noticed the plane’s sudden decrease in altitude. They called the crew but did not receive any response.
Captain Byron Bailey is an Australian aviation expert. He is a commercial pilot with more than 45 years of experience.
Captain Bailey’s comment comes after a recent report by Wall Street Journal about the crash.
The report, citing people knowledgeable about U.S. officials’ preliminary assessment of the crash, said that someone in the cockpit controlled the jet to plunge in its final moment.
One independent source told Reuters that investigators are looking at the possibility that someone in the crew caused the plane to crash with a “voluntary” act.
In an interview with Sky News Australia, Bailey suggested that one co-pilot of the Boeing 737-800 decided to take revenge on China Eastern Airlines. The reason might be that the co-pilot had been downgraded from a high-time captain to a co-pilot.
The expert added that the flight data recorder showed somebody pushing the control column forward, leading to the crash. He explained that this was an intentional act and the co-pilot might be the culprit.
According to Captain Byron Bailey, a Chinese aviation source had told him that this co-pilot was once a “high time captain” but had been “busted back to co-pilot.” His payoff dropped to a quarter compared to before, and, socially, he faced embarrassment and shame.
The veteran pilot explained that that could be the reason this co-pilot allegedly decided to take revenge on China Eastern.
In March, a Wall Street Journal article citing the Chinese state-run magazine Phoenix Weekly confirmed this information. The article identified the captain as 32-year-old Yang Hongda. Meanwhile, the first officer was 59-year-old Zhang Zhengping. Zhang Zhengping was a five-star pilot nearing retirement.
According to a profile published by China Aviation News, the industry’s official newspaper, Zhang Zhengping was among the first batch of pilots to be trained to fly commercial aircraft in China.
He had logged more than 30,000 hours of flying time “without a human error” and trained more than 100 captains for China Eastern, including the captain Yang Hongda.
On his last flight, Zhang Zhengping took the role of co-pilot, while his student, Yang Hongda, was the captain.
Captain Byron Bailey said that in 95% of all plane accidents, some pilot factor would be involved.
He continued, “But in cases of suicide murder… They all have motives, and perhaps you should look closely at the mental attitude of some of the pilots.”
Mechanical failure reported when an incident happens
China Southern Airlines flight number CZ3488 was en route from the southern city of Lijiang 丽江 to the south-eastern city of Guangzhou 广州 on June 9. But the plane suddenly turned back while it was already on the runway and preparing for take-off.
One day later, a passenger by the name of “Lijiang Fengwu 丽江风物,” or “Lijiang 丽江 Scenery,” went online and described his experience on the plane that day. He said the aircraft was speeding down the runway and was about to take off, but suddenly some aircraft parts fell off. He didn’t know which specific parts, but he heard something like the noise of a tire puncture. The plane swayed and shook a few times before reaching a standstill on the runway.
Fortunately, he said it hadn’t taken off, and he dared not think what might have happened if it had been the case. It could have resulted in an air tragedy.
He added that many chose to get a refund for their tickets and take another flight, while others said they didn’t dare to fly.
The interesting part is the reason for the flight delay. While China Southern Airlines said the flight was delayed due to weather problems, one airline staff member told Lijiang 丽江 Airport that there was indeed a mechanical failure.
In some cases, the cause of the incident hasn’t been revealed
A China’s Tibet Airlines plane caught fire on the left side of its nose after an aborted take-off in Chongqing (重慶) on May 12; 113 passengers and 9 crew members were evacuated with no casualties. However, 36 passengers with minor injuries were reported.
The cause of the plane crash hasn’t been published yet. However, some experts have speculated on the reason for the accident.
Cover News reported the comments from Wang Yanan (天大学 wángyànán), chief editor of Beijing-based Aerospace Knowledge magazine. He said the plane may have had a technical problem during the rollout and acceleration process, most likely a significant malfunction. Major failures could be a possible landing gear puncture or engine failure. This way, the aircraft was out of control. The pilot tried to regain control, but the plane overran the runway due to the excessive speed, and the landing gear was broken. The fuselage touched the ground, causing friction and then fire.
Guo Qing (郭庆 guō qìng), an associate professor at Northwestern Polytechnic University’s School of Aeronautics, said that the cause of the accident depends on whether the pilot himself canceled the take-off or if the plane ran off the runway due to its malfunction.
Some other aviation experts stated that it is extremely rare for a plane to veer off the runway and catch fire during take-off unless there is a special fault. When the plane took off and rolled, the speed was already high. The pilot’s quick decision not to take off at high speed was actually dangerous.
Jimu News presented another analysis, saying that the plane’s landing gear or pulleys likely had a problem, and the probability of the engine malfunctioning is relatively small.
In another incident, Air China passengers were horrified when they saw the loose screws of the plane’s wings.
On July 7, Chinese residents filmed and shared on social media that during Air China flight CA1921, the screws on one side of the wing were loose and kept shaking from the impact of airflow. It seems the screws almost fell out, making everyone worry about it.
On the same evening, Air China responded to the matter. They said that it immediately inspected the relevant parts of the aircraft, repaired the loose screws, and checked on the fleet at the same time.
Many netizens also left their comment on this situation. A Weibo user said, “There are 5 screws in the upper part through the visual inspection part, one fell off, and three were moving. Conclusion: “A bit scary.” Another asked, “How did this plane get past ground inspection and take off?”