Beijing's Economic Malaise and Cheaper Airfares: Insights from HSBC's Analysis

Airfare Prices Set to Decline in China

As the travel off season commences, airfare prices in China are expected to fall rapidly. According to a recent HSBC global research report dated October 31, current economic conditions are putting immense pressure on airlines as they grapple with tepid domestic consumption and high operational costs.

National Day Holiday Insights

The prices peaked during China's weeklong National Day holiday, with a significant surge in transactions facilitated by Alipay, a mobile payment service operated by Ant Group. During this period, transactions for outbound and inbound tourism surged by 60 percent compared to the previous year. Notably, countries in the region such as Malaysia, Thailand, Hong Kong, and Singapore witnessed the fastest growth rates.

• After National Day, average domestic ticket prices fell by 11 percent.
• International trip fares decreased by 23 percent.

Challenges and Opportunities for Airlines

Despite the launch of economic support measures by Beijing, consumer sentiment remains low amidst a broader economic malaise. The combined profits of major carriers like Air China, China Southern, and China Eastern saw a decline of 18 percent year-on-year, primarily due to elevated fixed costs. As the off-peak travel season continues, these airlines will face ongoing earnings stress.

HSBC economists, including Parash Jain, indicate that while cheaper oil prices (projected to reduce by 7 percent this quarter) present an opportunity, weak domestic demand and competition from foreign carriers will likely limit fare increases. Airlines with substantial cargo operations, notably China Southern, stand to gain from the rise of e-commerce, which is experiencing booming demand.

Impact of Direct Flights on Cathay Pacific

Another significant factor in fare dynamics is the potential impact of increased direct flights between China and the US on Cathay Pacific. Historically, Cathay has benefited from travelers using Hong Kong as a transit point to the US, but this new competition could dampen its market position.