How is domestic oversupply affecting Chinese airlines?

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Domestic Oversupply Intensifies Challenges for Chinese Airlines

Chinese airlines are experiencing intensified domestic oversupply, a consequence of wide-body aircraft being deployed on domestic routes due to the incomplete resumption of international travel. This situation, coupled with a slower-than-anticipated rebound in international travel, is contributing to significant financial losses for the country's major carriers. For instance, Air China reported a first-half net loss of 2.78 billion yuan (RM1.7 billion), while China Southern Airlines posted net losses of 1.23 billion yuan during the same period.
Deployment of Wide-Body Aircraft on Domestic Routes

Wide-body aircraft, typically designed for long-haul international routes, are now being utilized for domestic flights as international travel recovery lags. This shift in deployment leads to an oversupply of seating capacity within the domestic market. Air China explicitly noted that "As international routes are not resumed fully wide-body planes are used domestically, intensifying oversupply." This practice inflates the number of available seats, putting downward pressure on load factors and potentially driving down ticket prices.
Slower International Travel Recovery

The recovery of international travel from China has not met market expectations, partly due to economic factors and a shift in consumer preference towards domestic tourism. While outbound traffic from China has seen growth since the lifting of pandemic-related restrictions at the start of 2023, the pace of this recovery is slower than anticipated. Data from Cirium indicates that in July, flights out of China were still 23% lower than in the same month of 2019, highlighting the persistent gap in international connectivity.
Increased Domestic Flight Numbers and Competition

The oversupply in the domestic market is further exacerbated by a significant increase in domestic flight activity. In July, the number of domestic flights operated was 15% higher than in the same month of 2019. This surge in domestic capacity, alongside the global return of aviation capacity, intensifies competition among airlines. This heightened competition, coupled with the oversupply, is contributing to softening fares and impacting overall airline profitability, with the top three state-owned airlines—Air China, China Southern Airlines, and China Eastern Airlines—all having last reported annual net profits in 2019.

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How is domestic oversupply affecting Chinese airlines?

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