Chinese airlines are shifting focus to domestic routes to follow passenger demand

For years, China’s three state-owned airlines kept adding flights on international routes to chase after a rising middle class that can afford to fly overseas. Now, they are slowing that down in favor of the local market. In H1 2017, Air China, China Eastern Airlines and China Southern Airlines increased international seats at less than half the pace of the same period last year, according to data from the carriers. Two of them have stepped up domestic capacity. The pullback on overseas routes may be a sign that Chinese airlines are eschewing aggressive expansion and paring cheaper tickets on long-haul flights from smaller cities to destinations like New York and Sydney. Local passenger traffic rose as much as 16.7 percent in May — the most in more than two years — and grew more than twice the pace of international services in the first six months, data from Civil Aviation Administration of China show. “If you look at margins, our forecast is that domestic is more profitable,” said Andrew Lee, an analyst at Jefferies Group. “If there’s a bit more focus on the domestic side, that would be more positive for yields.” Investors will be closely watching the carriers’ domestic yields, an indicator of profitability measured by the money earned from flying one passenger per kilometer, as the three carriers release H1 earnings this week. “Last year their attitude was ‘let’s take a hit on yields to increase capacity,”’ said Lee. “This year there could be a slight shift to focus more on yield management.”<br/>