Chinese domestic market ‘resilient’ despite resurgent Covid-19, closed borders: HSBC report

While China has seen recurring waves of coronavirus infections in recent months, analysts from HSBC believe domestic travel demand is still holding strong. Still, they warn that changes in travel preferences — amid the discovery of mutated variants of the virus — could impact the profitability of the country’s three largest carriers. In a research report dated 7 December, the analysts note that the ‘Big Three’ — comprising Air China, China Eastern Airlines, as well as China Southern Airlines — are “well positioned and capitalised in the post-pandemic world”, as a “resilient” domestic market provides a “cushion” to an uncertain international travel market. “We believe the pent-up demand in the China domestic market remains solid despite ongoing waves of Covid-19 cases. We have observed that when Covid-19 cases subside, demand and air capacity pick up rapidly,” the report states. Chinese domestic traffic fell to an all-year low in August, as the country battled a significant uptick in infections, caused by the Delta variant of the coronavirus. Since then, traffic has gradually rebounded, though it is far from surpassing the high levels reported earlier in the year. “While we see no near-term turnaround in China’s strict Zero-Case policy, we learnt that local government has become more agile in tracking, isolating and handling sporadic local cases, insulating the broader economy from the impact of a small-scale regional lockdown,” state the HSBC analysts. Still, they caution that the frequency at which fresh waves of infections are detected are getting shorter, which they believe could lead to travellers preferring short-haul domestic destinations, instead of travelling further afield. The potential shift in travel choices “may potentially bring downside risks” to profitability, say the analysts.<br/>