Air China, China Southern Make Scant Mention of International Growth in 2022 Outlooks

Two of China's largest airlines, Air China and China Southern Airlines, will focus on domestic growth this year as the country maintains tight Covid-19 border restrictions.

The emphasis in their newly released 2021 annual reports, which include multiple mentions China's domestic economic initiatives that through 2025, is notable for its few references to international flying. Flights to foreign countries were one of the largest growth opportunities for Chinese airlines prior to the pandemic but, since the outbreak of Covid-19 two years ago, have become a minute part of their networks.

China Southern "will proactively participate in the construction of a strong country in the new era and support China’s civil aviation in building a strong country of civil aviation," the Guangzhou-based airline said in its annual report released April 26.

Already China's largest airline, China Southern carried 76 percent of its 2019 domestic passenger traffic in 2021. However, international traffic stood at just 5 percent of levels two years earlier.

And at Air China, the country's largest global carrier, domestic passenger traffic stood at 73 percent of 2019 levels last year. International was at just 2 percent.

"Civil aviation demand in China will continue to rise and market potential will remain immense," Beijing-based Air China said in its annual report released April 26. The airline noted that slower domestic capacity growth in 2022 would "alleviate the short-term excess capacity pressure brought by transfer of some aircraft from the international market." Air China did not comment on when it planned to resume much of its broad international route map.

The commentary from the two state-owned Chinese airlines keeps with government policy. The Civil Aviation Administration of China (CAAC) outlined in January a plan to focus on containing the Covid-19 virus and domestic growth through 2022, with most international air travel resuming from 2023.

"Chinese airlines’ managements generally are hopeful for activity pickup for upcoming holidays, including the 2022 Labor Day holidays and the summer travel season," J.P. Morgan analyst Karen Li wrote on April 20. "With regards to cross-border travel, airlines’ managements see scope for tripling of weekly international flights around the year-end."

But the Chinese domestic market has also taken a beating so far in 2022. January and February passenger numbers were up 12.5 percent year-over-year in January and February, CAAC data show. However, Covid outbreaks and a subsequent lockdown in Shanghai at the end of March that then spread to other cities in April likely curtailed that growth. And a new outbreak in Beijing may prompt a lockdown of that city as well.

The domestic focus comes as the big 3 Chinese carriers — Air China, China Eastern Airlines, and China Southern — all reported wider losses last year than in 2020. Air China lost 16.6 billion yuan ($2.5 billion), China Eastern 12.2 billion yuan, and China Southern 12.1 billion yuan.

In good news for Boeing, China Southern outlined plans to resume flights with the 737 Max in 2022. The airline anticipates the arrival of 39 new Maxes, according to its annual report. Deliveries have been halted since 2019 when China grounded the aircraft following two fatal crashes in Ethiopia and Indonesia. The country is among the last to re-certify the Max since the U.S. became the first in November 2020.