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China’s Group Travel Ban To Stem Coronavirus Will Impact These Airlines And Destinations The Most

This article is more than 4 years old.

The Chinese government is banning international group travel effective Monday as part of its expanding efforts to contain the coronavirus outbreak that started in Wuhan. Since China is the world’s largest outbound travel market with 150 million trips abroad by Chinese in 2018, there are naturally concerns over the impact this will have on aviation and tourism economies. But they will be smaller than what conventional wisdom might suggest, and vary depending on the airline and destination.

The ban is not on all outbound travel. The ban, first reported by Bloomberg, applies only to group travel and not passengers making their own arrangements, although the ban has the indirect impact of sending a message to an already cautious market. There will likely be greater international passenger decreases from overall sentiment than the group travel ban.

Besides the group travel ban, China’s aviation regulator ordered local airlines to offer refunds to passengers wanting to cancel travel. Foreign airlines are doing so voluntarily, but only for immediate travel: up to January 31 for American Airlines and Delta Air Lines, and up to February 7 for United Airlines. If travel is to Wuhan, American and United extend the waiver through late March. This suggests the airlines expect a short-term impact or are taking incremental steps. The CAAC’s refund policy does not state up until when passengers can receive a refund, although bookings in domestic China tend to be made close to departure.

Group travel is becoming less important. One market that breaks down group versus independent travel is Australia, where visits by travelers in groups grew from 219,000 in 2012 to 349,000 in 2017. In the same period, the count of independent travelers grew from 175,000 (44% of total) to 557,000 (61%). The China Tourism Academy estimates 55% of outbound visitors traveled as part of a group in 2018, but did not provide regional breakdowns.

Visitors are not the same as air passengers. Over half of the 150 million travelers stay within greater China, comprising Hong Kong, Macau and Taiwan. Most travelers do not take a plane to Hong Kong or Macau, instead using extensive ground infrastructure of ferries, buses, long-distance rail and even local subway systems. Hong Kong recorded 51 million visitor arrivals from mainland China in 2018, but only 6m traveled via Hong Kong airport. Macau received 28m visitors from mainland China last year but only 2m arrived via Macau airport.

So where else do Chinese travelers go? Eleven million visited Thailand in 2019 while through November 2019, Japan saw 9m visitors and Korea 6m. Approximately 3m were estimated to visit the U.S. last year.

Chinese airlines will be impacted more than foreign airlines. China’s air travel has largely shifted from majority foreign passengers to majority Chinese. For the U.S.-China market, this occurred in 2015 when there were 4,254 daily China-U.S. passengers originating in China versus 3,495 originating in the U.S., according to Delta, which projects the market could further shift to 70% China-originating by 2025. Chinese airlines further rely on their home market since they are still building up foreign distribution and brand awareness.

Foreign airlines from Cathay Pacific to Singapore Airlines have reduced dependence on low-yielding group travel to focus on gaining and retaining independent passengers willing to pay extra for perceived better service.

Niche international airlines may be heavily impacted. Cambodia has a number of airlines dedicated to serving China, often through group travel. Likewise for some of Korea’s low-cost carriers.

Beijing, Shanghai and other first tier cities will fare better. Secondary markets are more dependent on group travel than flights departing Beijing and Shanghai, where earlier economic growth facilitated travel and created experienced travellers comfortable to travel on their own. Travel development in secondary cities is occurring faster than economic growth due to local governments providing incentives and subsidies.

Intercontinental airlines flying to secondary cities have a mixed outlook. Foreign airlines are less likely to operate a long-haul flight into a secondary city just to cash in on incentives and subsidies. They often want to see a strategic corporate focus that can be developed into long-term sustainability without incentives. Air France started a Wuhan flight in part because of local French automakers there, or Lufthansa to Qingdao because of historical ties to Germany. Without group travel, these flights could be more challenging. Airlines typically take a long-term perspective to market disruptions and are not quick to cancel flights, but a sudden and steep drop in traffic may prompt a short-term response.

Group travel helps new flights and thinner markets. There will likely be impacts to flights from Beijing and Shanghai that do not serve major destinations. Shanghai Airlines’ Shanghai-Budapest flight may still be new and stimulating demand so uses group travel to fill the flight. Air China’s Beijing-Athens flight is not new, but the small local market may need to be complemented with group travel.

More challenging flights are those to smaller destinations served by smaller airlines that lack the distribution and presence of the major carriers. So group travel may be especially needed for a flight like Juneyao Airlines’ Shanghai-Helsinki service.

The ‘Big 3’ are more exposed to international flights. A secondary airline flying a secondary city pairing may have high challenges, but overall China’s “Big 3” – Air China, China Eastern and China Southern – operate the most international flights. As the flag carrier, Air China has more onus to fly politically strategic routes that may need more group support to compensate for limited natural demand. Hainan Airlines and other airlines in the HNA Group have a large intercontinental network, but often on smaller city-pairs.

Markets want to evolve from group travel. The concentrated nature of group travel places burden on infrastructure. Group travel tends to be lower-yielding. At the extreme is Thailand, which cracked down on “zero-dollar” group travel in which travellers sign up for heavily discounted packages but are then forced to shop at specific stores where the tour organiser receives a share of expenditure. Overall in-country spending is often at locations where proceeds are not disbursed through the local economy. Likewise, luxury shopping generates high-value tourism receipts but makes little practical contribution to the economy.

In Australia, independent travelers stay three times as long as group travelers, Tourism Australia found in a 2019 report. They also have higher “dispersal,” meaning they get off the tourist trail – Sydney Opera House and Great Barrier Reef – to visit more parts of the country, spreading economic benefits and easing constraints on major destinations.

Although this is the first global outbound travel prohibition, there have been localized bans, de facto or formal, such as those during times of territorial disputes. The current global ban may further galvanise markets to wean themselves off group travel, and diversify overall tourism sources.

It is premature to consider steep tourism losses. There are strong efforts to contain the outbreak. Health disruptions have a reasonably fast rebound, trade group IATA analyzed. So in the case of Japan, where China has been out-performing tourism targets, it is premature to worry about missing a tourism goal.

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