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Managing a China slowdown
July 1st 2014
It used to be that when Washington sneezed, the rest of the world caught a cold. Read More »
Now there is a new force of economic contagion – China. When airline and aviation industry leaders met in Doha last month, for the 70th Annual General Meeting of the International Air Transport Association (IATA), issues ranging from safety and security to high taxes and infrastructure shortcomings were debated.
But a significant part of the debate centred around the challenges airlines face in the present and future global economic climate.
A concern for the airline leaders at Doha was the widely forecast contraction in China’s GDP. For airlines, with so much growth based on the future large markets of the Asia-Pacific, serious shrinkage in the Mainland’s economy will impede a long awaited air freight recovery and threaten current capacity and network strategies.
Opinion among economists about the severity of a recession in China has see-sawed. At the beginning of the year the general consensus was it would happen. It was just a question of when. Today, the economic opinion shapers are more optimistic. They now argue a contraction in the Mainland’s economic growth from 15% a year to a respectable 7.1% annually is not that bad.
In IATA’s most recent financial monitor, for April this year, it reported that recent declines in business activity in China may be reversing and that there is a pick-up in passenger demand in Asia.
Although advanced economies are improving faster than emerging markets, premium travel was up 3.8% year on year, compared to 1.9% in March.
So, overall, airlines should not be too worried about China. There is momentum to the wider global economic recovery that could well signal improved profitability for the industry.
There is, however, one other enduring challenge: managing the volatility of the oil price. Cathay Pacific Airways chief executive, Ivan Chu, said airlines can manage oil price increases, but volatility was another issue. Airlines have to get better at it. Nobody in the room disagreed.
