Close

Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.

Discover more
Close

Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.

Discover more

When will Chinese travellers return to the air?

Along with business travel demand, the behaviour of Chinese tourists is expected to have a significant impact on the investment opportunity for airports globally as travel restrictions are lifted.

The return of Chinese travellers to the airways is one of the great uncertainties affecting airports in a post-pandemic world, a new paper outlines.

The return of business travellers is also being closely tracked, with early data suggesting that both business travellers and Chinese tourists will likely return to flying with different preferences and behavioural patterns compared to pre-2019.

The paper, entitled ‘A pre-flight checklist for a post-pandemic world’, is written by William Thackray, an analyst in First Sentier Investors’ Global Listed Infrastructure team. William examines impacts on airport companies that might stem from changing passenger mixes. He also looks at a range of other factors affecting airports including the evolution of route planning, changing agreements with airport retailers and the increased focus on real estate development projects by airports.

The Chinese traveller

China has been a key source of growth in the aviation industry for the past 20-years, with the expanding middle class in China leading to a 12% compounded annual growth rate in air travel between 2006 and 2019.

In addition to the growth benefits that the aviation industry has seen from this evolving market, airports have further benefited from the high retail spend rates from these passengers. Chinese travellers typically spend between four and five times as much as the average passenger, meaning that any change in passenger volumes from China has a disproportionate impact on earnings for the airports, the report highlights.

However, the pandemic has seen China’s borders shut for over two-years, adopting a zero-COVID approach whilst the rest of world seeks to find a way to live with the virus.

While the Chinese Government is yet to provide an indication of when these border restrictions may ease, the paper suggests looking towards events later in the year for insight into a potential timeline. The team assumes that any meaningful reopening is unlikely to commence until after the Chinese Communist Party has held it’s twice a decade National Congress, scheduled for October 2022.

Developments in China’s domestic duty free market in Hainan further highlight the risk that this market will be permanently impacted by changes triggered by the pandemic, the paper continues. The rapidly growing island, located to the south of China, is benefitting from policy amendments made by the government which is seeking to promote the region as a Free Trade Port and keep more of the duty free spend in China rather than at airports around the world. This policy has drastically expanded Hainan’s existing duty free program to allow visitors to spend RMB100,000 (~USD$15k), more than 3x the previous limit, and allow consumers to purchase duty free products online up to six months after returning home.

Hainan is set to pose a challenge to global airports with significant exposure to Chinese passengers, even once the Chinese border reopens. As a result the team currently favours airports that currently have less exposure to Chinese passengers, where this market provides growth potential rather than a downside risk.

Business travel, not as it used to be

Much has been made of the transformational impacts that the pandemic has had on the way we work and communicate, with surveys and studies pointing to structural declines in business traffic as a result of the rapid shift towards virtual communication.

The paper anecdotally observes a stronger bounce back in leisure travel compared to business travel in airports now returning to pre-pandemic activity levels. This observation is supported by a recent Bloomberg survey of large US corporates entitled ‘Forever Changed: CEOs Are Dooming Business Travel — Maybe For Good’. The Bloomberg survey found that 84% of the corporates surveyed expect to spend less on travel post-pandemic. This change in corporate travel can largely be attributed to the shift to virtual meetings, with Morgan Stanley in its Global Corporate Travel Survey 2H21 finding that corporates expect this to take 29% of volumes in 2022 and 19% in 2023, the paper highlights.

The paper cites potentially lower demand for corporate travel as the largest factor playing into its forecast for a 20% structural loss in long-haul passenger travel.

As this situation continues to develop the team maintains a preference for short-haul, leisure exposed airports. This reflects the view that these assets face fewer structural risks, with permanent traffic losses more limited and a greater number of positive catalysts for growth in the medium-term. 

 

Important information

This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should conduct your own due diligence and consider your individual investment needs, objectives and financial situation and read the relevant offering documents for details including the risk factors disclosure. Any person who acts upon, or changes their investment position in reliance on, the information contained in these materials does so entirely at their own risk.

We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication but the information contained in the material may be subject to change thereafter without notice. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material.

To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.

Past performance is not indicative of future performance. All investment involves risks and the value of investments and the income from them may go down as well as up and you may not get back your original investment. Actual outcomes or results may differ materially from those discussed. Readers must not place undue reliance on forward-looking statements as there is no certainty that conditions current at the time of publication will continue.

References to specific securities (if any) are included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. Any securities referenced may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time.

References to comparative benchmarks or indices (if any) are for illustrative and comparison purposes only, may not be available for direct investment, are unmanaged, assume reinvestment of income, and have limitations when used for comparison or other purposes because they may have volatility, credit, or other material characteristics (such as number and types of securities) that are different from the funds managed by First Sentier Investors.