Disclaimer: This article aims to illustrates why current tickets back to China (Both charter flights and flights under “5*1” restrictions) have a higher-than-normal price. From an economics approach, some reasons might be different from the real one. Hence, the reasons only apply in economics level, may not assent to real situation. The author has no intention to criticize any bureau or person in any ways, and feels obliged to any policy carries out, even it has little ground in someone’s perspective.
According to China Southern Airlines, there will be a charter flight, CZ0312, from Toronto back to Guangzhou with 168 seats on sale. Only the “Chinese students with severe need” are allowed to buy tickets, with a first come first serve in the pool. The price of this flight reaches astounding 41711RMB. For sure, Chinese’s “5*1” restriction cancelled over 80% of international flight. But more than non-economics factors, the high price could attribute to some economics grounds.
- One-way demand and load factor restrictions, cost per unit skyrocketed.
During pre-Pandemic period, China-Canada market have a two-way demand: some people fly from China from Canada, and some fly opposite. Thus, the plane flies one round can earn two part of revenue. Quantitively speaking, during the “hot seasons”, the two-way boarding rate is 85%, average ticket price is 80% of the full price (Y), take Boeing B777-300ER as the aircraft, the revenue per round should be:
According to Expedia.com, Y=13882 from Toronto to Guangzhou (YYZ-CAN). In the Pandemic, China Southern have to fly empty to Toronto. According to CAAC, a 75% loading factor is the maximum. The available seats are only 168 now. Take a 95% on board rate for those 75% seats, let the price is k times to Y, the revenue can be expressed as:
From a simple calculation, k=1.93 if the revenue maintains, which means that only from capacity angle, the ticket should be 1.93 times as usual full price, in order to have the same yield.
More than the cost of empty transport from Guangzhou to Toronto, other variable costs will affect the ticket price. A positive signal comes from the jet fuel price. With almost 50% decrease YoY, airlines burden is lowered.
2. ASK toboggans, few restrictions
This is more “apparent” than the first point. Due to restrictions, the ASK falls almost to grounded, (http://www.martinview.cn/?p=365). As the Pandemic spreads widely in North America, the demand of coming back increases among Chinese in the region. This demand is highly inelastic because notably, China is the safest place in the world.
While CAAC says in its report that all charter flights’ price should determined by the market, cancelled the effective price ceiling. In hot seasons, the full price (Y) is effective, not to mention in such a situation. Thus, airlines have ample grounds to increase their price based on current market, accredited to “5*1” and CAAC’s command.
About the “5*1” carries out by CAAC, few words would be said. Thinking positively, though the outbreak in China is the earliest, the policies and actions to deal with it shows the highest efficiency among every country. That’s the root cause of such a high volume of demand. Thanks for our wise CAAC, Chinese people outside the country have theoretical ways to come back, though with a ridiculously high price and less flight. But that’s a lot more better than some other countries.
In short, economically speaking, the flights back to China have a higher price than hot season (Y) can attribute to:
1. The one-way demand forces airlines to fly an empty flight to Canada, increase the per-seat cost 1.93 times in this case.
2. Due to “5*1” and 75% load factor restrictions, all North American passenger flights grounded, available ASK drops drastically.
3. In a seller’s market, the inelasticity on demand causes airlines to rise price, attributed to the lack of surveillance on price by CAAC, the price is determined by market with a reveal on real supply and demand relationship.