Introduction:

In Jun.4th Beijing time, Civil Aviation Administration of China carries out its [2020]27 document. In the document, the Phase Five flight plans (widely refer as “5*1 in Martinview) is relaxed. Also, an innovation of using “fusing” policies similar in stock market is on the way. To sum up this document, it has clear rules with an audacious innovation, enhance the capacity while aim the target of less (or none) import cases. Some verbatim analysis will be done in the article, and the author will have some comments speaking of policies.

Disclaimer: This article aims to infer the CAAC’s document with writer’s own reasoning. The author completely feels oblige to follow any rules carries out by CAAC and other government bureau. If there’s anything that’s not accordance to your perspective, please leave a comment on the very back of this web page, thanks for your kind understanding!


“Alternative Solution” OY-FFI Dassault Private Jet 2020.4 in Beijing

Clarify the regulation:

“2. Starting from June 8, 2020, all foreign airlines that are not included in CAAC’s Phase Five flight plans could choose one city with airport(s) capable of accommodating international passenger flights (refer to the official website of CAAC for the list of cities) based on their operating permits, and operate one weekly international passenger flight.”

This clarification doubtlessly better the situation. Although no changes happen for the airlines already qualified, the boarder for some foreign airlines are opened. If the CAA in that country consent, there will not be any barrier to fly back to China, on a limited amount. Now, carriers including Mahan Airlines and Ukraine International Airlines can fly on “5*1” scale, provide more chance for Chinese to come back.

The list of viable cities. Source: CAAC

As some of the newly-allowed airlines have already on cargo charter flights for medical supplies, few great changes would occur, which is definitely a good news. It is forecasted that a tide of passenger flights will be landed in Jun.8th. As for ticket price, previously charter flight is according to market, “5*1” flights uses Y (highest price in normal condition). The new one should be no higher than Y, which helps lower the price for extra charter flights, as the law of demand.

Wizz Air A321neo HA-LVB 2020.5 in Beijing

” 3. The route operating permits and slots for the flights whose frequencies are reduced by airlines due to the epidemic will be retained. “

This act deals with the “80-20” rules in time slots. Time slots is a permission given by local CAA for landing. In normal situation, airlines must implement at least 80% of the slots in order to maintain them in the following season. During the Pandemic, due to restrictions, most international flights’ time slot is occupied by newly-permitted cargo charter flights and some private planes. After the Pandemic, these types of flights will reduce to normal, and the time slot will be back to foreign airlines. This act ensures airlines the viability of re-operating, and shows CAAC’s vast support to the aviation industry.

Kam Air A340-300 YA-KME 2020.6 in Beijing

Audacious Innovation:

” 7. Starting from June 8, 2020, incentives and circuit breaker (fusing) measures for flights will be implemented. “

The “fusing” policy carries out this time is proved to be the very first act of this type in aviation industry. With a financial market strategy, fusing will act as a protecting measure that automatically stops any transaction once some bottom line is reached—just as the fuse of a line. The US stock market fused a few times earlier the year. However, it is clear that the implement in a brand new industry needs more consideration and acts to make sure it can truly protect the air routes and passenger’s rights.


” Incentives. If no arriving passenger flying on the same flight and same route operated by an airline is found positive in his/her nucleic acid test after arrival for three consecutive weeks, the airline could add one weekly flight by referring to the weekly number of flights allowed in the route operating permit, and shall cap their weekly flights at two. “

As for incentive, although “4*1+2” is still far from normal, but CAAC’s attitude is clearly shown. Some “humanism” and “responsibilities” is shown as CAAC really cares for people and eager to provide them more ways back.

Theoretically speaking, if airlines can hold the “4*1+2” from the fourth week, and keep that until Oct.24th when “5*1” comes to an end, there will be 17 more flights implemented. Taking Guangzhou—Toronto as an example, using the models from http://www.martinview.cn/?p=386, assuming all tickets are sell at 1.93Y with 0.75*0.95 loading factor, the extra revenue is forecasted to be 86.64 million RMB. More than economics factors, airlines help more than 3000 passengers come back to China, which will benefit the brand’s name and influence. With those incentives, airlines will doubtlessly do their best to earn the extra flights.

China Southern B777-300ER B-2049

” Circuit breaker (fusing) measures. If 5 to 9 arriving passengers flying the same flight and same route operated by an airline are found positive in their nucleic acid tests after arrival, the airline’s operation on that specific route shall be suspended for 1 week; if 10 or over 10 passengers test positive after arrival, the airline’s operation on the route shall be suspended for 4 weeks. No adjustment is allowed to be made to the quota of the flight involved in a “circuit breaker” to transfer it to other routes. After the end of the “circuit breaker” period, the airline could resume its one weekly flight schedule. “

For sure, there will be some restrictions. If more than 5 cases confirmed to be positive on one flight, the operation will force to a stop for a week, if more than 10, a 4-week suspension will happen. Quantitatively speaking, using the model from (http://www.martinview.cn/?p=386), a one-week suspension in Guangzhou—Toronto with Y as selling price happens due to 5 confirmed cases, a 4.561 million RMB loss is forecasted, with an average of 912 thousand RMB loss per passenger. If a 4-week suspension caused by 10 confirmed cases, the loss due to per-passenger will double. Take transfer flights into consideration, the extra fee after cancellation will even be greater and hard to measure.

The “fusing” conveys clear message: decrease import is the ultimate goal rather than solely hinders Chinese back to nation. The pressure is now on airlines. For every citizen currently in China, less import cases will make the re-open faster, back to normal on a steadier pace. And with more possible flights, the demand of citizens outside China is fulfilled, though airlines must find a way to determine who’s able to back and who’s not.

But the fusing is causing a sellers’ market again, consider airlines as suppliers. Airlines will choose to operates in areas with little Pandemic impact, and cancelled some flights unwillingly due to the fusing. This will cause the partial open to some markets and complete close to others if all air routes fused due to 5+ confirmed cases. In other words, this is leading to de-globalization to places with severe impact.

Chile Air Force KC767 985 2020.5 in Beijing

In a short conclusion, CAAC’s update on regulation increase the in and outbound passenger flights. But with the “fusing” policy, the opening to countries will be affected by the severity of Pandemic. As the first time in aviation industry, “fusing” policy pushes some responsibility to airlines, which increases their pressure on management. Some more analysis could be done only after more data is available when this policy runs for a while (As a following report a few days later: “南航航班,熔断!”), stay tuned for more information!


Reference:
Civil Aviation Administration of China. (2020. Jun.4th) CAAC Notice on Adjustments to International Passenger Flights. Civil Aviation Administration of China.
http://www.caac.gov.cn/en/XWZX/202006/t20200604_202949.html

Civil Aviation Adminstration of China. (2020. Jun.4th). List of Cities with Airports that Can Accommodate International Passenger Flights. Civil Aviation Administration of China.
http://www.caac.gov.cn/en/XWZX/202006/t20200604_202950.html

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