Introduction:

In the morning of Jun.14th, the first “fusing” suspension was given to China Southern flight CZ392 from Dhaka to Guangzhou. This article based on the previous analysis on the “fusing” policy, (http://www.martinview.cn/?p=403), with the framework of (http://www.martinview.cn/?p=386), quantitively analyzes how much airlines and travelers economics loss is, and forecasts a possible solution.

Disclaimer:  The author completely feels oblige to follow any rule carries out by CAAC and other government bureaus. 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!

  1. Overlook

The ground of this suspension is from the document updated on Jun.4th,:

3. “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.”

17 confirmed cases are reported in this flight; thus a 4-week suspension will implement. Starting from Jun.22 to Jul.20. Notably, another CZ392 will fly normally on Jun.18.

China Southern A330-200 B-6059 2020.3 in Beijing
  • 2. Quantitative Analysis

Using the structure in (http://www.martinview.cn/?p=386), the k value is determined (in cost level, how’s the ratio between “5*1” price and Y price). Different from CAN-YYZ that previously analyzed, CAN-DAC has a lower loading factor and on-board rate. Take normal loading factor as 70%, with a 0.5Y average price and 255 economy seat in A330-300

255*0.7*2*0.5*Y=178.5Y

According to C-Trip, Y=5609. During the pandemic, with a one-way demand and 75% of load factor, with 175 available seats and a 95% load factor, the revenue per flight should be:

175*0.95*1*kY=166.25*kY

From simple calculation, if airlines want to maintain revenue, k=1.07. As the hot season price is only assumed to be 0.7Y due to the low demand, solely from capacity, airlines should rise price 1.53 times. As a higher fixed cost is burdened by airlines now, the real price might be greater, provided no effective price ceiling (Y).

Due to different demand structure, CAN-DAC has a lower increment than CAN-YYZ

If only count the loss on refunding tickets, than the total loss in tickets should be:

1.07Y*166*4=3.985 Million RMB

Even Dhaka to Guangzhou is a relatively short flight with fewer loss, a 228 thousand RMB loss still on each confirmed case. (minus the ticket price of each customer)

3. Possible Solutions:

In the article finished on Jun.4th, some worries are stressed: What should the travelers that already booked do? If postpone, all customers book afterward will be influenced. To cancel their tickets might be easier technically, but airlines will burden more when dealing with customers. Another viable way is to import a “Third party” to schedule flights for four weeks if needed. Thus, neither customers nor airlines will burden. The “Third Party” could be another foreign carrier, with a surge in cash flow.


“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.”

As some new foreign airlines are now allowed to schedule flights, if needed, CAAC can authorize extra flight this way, theoretically.

4. Conclusion and Outlook:

The fusing is not the preferred outcome for airlines, travelers and the country. But rules are rules, the fusing has happened. Now, instead of whining and complaining, we should find ways to achieve the goal: let more people come back without increase confirmed cases. Airlines should take this as a lesson and don’t fall on the same road twice.

Low price is used to stimulate demand. Source: IATA Economics using data from DDS. All Rights Reserved.

Currently, Sichuan Airlines and United Airlines have announced that PCR test report is required for taking flights under “fusing” restrictions. If this PCR-required policy can broaden to all domestic flights, with airlines provides PCR test, the travel confidence will surely skyrocket, though with a significantly higher price.

The “fusing” policy leads to a theoretically viable way of preventing infection through air travel. Though arduous, if the technical level increases and little time is needed, PCR test for every passenger has a bright future and little marginal cost.  


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

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