As China celebrates the 60th anniversary of civil aviation, it can be proud of what it has accomplished. Over the past six decades, the industry has undergone an impressive transformation from a highly-regulated operation controlled by the air force to a market-oriented, modern, air-transport system.
The world’s third largest economy is moving fast in terms of capacity for air transportation, new airports, air navigation services, and air traffic management infrastructure. The in-service commercial aircraft fleet in China has reached 1,365. The compound annual growth rate of passenger air traffic exceeded 16 percent from 2000 to 2007.
The global downturn has inevitably slowed the rapid growth of Chinese aviation. Airlines are struggling with excessive capacity, fuel hedging losses, and declining demand. 2008 proved to be a tough year as the industry reported a combined loss of US$4 billion, and the growth of passenger traffic has slowed down to only 3 percent.
Airlines responded by cutting capacity and axing unprofitable routes. The Civil Aviation Administration of China (CAAC) has reacted with subsidies, tax returns, and put in place ten supportive measures aiming to guide the industry through the crisis. To boost domestic demand and investments, the Central Government has announced a RMB 4 trillion (US$586 billion) stimulus package, 45 percent of which will support infrastructure projects including new airports across the country.
These measures have shown an initial positive impact on the domestic market. While it’s too early to comment on when China’s airline industry will fully recover from the recession, many expect China’s GDP growth rate to be around 7-8 percent in 2009 and passenger traffic growth at an average annual rate of 6 percent.