United Airlines is keeping faith with its core China business despite being buffeted by the country’s trade war with the US, company executives have said.
Demand for flights between the world’s two biggest economies has been “weaker than we expected”, the carrier’s president Scott Kirby conceded, and flight schedules showed it had reversed some plans to fly larger planes to Shanghai and Beijing.
The Chicago-headquartered company operates 66 flights from the US to mainland China per week, more than any other carrier. It also enjoys a large share of profitable business travel through its many long-term deals with US firms, meaning its wider performance can be taken as a reflection of the trade war’s impact on the real economy.
“We have seen some impact. Demand is not as strong as we would have expected it to be [for] Beijing and Shanghai,” Kirby said, speaking with other United executives to reporters at a gathering late last month in Chicago, adding the shortfall was “not terrible”.
Expectations of a truce in the US-China trade dispute, now in its 16th month, were dashed on Friday after US President Donald Trump said he had not agreed with Beijing a rollback of tariffs on Chinese imports.
United flies five times a day to Shanghai and four to Beijing from its key airport bases in San Francisco, Los Angeles, Washington, Newark in New York, and Chicago. The airline also flies non-stop to Chengdu.
The trade war’s impact translated into a “mid-single-digit” decline in revenue on Beijing and Shanghai routes, which account for almost all of the carrier’s mainland China flights, Kirby said.
United CEO Oscar Munoz said: “Broadly speaking, trade wars, trade conflicts, don’t always help the broader demand and economy in general.” But he added that mainland China “is a great market and it continues to be”.
Henry Harteveldt, principal at Atmosphere Research, said United was “the best positioned of the three US network airlines” competing in East Asia, which also includes American Airlines and Delta.
The travel industry analyst said that, should Sino-US relations deteriorate, United would have the most flexibility to shield itself from a downturn.
“United has shown itself to be quite nimble in adjusting its US-China service,” Harteveldt said. “They have cut some routes to some secondary Chinese cities, and have adjusted frequencies and capacity on others ... I expect United will make additional adjustments where they can.”
Edward Russell, senior airline business reporter for travel website The Points Guy and an expert on United Airlines, said: “United is sitting pretty with the most flights. They can wait for the trade war to blow over.”
United is sitting pretty with the most flights. They can wait for the trade war to blow over
Edward Russell, The Points Guy
Further China expansion is unlikely for United in the medium term, executives said, but Patrick Quayle, vice-president for international network, said: “If we got into a bit more geopolitical stability then Guangzhou becomes much more attractive.”
The southern Chinese city is seen as a long-term threat to nearby Hong Kong as an international air transit hub.
Future growth into second- and third-tier Chinese cities was off the table, with Kirby saying the company had been “overwhelmed” by rivals adding routes to the US from outside Beijing and Shanghai. Hangzhou and Xian were short-lived routes for United, ending in 2017.
The China Air Transport Association admitted last month that mainland Chinese carriers, often accused of being heavily subsidised by the government, had lost a combined US$3.1 billion (HK$24.2 billion) in 2018 on international flights. Profitable domestic flights support Chinese carriers’ growth.
State-run and private Chinese airlines have rapidly pushed into the likes of Europe, the US and Australia – in a similar vein to Middle Eastern airlines – pushing down the cost of air travel for passengers, much to the chagrin of established carriers like Cathay Pacific, which has been undermined on international routes for years.
United also partners closely on US-China routes with Air China, which Quayle described as a “world-class” airline. He hinted at further cooperation with the national carrier, without offering more details.
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This article Trade war hits demand but United Airlines sticks with US-China routes first appeared on South China Morning Post