It may have been an isolated case, but when a Singapore medical researcher was confirmed to be suffering from Severe Acute Respiratory Syndrome (SARS) last month, airline executives across Asia shuddered in fear. The World Health Organisation has said the case of the researcher, about whom it is speculated may have caught the disease during accidental exposure to samples in a laboratory, was isolated and mild and was not regarded as an international public health concern.
Nevertheless, the episode has served as a blunt reminder to Singapore's Asian neighbours, especially China, that the disease could recur at anytime and in any place. For China's aviation industry, the notion of a return of SARS is particularly menacing, with the industry only now in a position to fully quantify the cost of the outbreak of the disease earlier this year.
After first emerging in Guangdong province late last November, SARS spread to Hong Kong in March where it began to capture global headlines, leading the WHO to issue a warning against travel to the territory and southern China the following month.
Mainland officials initially tried to play down reports the epidemic was reaching other parts of the country, including Beijing. But in April, the central government sacked the health minister and the Beijing mayor, as the full extent of the problem became known. Mainland China eventually accounted for 63 per cent of the world's total number of 8,422 infections, many of them in the capital.
The impact on the airlines from the epidemic was immediate and devastating. In 2002 China attracted 37m foreign visitors, up 11 per cent from a year earlier, according to the World Tourism Organisation, generating US$20bn, or about 1.6 per cent of GDP. However in August, Vice-Premier Wu Yi told a meeting of regional tourism ministers in Beijing she expected total revenue from national tourism to fall to half last year's levels of Yn557bn as a result of SARS.
Zhang Baojian, regional director for north Asia of the International Air Travel Association, an industry body, predicted Chinese airlines would collectively lose Yn8bn in 2003 compared with a profit of Yn720m last year.
These losses are borne out by the financial accounts of the country's two main Hong Kong-listed aviation groups, China Southern Airlines and China Eastern Airlines, which as public companies have more transparent accounts than Air China.
China Southern suffered its biggest sixmonth loss since its listing in 1997 in the first half, at Yn1.23bn compared with a profit of Yn123m a year earlier, as passenger sales fell 26 per cent. China Eastern set a similar record with a net loss of Yn1.25bn in the six months to end-June compared with a profit of Yn26m a year earlier.
"The combination of SARS, Gulf War 2 and higher fuel prices wrought havoc with [China Eastern's] operations in the first half, with the extent of its loss exceeding most commentators' expectations," wrote Timothy Ross, airline analyst at UBS Warburg in Hong Kong.
Beijing Capital Airport, the listed company that runs Beijing's main aviation hub, also reported sharp declines in the first half, with passenger throughput dropping 26 per cent year-on-year and aircraft movements down 16 per cent.
Most analysts believe, however, that the worst effects of SARS on travel in China have passed. China Eastern has reported a strong rebound in passenger numbers, with August traffic up by one-third from the same month a year earlier. The airline carried 1.45m passengers during the month and filled 71.3 per cent of its seats. China Southern, meanwhile, reported a 17.1 per cent rise in passengers during August, carrying 2.3m passengers at a load factor of 75 per cent. Last month it expanded its Guangzhou-Australia service from twice a week to three times a week, as a result of encouraging growth in passenger numbers from Australia and New Zealand.
Full recovery by fourth quarter
"We anticipate that demand for air travel will recover fully by the fourth quarter of 2003 as the impact of SARS has faded," says Philip Wickham, an analyst with ING.
He goes on to say that aircraft movements at Beijing Capital Airport during the first half of August rose 5.9 per cent year-on-year and domestic passenger throughput grew 3.9 per cent year-on-year. With the end of SARS, a host of airlines from around the world have reinstated their old schedules to China and introduced new flights, while the country's domestic airlines have also been adding new international routes and frequencies. Among the larger airlines, All Nippon Airlines has said it will add 13 new flights connecting Tokyo and Osaka with Chinese cities such as Shanghai, Dalian, Qingdao and Xiamen by the beginning of December. Singapore Airlines is also to introduce three flights a week to Shenzhen starting in January as part of its northern winter schedule.
Of the smaller airlines, Thai Airways International will add Guilin to its winter schedule, while Finnair has announced it will begin flying from Helsinki to Shanghai three times a week. Malev, Hungary's stateowned airline, also plans to begin flying to five cities in China by the end of this year.
Meanwhile, Shandong Airlines will initiate flights to Japan and South Korea next year and will double the frequency of its services to Macau. Air China has launched a new scheduled service to Kuala Lumpur three times weekly. China Eastern is also joining with Taiwan's China Airlines to open a Taipei-Okinawa-Shanghai route in September, which is being touted as the shortest route for Taiwanese air travellers to the Mainland.
To encourage more international visitors, China has announced various incentives. These include visa-free access for tourists from Singapore and Brunei starting July 1 for up to 15 days for business, sightseeing, visiting relatives and friends, or transit.
It has also begun authorising foreign investors to establish overseas-financed tourism agencies, allowing Japan's Jalpak, for instance, to set up a wholly owned branch in Beijing in July to help encourage more Japanese visitors.
Air China, one third of whose 115 routes are international, has taken what are seen as its first steps towards joining one of the global airline alliances through a code-sharing agreement with United Airlines of the US. Under the agreement, due to take effect on October 31, the two airlines will offer a total of 26 non-stop code-sharing flights between the US and China each week, extending their coverage from the main hubs in each country to a number of smaller cities.
As part of other initiatives to boost traffic, the US and China authorities are due to meet in November to discuss the expansion of air services between the two countries – talks that were originally scheduled for June but were postponed because of SARS. The US wants more passenger and cargo flights to Beijing, Shanghai and the coastal city of Xiamen, Chinese officials say.
Robust long-term outlook
In the longer term, despite the fallout from SARS, few dispute that the outlook for China's international aviation industry is robust – the sky is definitely the limit, depending at least on who you believe.
Boeing last month forecast that China would need to quadruple its fleet over the next 20 years, adding 2,400 new aircraft worth US$197bn, with about 440 of them serving international routes.
"By 2022, Chinese carriers will be flying more than 2,850 passenger and cargo airplanes, making China's fleet the largest outside of the US," Boeing said. And that is not accounting for short-term spikes from events such as the 2008 Beijing Olympics.
As long as it can keep diseases like SARS confined to the laboratory, China's international aviation prospects still look good.