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Air travelers have never had it so good

This week Grace Jiang, a bank employee from Shanghai, hops on a plane for New Zealand, her long-awaited holiday sweetened by lower airline fares and a stronger yuan.

"Many carriers are offering more discounts to boost waning demand amid these tougher economic times," she said. "So I grabbed the chance to fulfill my dream of visiting New Zealand."

In December, Jiang bought a round-trip ticket to New Zealand on Cathay Pacific Airways for 8,250 yuan (US$1,206), but that price dropped to 7,800 yuan by the time the ticket was printed earlier this month. A full-priced ticket normally costs 20,000 yuan.

Her travel costs have been helped by an appreciation in the yuan, which has appreciated 17 percent against the United States dollar since China de-pegged the currency from the greenback in July 2005. The New Zealand dollar has dropped more than a third in the last six months, to about 3.50 yuan from 4.70 yuan. That will also give her more purchasing power as she tours the island nation.

A flat yuan-versus-dollar movement means that the Chinese currency is de facto gaining against other major currencies including the Australian dollar and the pound. It is liberating Chinese shoppers in overseas tourist resorts and shopping magnets.

The bonanza for consumers reflects the bane of airlines struggling to boost revenues amid a global economic downturn that is curbing consumer discretionary spending.

Fares and capacity cut

British Airways, Singapore Airlines (SIA) and other carriers are discounting fares, and most airlines are reducing flights and grounding planes to try to sop up excess capacity.

"Lack of demand is worse than higher oil prices for the industry," said Liu Shaoyong, chairman of China Eastern Airlines. "It's the biggest difficulty facing us at present."

Air demand has plunged sharply during the global financial crisis, with air freight recording a record 23 percent drop in December and passenger travel declining almost 5 percent, according to the Montreal-based International Air Transport Association.

British Airways recently offered Chinese travelers a return flight to London for as low as 2,950 yuan in an offer that expires on March 11.

Oneworld Alliance, which includes American Airlines, BA, Cathay Pacific, Japan Airlines and Qantas, is offering a 10-percent discount on all fares through April 12.

SIA teamed up with Shanghai travel agencies to offer special packages on fares and accommodation through March 31. The packages include a 3,300-yuan trip to Singapore, a 4,400-yuan trip to Bali and a 9,990-yuan trip to the Maldives.

Aviation analysts said lower fares are the most effective way to increase demand in a bad environment, and the sharp drop in jet fuel prices gives airlines more pricing latitude.

In China's domestic market, the average ticket price dropped up to 15 percent in January from a year earlier, despite the one-week Lunar New Year holiday that usually boosts fares, according to, the country's biggest travel Website.

China Southern Airlines, the country's second-largest carrier by fleet size, slashed its fuel surcharge from the mainland to Hong Kong from 95 yuan to 54 yuan last week. Shanghai Airlines, the country's fifth-largest carrier, cut fuel surcharges to Hong Kong, Taipei and Southeast Asian destinations.

China Eastern Airlines, No. 3 in the industry, has announced it will trim capacity growth to 5 percent this year from a previously planned 13 percent.

Liu of China Eastern said he expects demand on domestic routes to recover in the second half of this year, with international routes improving in 2010.

Brian Pearce, the chief economist of the International Air Transport Association, said capacity cuts will help airlines to strengthen profitability. In December, airlines worldwide cut passenger capacity for a second consecutive month, trimming 1.5 percent. Further cutbacks are planned.

Among those slashing capacity, SIA will drop weekly flights between Beijing and Singapore from 21 to 17 starting in April. Flights to Guangzhou will be pared to five from seven a week, and flights to Nanjing from three to two.

The carrier also said it plans to ground 17 jetliners this year, as part of a plan to reduce passenger capacity by 11 percent.

"The drop in air transportation has been sharp and swift," said SIA Chief Executive Officer Chew Choon Seng. "We have to face the reality that 2009 is going to be a very difficult year."

Australia's Qantas Airways said it will mothball its twice-weekly flights from Shanghai to Melbourne starting on March 31 and suspend Beijing-to-Sydney services on April 17. However, the company said it will increase flights from Sydney to Shanghai to daily operations from the current five flights a week.

CAAC's advice

Scandinavian Airlines, Japan Airlines, All Nippon Airways and Delta Air Lines also have announced they will reduce flights to China.

The Civil Aviation Administration of China, in an effort to boost sagging demand in the domestic market, is urging carriers to cancel or postpone plane deliveries this year. Airlines have also been advised to ground unnecessary planes, retire old jetliners and return aircraft leased overseas.

China is expected to take delivery of 241 aircraft this year, including 16 delayed orders from last year, according to CAAC. Leases on 43 planes are expected to expire this year. Newly delivered aircraft will increase passenger seats by 16 percent, the aviation regulator said.

Still, lower fares and capacity-cutting have so far lagged the drop in demand, IATA said.


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