Are the Beijing Olympics a lost opportunity for airlines?

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The highly anticipated flying boom during Beijing Olympics is facing severe headwinds towards materializing. Even though some carriers like Singapore Airlines and airlines from the Middle Eastern are expecting demand to rise during the games, it is business as usual for most other airlines. In fact, many are initiating capacity cuts on flights to and from China in the weeks before the games. So, what went wrong?

High fuel prices result in flight cuts to China, regardless of the Olympics

As late as 2006, Chinese carriers like China Southern Airlines were openly upbeat about the demand for air travel during the Olympics, and frowning on Airbus’ inability to roll out the A380 in time for the air travel surge. In June 2008, barely two months from the Games, the Chinese carrier along with China Eastern Airlines, announced massive cuts in flights across its entire network .

US based airlines flying into China are singing a similar tune. US Airways won a hard fought battle when it secured rights to new slots between the United States and Beijing last year. Three months before the Olympic Games, it was requested the FAA for a one-year postponement to the inauguration of its hard-won Philadelphia- Beijing route, which recently approved. Similarly, United had asked for postponement to its San Francisco-Guangzhou inauguration.

These airlines have cited fuel prices as the main cause of cut backs. US Airways, for example, cited that the cost of operating the Philadelphia-Beijing route has increased exponentially from US$50 to US$90 million due to much higher oil prices. China Southern and China Eastern are also citing fuel costs as the reason for cutting back flights.

Tighter visa restrictions don’t help either

In addition, the Los Angeles Times reported that China is tightening visa restrictions as the Olympics nears. Not only are “…non-diplomatic support staffers at embassies, migrant workers, freelance writers, artists and students…” being forced to leave the country, Beijing is tightening the ease in which visas are being issued. The result is much lesser visitors travelling to the Chinese capital than originally anticipated. LA Times reported only 77% of Beijing’s 5-star hotels were booked for the duration of the Games, and that percentage is a dismal 44% for 4-star hotels. The newspaper mentioned that violence in Tibet and the massive Sichuan earthquake that occurred earlier in the year also created a somber mood of much heightened security, in place of the usual euphoria that accompanies the Games.

The unwanted “Olympics effect” on the Chinese economy

China is no dire need for the economic rewards that follows the hosting of an Olympics. The Chinese economy grew a blazing 11.5% in 2007 and inflation is firing high at over 4.7%. Since taming the economy and bringing down prices is a priority priority, an “Olympic boom” is worth much less now to the Chinese government. Instead, national pride that hinges on the smooth running of the Games is likely the overwhelming agenda behind Beijing 2008, given the earlier unrest in Tibet and the shock from the Sichuan earthquake.

The silver lining in premium travel

That said, airlines such as Singapore Airlines and Etihad Airways remained upbeat on the Games. James Hogan, chief executive of Etihad noted that “forward bookings (for the Games) are already ahead of our expectations.” Singapore Airlines is sending its flagship A380 to Beijing from July 31 to Aug 9 “to cater for increased demand in the lead-up to the start of the Oympic Games.” Singapore’s move is significant, given that China Southern and China Eastern had included Singapore among its destinations in which capacity would be reduced.

The command of the lucrative business crowd remains the most crucial factor in determining a boom or gloom time for airlines. Not only is premium travel generating the highest profits , it also tends to be more demand inelastic. Middle Eastern airlines like Emirates, Qatar and Etihad which have been relentless courting premium travelers are thus much better buffered in times of global economic slowdown and high oil prices. Similarly, Singapore Airlines’ command of premium passengers between Beijing and Singapore has enabled the airline to enjoy a small but respectable Olympic boom vis-à-vis its Chinese counterparts.

For those who might still be trying to make a last shot to the Chinese capital, visa restrictions aside, it may be good news to them that Beijing 2008 could be one rare Olympics where air travel would likely remain largely ‘business as usual’, with high oil prices and all.

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This is a special commentary written by guest contributor Hansen Yeong. Hansen‘s father had worked for Singapore Airlines for more than 35 years and Hansen believes that he was born an aviation geek. He is an enthusiast in all forms of commercial aviation – from aircraft technicalities to airline management and marketing. Hansen is an Economics lecturer in Singapore and he enjoys writing. He is currently a contributor to SimpliFlying.com and working on his first novel.

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