Qantas is abandoning the mainland Chinese market as it suspends its only route to China, Sydney to Shanghai. The airline has cited weak demand as the primary reason behind the suspension and the last flight will take off in July this year.

Resumed last year in 2023 as Qantas rebuilt its Asian network with optimism, the route started with five weekly flights and was planned to become daily from March 2024. However, the increase never materialized and the route will soon be removed from Qantas’ network.

The airline has faced various obstacles over the years in serving China. While there were periods of short-lived optimism, the withdrawal from the Chinese market does not come as a surprise. Short-term reasons such as the souring bilateral relationship and suspended partnership could have contributed to the exit, while more deep-rooted issues in demand and strategy have long hindered the airline’s desire to grow in China.

Qantas in China: A Historic Struggle

Qantas has pulled out of China before, and the current Shanghai-Sydney connection was relaunched in 2004. Started with three weekly frequencies, it was then the only route Qantas had in China. In 2017, Qantas relaunched its route between Sydney and Beijing, and the airline flew 14 weekly flights into Mainland China, the largest capacity ever.

However, while the Shanghai route was said to be performing well with strong demand, the Beijing route struggled. The frequency was dropped to five weekly in late 2018 and was ultimately canceled in 2020.

In the meantime, Qantas also attempted to expand its presence using its low-cost subsidiary Jetstar, with flights launched from Gold Coast to Wuhan in 2015 and Melbourne to Zhengzhou in 2017. Both routes relied on Chinese partners to ensure occupancy and were short-lived.

Since then, the COVID-19 pandemic brought the suspension of the sole remaining Qantas service to Shanghai. The souring Sino-Australia relationship and the slow recovery of the Chinese international market meant a late resumption in 2023. Qantas was the second last among major international airlines to return to the country, only before Iberia, which has yet to resume service.

Loss of Chinese Partner

Qantas had long coordinated with partner China Eastern on schedule, price, and marketing in the China-Australia market and various codeshare sectors. The partnership also included mutual frequent flier benefits. Qantas aimed to use Shanghai as a hub to capture demand from other Chinese cities via flights where Qantas places its codes. The schedule of the soon-to-be-terminated five-weekly service has an arrival time in Shanghai at 18:25 local time and departing at 19:50, well timed for connections.

Last year, however, the Australian regulator ACCC decided that the partnership might breach competition law and therefore would deny any renewal. The claim was reasonable as only two airlines are operating between Sydney and Shanghai, posting the potential to exploit the market.

With the loss of an important strategic partner, Qantas’ business in China was even more difficult to continue, especially considering the competition, which will be analyzed in the next section, and its late entry after the pandemic.

Demand

Qantas is citing ‘low demand’ for the suspension. However, the demand between China and Australia is nowhere near low, as seen from the large capacity Chinese carriers assign to the market:

After Qantas’ exit in July, there will be zero Australian carriers flying between the countries; while eight Chinese airlines fly 104 weekly flights each way to Australia during the Northern summer season, which is the off-season with less capacity than winter. China Eastern still flies up to two flights per day between Syndey and Shanghai, as well as flights to Melbourne, Brisbane, and seasonally to Cairns and Perth.

Rather, an imbalance in demand between Australian-origin and Chinese-origin travelers could be blamed. Chinese travelers represent a significantly larger portion of the market, including Chinese tourists, students, and those visiting friends and families on either side. Chinese travelers tend to favor homegrown airlines, understandably. Thus, this imbalance could have resulted in an extreme imbalance in the capacity.

At the same time, Qantas was targeting high-paying, business travelers and hoping to profit off brand recognition. When the airline launched Beijing in 2017, the fare for an Air China Sydney-Beijing flight was around A$350, while Qantas charged A$650, because “people are willing to pay a premium for Qantas,” according to CEO Alan Joyce.

Unfortunately for Qantas, the China-Australia market is one where people are neither willing to pay a premium nor for the Qantas brand. It is a low-yield market where the vast majority of travelers are students, VFR (visiting friends and ramilies), or tourists, all of whom are price-sensitive.

Competition

Perhaps one of the reasons why Qantas performs better in other lower-yield markets, such as Jakarta, Manila, and India, is the lack of competition. Qantas has higher market shares in these markets and often faces no direct competition or can match competitors’ frequency and capacity.

Competing for the demand in the Chinese market is no easy task for foreign carriers, including Qantas. Local travelers tend to favor local carriers, and most tour groups tend to partner with Chinese airlines. More importantly, Chinese carriers often offer competitive prices, due to their larger economy cabins and ability to dump seating capacity into markets, partially due to their state-owned nature.

Competition also comes from connecting carriers outside of China and Australia that target traffic between the two countries, such as Cathay Pacific and Singapore Airlines. Their extensive networks and brand recognition in both countries often give them a competitive edge.