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Last Updated: Wednesday, 28 May, 2003, 01:52 GMT 02:52 UK
Sars: Is China's travel dream over?
By Mary Hennock
BBC News Online business reporter

Chinese health officials disinfect a computer
Fear of Sars has emptied airports
Before the outbreak of the deadly Sars virus, China was one of the few fast-growing markets for air travel in the world, the darling of the aviation industry.

Aviation executives' eyes sparkled at China's growing popularity as a tourist destination among Westerners, and the rush of foreign business travellers out to grab a toehold in its expanding economy.

Most of all, they loved China's newly-minted middle class taking to the air, creating a whole new market.

China has built or modernised 50 airports in the past decade, spreading the bonanza far beyond ticket sales.

And Chinese mass tourism is taking off. Singapore alone saw a 35% increase in travellers from China last year, or 10% of all visitors, the Centre for Asia-Pacific Aviation (Capa) says.

So has Sars ended this? Do the airlines, engineers and support industries who courted China's air travel market face a painful adjustment?

Chain reaction

At first sight the news is grim: one speaker at a London conference of top executives with interests in China described leaving Beijing in a jumbo jet carrying just seven passengers.

Passenger numbers in China are down by 81%, while the list of international carriers warning Sars is hurting their profits lengthens by the day.

Airlines from countries as diverse as Germany, Finland, Singapore, Holland and Cambodia have had to cut flights to Beijing and Hong Kong.

The damage extends across Asia. Although Australia has not had a single case of Sars, tourist arrivals hit their lowest level in five years during March and April, as European travellers shunned stop-overs in Hong Kong and Asians stayed home.

Airlines have countered falling ticket sales with cutbacks in capital expenditure which has threatened expansion plans.

Shortly after Airbus celebrated a deal to sell 30 planes to China's aviation authorities, one of the recipient airlines, China Eastern, revealed it wanted to avoid taking delivery of 12 out of 18 new planes this year.

Still flying high

But the aviation industry is undaunted. Its hopes for China remain high.

We have to be there now - we have to be automatically part of that industry
Caroline Barker, Videcom International

The belief is that as long as China's economic growth is mushrooming, demand for air travel will too, bringing windfalls to engineers, architects and a host of others.

"Aviation markets grow in line with, or faster than gross domestic product [GDP] growth," says James Richards, advisor to the chief executive of Rolls-Royce and a Mandarin speaker.

The engine maker is therefore betting on "faster than 7% growth" in China's aviation market over the next few years, paralleling economic forecasts.

"There is a huge middle-class and that is growing exponentially," agrees John Davie of airport design consultancy Vector.

Plans for Guangzhou's new Baiyun International airport
China is enjoying an airport building boom
Sars has hurt some airlines "very badly, for those most exposed to the China market, it's had a worse effect than the [Iraq] war," says Capa managing director Peter Harbison.

But he too expects airlines to weather the storm easily enough by switching planes onto other routes and cutting ticket prices.

No looking back

For firms which have plunged into the Chinese market, regulatory issues loom larger than Sars.

As in most countries, China's aviation industry operates under strict controls which can set limits on foreign participation.

Many foreign players think China's shift to a market economy is making these rules more transparent.

A South Korean doctor checks Chinese airline staff for Sars
Tourism is suffering across Asia
Vector are project managers for the British consortium bidding against seven others to build a third terminal at Beijing airport in time for the 2008 Olympic games.

Sars made the final preparations "really awkward" as specialists were stuck in London as the deadline drew closer, says Mr Davie, Vector's Director of International Business Development.

But he is upbeat about changes in the way officials operate, and confident about the long-term.

"They're being so transparent, it's wonderful, we've seen such a change in the way China does business in the last five years," he says.

He thinks airport expansion is being more realistically paced than in the past, offering a dozen expansion projects a year: "What they're not being allowed to do is build a giant one when a medium-sized one will do."

The introduction of the free market is making officials more realistic and open, while curbing some of the headlong expansion of the past.

Balancing act

But this change can be double-edged, as UK software firm Videcom, which designs passenger and baggage handling systems, has found.

Air China Boeing 767
Chinese airlines are modernising their fleets

When bidding to equip regional airports, it finds itself wrestling against local private firms made up of ex-provincial government officials.

They have been cut loose under market reforms but retain the authority of their former jobs with customers, who may be ex-colleagues, says Videcom chief financial officer Caroline Barker.

Foreign firms still face extra taxes and fees set by the Civil Aviation Administration of China (CAAC) which can undermine their ability to compete.

"We've won deals and had them taken away because of that," says Ms Barker.

But she adds: "We have to say to ourselves, we have to be there now. We have to be automatically part of that industry."

Most foreign players in China's aviation industry seem to agree.

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