BY Danny Lee, Bloomberg News

, Source: Cirium

(Bloomberg) -- Shares of China’s biggest airlines slumped on Friday as investors reacted to news that US carriers are trying to block any increase in flight frequencies between the world’s two biggest economies.

Air China Ltd.’s Hong Kong-traded stock slipped as much as 4.6% while China Southern Airlines Co. fell 2.2%. Shares in Shanghai-based China Eastern Airlines Corp. declined as much as 3.5%, worse than the Hang Seng Index’s 1.9% decrease.

The largest US airlines, in a letter sent Thursday to Secretary of State Antony Blinken and Transport Department Secretary Pete Buttigieg, asked the Biden administration to halt the approval of new flights between the country and China, saying Beijing’s “damaging anti-competitive policies” put US carriers at a disadvantage.

“If the growth of the Chinese aviation market is allowed to continue unchecked and without concern for equality of access in the market, flights will continue to be relinquished to Chinese carriers at the expense of US workers and businesses,” the letter said.

What Bloomberg Intelligence Says

A request by US airlines to the Biden administration to block further Chinese carriers’ flights does not appear to be grounded in market realities. Current US-China flights are split evenly on both sides at 50 per week and remain just about 25% of 2019 levels. While demand may be lower than pre-pandemic, there is scope to continue restoring seats to the benefit of US and Chinese carriers. Blocking further flights would be reciprocated. Russian overflight is an issue, but some Chinese airlines aren’t engaging in the practice on Beijing-East Coast routes.

- Tim Bacchus and Eric Zhu, BI analysts

Click here for the research.

A spokeswoman for China’s Foreign Ministry, Mao Ning, told reporters at a regular press conference in Beijing on Friday, that “increasing direct flights between China and the US is a common understanding reached by our two presidents in San Francisco. It is conducive to enhancing people-to-people exchange and mutual understanding between the two countries.”

China-US seat capacity remains at about one-quarter of 2019 levels, far lower than China’s air connections to other parts of the world. The number of flights between the two economic superpowers stood at around 340 per week prior to Covid.

China’s aviation regulator in early January said it would push for a “significant increase” in direct flights between China and the US.

In late February, the US Department of Transportation allowed Chinese carriers to increase the number of weekly flights to 50 round-trips between China and the US, up from 35. With an open-skies arrangement, this means US airlines reciprocally get the same number.

Another sign of a thawing in relations was the restart of Boeing Co. 737 Max deliveries after almost five years.

One thorn however is China’s use of Russian airspace, which gives Chinese carriers a distinct advantage in flight time, distance and cost. US airlines have been blocked from flying over Russian airspace since Moscow’s invasion of Ukraine in early 2022.

Several Chinese carriers including Air China, China Eastern, China Southern and Hainan Airlines Holding Co. operate direct flights to and from the US, competing against the likes of American Airlines Group Inc., United Airlines Holdings Inc. and Delta Air Lines Inc.

--With assistance from Jinshan Hong, Charlotte Yang and Colum Murphy.

(Updates with China response in 5th paragraph.)

China Airlines Slump on US Moves to Limit Flight Frequencies