REFILE-China travel surges for May holiday but consumers remain wary

(Changes "lower-tier cities " in paragraph 13 to "new cities")

By Sophie Yu and Alessandro Diviggiano

May 1 (Reuters) - Travel by rail and car across China surged on Wednesday, the first day of a major public holiday, as consumers remained focused on keeping expenses down in a challenged economy.

In the run-up to the five-day holiday that began with May Day, domestic airline fares were falling and forecasts suggested more travelers were opting to drive rather than fly, or had booked early to save.

Travel of all kinds has rebounded since China lifted strict COVID control measures at the end of 2022, but consumer spending on those trips has failed to keep up, limiting the boost to the broader economy.

China has set an economic growth target for 2024 of around 5%, which many analysts say will be a challenge to achieve without much more stimulus.

China's manufacturing and services activity both expanded at a slower pace in April, official surveys showed on Tuesday, suggesting some loss of momentum.

"There is indeed significant pressure," Lin Yu, 38, who was visiting Beijing from Hangzhou. "Every family's situation is different, and it clearly also depends on the industry you work in."

By the fourth week of April, the average price for an economy flight in China had dropped 38% from the first week of the month to the equivalent of just under $97, according to VariFlight, an aviation data service provider.

"Chinese airlines must adapt to these changes," said Zheng Hongfeng, VariFlight, who said the fare declines showed travelers were booking early in a highly competitive market.

About 58 million cars are expected to be on roads every day during the holiday while railways carried more than 20 million passengers on Wednesday alone, state media reported.

The number of trips taken during the first quarter was up almost 17 percent from a year earlier, according to state broadcaster CCTV.

A three-day public holiday during April was the first time average spending per trip rose beyond 2019 levels. By that measure, spending was up then just over 1%.

Some companies have shifted to try to appeal to consumers watching their spending as they watch the road.

Yum China, the operator of KFC in China, said this week 30% of its new stores would be in new cities or roadside locations like highway rest stops.

Same-store sales at those locations were up 20% during Lunar New Year in February, Yum China CEO Joey Wat said.

"They're key to capturing the spike in travel volume during holidays," she said. (Writing by Kevin Krolicki, editing by Christina Fincher)