21 November 2018

China’s low-cost airlines may finally take wing

Low-cost flights have been popular for many decades in other parts of the world, but in China they are yet to take wing in any meaningful way. There are 13 so-called budget airlines operating in the country but their combined market share is just 5 percent. The figures certainly make for grim reading and raise various questions about the industry’s future.

That said, there is hope now for the troubled sector as some policy changes and deregulation should help the carriers play a more important role in the nation’s aviation landscape.

The National Development and Reform Commission and the Civil Aviation Administration of China said in a joint announcement Wednesday that the existing price floor for domestic airfares has been scrapped. Under previous rules, carriers were not allowed to price their tickets at more than 45 percent below the benchmark airfares. Now under the new rules, airlines are even granted the right to set the benchmark rate for some routes.

The deregulation effectively gives low-cost airlines more autonomy and pricing power. Two privately run budget players — Juneyao Airlines and Spring Airlines — are ready to launch some special flights at fares as low as 9 yuan (US$1.48). The stunning fares, although entailing a loss for the carriers, will help lure passengers for short-haul routes and enable the airlines to give stiff competition to high-speed trains.

Amid a looming price war, China’s big-four carriers, which control most of the profitable air rights and routes, have shown mixed reaction. Air China (00753.HK) and China Southern Airlines (01055.HK) are inclined to wait and watch the unfolding situation before making any move. Hainan Airlines, meanwhile, has been proactive in trying to protect its market share. The company has set up a low-cost unit, China West Air, to lure more passengers in the mid-west region.

China Eastern Airlines (00670.HK), the other big carrier, meanwhile has taken a more prudent approach. While the Shanghai-based airline is yet to enter the domestic cheap flights market, it however plans to team up with Australia’s Jetstar Airways to launch budget services from Hong Kong. The company is apparently seeking to gain the knowhow on running low-cost flights through cooperation with an experienced industry player.

– Contact the writer at [email protected]


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