Bud­get air­lines set to soar as lim­its are lifted

New civil avi­a­tion rules present a golden op­por­tu­nity for low-cost car­ri­ers to ex­pand in China, Wang Wen re­ports.

China Daily (Canada) - - BUSINESS -

There can be more Chi­nese bud­get air­line car­ri­ers fol­low­ing the reg­u­la­tion change by the Civil Avi­a­tion Ad­min­is­tra­tion of China. The administrat i on re­leased a no­tice to can­cel lim­its on the low­est price, which means air­lines can pro­vide more dis­counts. The largest dis­count for air tick­ets had been 45 per­cent, ac­cord­ing to the for­mer reg­u­la­tions.

Mean­while, the ad­min­is­tra­tion is en­cour­ag­ing Chi­nese main car­ri­ers and pri­vate cap­i­tal in­vestors to put money into bud­get air­lines.

The civil avi­a­tion au­thor­ity also is work­ing on some spe­cific poli­cies to sup­port the growth of bud­get air­lines, in­clud­ing air­plane pur­chases and route ap­pli­ca­tions, Xia Xinghua, deputy di­rec­tor of the ad­min­is­tra­tion, said in a sem­i­nar on bud­get avi­a­tion.

Air­plane pur­chases, route ap­pli­ca­tions and jet fuel prices were the main ob­sta­cles for Chi­nese low­cost air­lines. The sit­u­a­tion may change be­cause of the au­thor­ity’s sup­port.

The au­thor­ity is also con­sid­er­ing de­vel­op­ing stan­dards for bud­get air­lines be­cause there is no of­fi­cial def­i­ni­tion of them in China yet.

Gen­er­ally speak­ing, some items are fea­tures of bud­get air­lines glob­ally, such as cheaper tick­ets, higher in­come from non- flight busi­ness and lower op­er­a­tional costs.

Only two Chi­nese air­lines are low-cost car­ri­ers at the mo­ment: Shang­hai-based Spring Air­lines Co Ltd and Chongqing-based West Air Co Ltd.

“It is def­i­nitely good news for pri­vately owned air­lines to change the low­est price,” said Wang Zhenghua, chair­man of Spring Air­lines, the largest bud­get car­rier in China.

Spring Air­lines was fined by the lo­cal pric­ing bureau in Ji­nan, Shan­dong prov­ince, in 2006 be­cause the car­rier pro­vided some tick­ets at 1 yuan on its Shang­hai-Ji­nan route. The price broke the Civil Avi­a­tion Ad­min­is­tra­tion of China’s for­mer reg­u­la­tions. The car­rier with­drew from the route.

“Ac­cord­ing to the new rules, tick­ets cost­ing only 1 yuan will not be for­bid­den any­more,” Wang said.

The bud­get air­line also no­ticed it is now much eas­ier to pur­chase new air­craft.

Wang said it used to take four to five months for Spring Air­lines to ap­ply to buy a new air­craft but the pe­riod has been short­ened dra­mat­i­cally.

Spring Air­lines plans to en­large its fleet by 40 air­craft by 2015. It al­ready has 39 air­planes, and its fleet will to­tal 46 air­craft by the end of this year.

“We still plan to pur­chase eight to 10 air­craft ev­ery year,” Wang said.

West Air, a sub­sidiary of HNA Group, which com­pleted its trans­for­ma­tion to bud­get air­line at the end of 2012, also has a plan to in­crease its fleet. Four air­craft will be added in 2014.

Some other air­lines are also try­ing to turn into low-bud­get air­lines be­cause of the busi­ness op­por­tu­ni­ties they present.

China United Air­lines Co Ltd, a Bei­jing­based sub­sidiary of China East­ern Air­lines Co, is work­ing on a spe­cific plan to turn into a low-cost car­rier.

Juneyao Air­lines Co Ltd, a pri­vately owned car­rier in China, also ap­plied to de­velop a low-cost air­line called Ji­uyuan Air­lines. It means the air­line will pro­vide spe­cial air tick­ets priced be­tween 9 to 49 yuan at cer­tain times.

“We can ex­pect more bud­get air­lines in China be­cause the au­thor­ity’s sup­port may make it eas­ier to en­ter the busi­ness,” said Li Xiaojin, a pro­fes­sor at China Avi­a­tion Univer­sity in Tian­jin.

The Chi­nese are get­ting used to trav­el­ing by air, with air traf­fic grow­ing fast and pro­vid­ing more cus­tomers to bud­get air­lines, he added.

Chi­nese air­lines trans­ported 319.36 mil­lion per­son-trips in 2012. The num­ber reached 326.1 mil­lion in the first 11 months of 2013, ac­cord­ing to the Civil Avi­a­tion Ad­min­is­tra­tion of China.

But it is still dif­fi­cult to op­er­ate bud­get air­lines, which need to lower their costs and im­prove load fac­tors at the same time, Li said.

“The low-cost air­lines need enough pas­sen­ger flow to make a profit be­cause their ticket price is low,” he added.

Im­prov­ing ef­fi­ciency is a main method for bud­get air­lines to lower their op­er­a­tional costs.

West Air’s over­all costs in 2013 were re­duced 15 per­cent over 2012 through im­prov­ing plane-use rates and up­grad­ing op­er­a­tional sys­tems.

The daily use rate of an air­plane by West Air is about 12 to 13 hours, while the av­er­age num­ber of the whole in­dus­try is about 9.8 hours a day, said Liu Feihu, con­trol man­ager of the car­rier’s op­er­a­tions center.

“Re­duc­ing the ground han­dling time is an im­por­tant way to im­prove the use-rate,” he added.

The car­rier, which uses the 13 Air­bus 320 fam­ily air­craft, runs more than 70 do­mes­tic flights daily.

Ac­cord­ingly, the air­line’s ticket price is about 15 per­cent lower than the mar­ket’s av­er­age level.

The car­rier pro­vided more than 10,000 tick­ets with 70 to 90 per­cent dis­counts. Some tick­ets were only priced at 8 yuan in Novem­ber 2013.

Af­ter the trans­for­ma­tion from be­ing a tra­di­tional air­line into a low-cost air­line, West Air’s flights load fac­tor also in­creased by 5 per­cent, reach­ing 90 per­cent.

How­ever, Chi­nese low-cost car­ri­ers still have to cul­ti­vate the mar­ket be­fore they can gain more mar­ket share.

“Peo­ple’s ac­cep­tance of bud­get air­lines is still a chal­lenge for us,” said Cen Jian­jun, vi­cepres­i­dent of West Air.

As a low-cost air­line, West Air still pro­vides in-flight food and a free lug­gage check-in ser­vice, which in­cur fees at other bud­get air­lines, Cen said.

On the other side, Chi­nese bud­get air­lines also need to in­crease their in­come from non­flight busi­ness, which is com­mon among low­cost air­lines as a main in­come source glob­ally.

The in­come from non-flight busi­ness ac­counted for only 3 per­cent of West Air’s to­tal in­come in 2013, while the per­cent­age for Air Asia was about 20 per­cent.

Cur­rently, West Air’s non-flight busi­ness in­cludes insurance, ho­tel book­ing, tourism and ve­hi­cle rental.

The car­rier plans to in­crease in­come from non-flight busi­ness to 5 per­cent in 2014 through of­fer­ing ex­tra ser­vices.

“We will pro­vide full travel ser­vices in the fu­ture,” said Xiao Lin, gen­eral man­ager of the car­rier’s mar­ket­ing and sales depart­ment.

It is an ad­van­tage for the car­rier that its par­ent group has other tourism sub­sidiaries cov­er­ing ho­tels, travel agen­cies and tourism des­ti­na­tions.

“It is eas­ier for us to co­op­er­ate,” Xiao added. Con­tact the writer at wang­wen@chi­nadaily. com.cn

PRO­VIDED TO CHINA DAILY

A Spring Air­lines plane at an air­port in Nan­tong, Jiangsu prov­ince. Low-cost air­lines are set to take off in China.

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