Aviation: Room exists for further expansion but growth must be robust, long term
innovative ways to cut costs.
The world’s first low-cost airline was Southwest Airlines Co in the United States, which has been flying since 1971. Spring Airlines took off in 2006.
The number of Chinese low-cost airlines increased from two to six in 2014, although most of them were formerly full-service carriers.
They accounted for 8 percent of domestic routes in 2014, compared with 0.7 percent in 2006, according to the CAPA Center for Aviation, a global aviation market analysis firm.
The only new low-cost airline in 2014 was 9Air Co Ltd, which ran its first commercial flight on Jan 16. The cheapest seats cost only 9 yuan and they sold out instantly.
Three full-service airlines — China Eastern Airlines Co Ltd’s Beijingsubsidiary known as China United Airlines Co Ltd, China Express Airlines Co Ltd based in Guizhou province and Chengdu Airlines Co Ltd in Sichuan province — adopted the budget model in 2014.
Some airlines, including Capital Air Co Ltd, a Beijing-based subsidiary of HNA Group, and Chongqing Airlines Co Ltd, a subsidiary of China Southern Airlines Co Ltd, have adopted the low-cost model in part by removing first- or business-class cabins and cutting ticket prices, but they don’t call themselves budget carriers.
Some other full-service carriers are now looking more closely at the low-cost model.
in the low-cost model in the regional aviation market, especially in western China,” LiuWeining, chief executive officer of Okay Airways Co Ltd, told China Daily.
HNA Group, which is the fourthlargest airline group in China, is taking more radical steps.
The group already has two established low-cost subsidiaries — West Air andHongKong Express Airways Ltd. Its two new joint ventures with local governments — Urumqi Airlines Co Ltd and Fuzhou Airlines Co Ltd — also adopt some low-cost strategies.
“In future, all subsidiaries of HNA Aviation Group will work as low-cost carriers and the group plans to only keep Hainan Airlines as a flagship carrier providing full service,” saidWang Yingming, executive vice-president ofHNA Group.
HNA Group and all the other airlines interested in the low-cost model have been given positive signals from the government.
The Civil Aviation Administration of China released a document to promote the low-cost carriers’ development in February 2014.
The measures it announced cover six main areas: fleet growth, route and airport slots applications, approval of startups, service categories and low-cost airport construction.
China’s aviation market already has the conditions to develop lowcost carriers, saidZhouLaizhen, deputy director of the CAAC. Some progress has been achieved, although it will take some time for the regulations to be fully effective.
Spring Airlines spent a lot of effort and time cutting unnecessary services, adding fee-based items and providing lower fares. But the process of becoming a budget carrier has become much simpler, due to changing regulations.
It only took one year for 9Air to get operating approval and run its first flight. 9Air signed a 50-plane deal with Boeing Co for B737s in May 2014. That was the largest order so far for a Chinese privately owned airline.
Chinese carriers have to think about transformation of their model, since the world aviation sector has suffered from slow growth in recent years, weighed down by rising staff and fuel costs as well as recession in many countries.
Despitethechallenges, Chinesepassengers have generally accepted the low-cost model, saidWang Zhijie, senior vice-president of Spring Airlines.
But such carriers still need to educate travelers about the differences betweenlow-costandfull-service airlines, especiallywhenitcomes to fees for individual services. And some passengers complain about poor service on budget airlines, although they enjoy the low fares.
It is difficult for Chinese low-cost airlines to cut some costs, including airport fees and fuel costs.
Because of these challenges, experts said that Chinese low-cost carriers still have a long way to go.
“The market room for Chinese low-cost carriers exists, but they will develop robustly rather than booming in a short time,” said Li Xiaojin, professor at the Tianjin-based Civil AviationUniversity of China. Contact the writer at firstname.lastname@example.org