Suddenly, the CAAC is promoting budget airlines
After years of being held back, low-cost commercial aviation in China looks like it might finally be receiving official recognition. The Civil Aviation Administration of China ( ) has told the country's small airlines to explore budget operations and suggested to big carriers they may have something to learn there, too.
Perhaps encouraged by the prospect of supportive policies, the small private carrier Juneyao Airlines has applied to set up a budget offshoot in Guangzhou, the home base of, the country's largest carrier, says an industry official. The policy turnabout may also be good news for Spring Airlines, China's most mature budget carrier, which has developed far slower than it planned, apparently because of official reluctance to let it move fast.
The reasons for the CAAC's former lack of enthusiasm for budget aviation are unlikely to completely go away, however. The authority can be expected to be as wary as ever of letting small airlines build up their fleets too quickly, endangering safety. And it will not let low-cost operations threaten the viability of the government's own airlines, whose management has room for improvement (see page 48). In short, no Chinese equivalent ofis likely to suddenly burst onto the scene. China does not work that way.
The decision to encourage low-cost aviation was made at the CAAC's mid-year work meeting in July. According to a notification sent to the airline industry, but not issued publicly, the head of the CAAC, Li Jiaxiang, told the meeting “small and medium airlines must actively explore the low-cost mode of operations. Large trunkline carriers can take advantage of the methods of low-cost carriers to improve their management and reduce costs.” In the second half of the year, the CAAC will look at regulations “to support the rapid development of low-cost aviation.” (The word “rapid” perhaps should not be taken too literally; Chinese officialdom is much given to exaggeration for emphasis.) The support may include subsidies.
“Low-cost aviation in North America, Europe and Southeast Asia has developed quickly,” says a CAAC official. “It gives strong impetus to the economy, infrastructure and tourism and for that reason has attracted the strong attention of the management levels of the CAAC. So the supervisory thinking has changed.”
Yet the economic benefits of cheap travel cannot have dawned on the CAAC only in 2013. A bigger factor may be a political one: China's new premier, Li Keqiang, is pushing for renewed economic reforms. In those circumstances, it would not do for the CAAC to seem hidebound.
The south-central division of the CAAC has already approved Juneyao's application and passed it to Beijing for review. With a provisional OK obtained, there is unlikely to be any technical difficulty with the plan, and in view of the latest policy stance the chances of final approval must be good. Juneyao is based in Shanghai but has presumably chosen not to base its budget carrier there because the city is also the hometown of Spring. The new carrier may be related to the announced plan of a Hong Kong travel company to invest in mainland budget aviation.
Juneyao's offshoot will be mainland China's third budget airline. A mainland subsidiary of Hainan Airlines, Chongqing-based West Air, has begun converting itself to the low-cost model. Another Hainan Airlines subsidiary, Hong Kong Express, is also moving to budget operations. And,is setting up Jetstar Hong Kong in partnership with , though this project is encountering strong opposition from incumbent carriers. China Eastern has been ahead of the CAAC in establishing Jetstar Hong Kong, seeing it as a way of learning about budget operations. And in contrast with Hainan Airlines' efforts, China Eastern will have the advantage of taking part in a project that will be executed with the guidance of experienced staff from the Qantas Group. Despite the knowledge that China Eastern may gain from that, China Southern and have shown no signs of following that path.
If they do, perhaps under the impulse of the CAAC's forthcoming policies, they will have no shortage of Asian low-cost carriers to cooperate with—for example, AirAsia of Malaysia, Indonesia's Lion Air and Singapore's Tigerair. And there is no reason why a U.S. or European budget carrier could not be a partner. Before China Eastern's deal with Qantas, Chinese airline joint ventures with foreigners were largely limited to freight carriers. But many other industries in China, including aircraft maintenance, have developed faster thanks to expertise gained from foreign partnerships.
The support for budget carriers comes as the CAAC lifts its prohibition on new private airlines. In May it approved the setting up of Ruili Airlines by Yunnan Jingcheng, a privately owned conglomerate whose businesses include hotels and travel services. For the last six years, the administration would not accept applications for private airlines' air operators' certificates.