Economics and skills shortages may be stacked against regional commercial aviation in China, but subsidies are leaning its way. A trend toward wider use of smaller airliners by carriers set up at the behest of provincial and city governments is helping to overcome obstacles that have long impeded regional aviation here.

These new airlines are frequently flying thin, unprofitable routes with standard narrowbody airliners of around 150 seats, points out Guan Dongyuan, president of Embraer's Chinese business. Even if the services cannot make money with regional jets, at least the trip cost will be lower and the losses smaller, he says, noting demand for small airliners from such carriers.

The same factors augur well for local demand for the Bombardier CRJ and the CSeries jets and perhaps the ATR 72 and Bombardier Q400 turboprop airliners. For nationalist reasons, the Brazilian and Canadian aircraft may face competition from indigenous Comac ARJ21 regional jets and Avic MA60 turboprops, but not the Mitsubishi Aircraft MRJ.

Since 2009, provinces and large cities have subsidized major airlines and national aeronautics group Avic to set up local subsidiaries. Their aim is to support local economic development. The first result of this trend was Tianjin Airlines, which operates 50 Embraer 190s. More such carriers have been cropping up country-wide, although not always with regional aircraft.

Hebei Airlines, set up with backing from the Hebei provincial government, has four Embraer 190LRs in service and three on order, part of a fleet that also includes Boeing 737s, according to Aviation Week data. Henan Airlines, backed by the Henan provincial government, operated E-190s before it was grounded after crashing one in 2010. The long-established branch company that China Southern Airlines operates in the sparsely populated Xinjiang region is leasing 20 E-190s that CDB Leasing Co. bought on its behalf. In that case, the backing is not clear.

When local governments demand and subsidize the operation of uneconomic routes, they push aside strong barriers to the growth of Chinese regional commercial aviation.

Guan believes the greatest problem is the national shortage of pilots and technicians. Major airlines opt to use their scarce skilled personnel in running large aircraft on heavily trafficked routes, often with just one or two flights each way. “In 2011 there were 1,300 air routes in China; 70 percent had fewer than 300 passengers a day each way,” says Guan.

In other countries, such poorly served routes would offer opportunities for other carriers to move in with high-frequency regional jet services, but in China the routes are regulated by the Civil Aviation Administration of China, which restricts competition, partly because it is so mindful of the skills shortage. So the airlines can and do serve the routes with larger aircraft operating low-frequency services.

Independent airline consultant David Li points out that Chinese airspace, as well as skilled workers, is in limited supply, so larger aircraft are favored. Moreover, recent growth in commercial aviation here has been focused on adding flights to underserved markets, he says. “Regional markets were not prioritized, as they might have taken more time to develop.”

A further factor militating against widespread use of regional airliners is that the industry is training people mainly for larger aircraft. Yet another is strong preference among many Chinese people, including pilots and technicians, to live in big cities.

“The major difficulty of regional aviation is high cost per seat-kilometer and thin profits,” says Tianjin Airlines President Xin Di. “In the main, our experience is that the CAAC and local government give a certain level of policy and monetary support [to regional aviation].”

Part of the answer is not to be an entirely regional airline, at all. Tianjin Airlines “has configured its fleet appropriately by introducing A320s. By integrating regional and trunkline operations, we give customers more choices and at the same time match ourselves more closely to the market and increase our competitiveness.”

Although regional airlines should always have limited opportunities in developing countries, because of their high cost per seat and the willingness of travelers to take slow ground transport instead, Li believes that tailoring the service to customer demands can overcome that problem.

In working their way into the Chinese market, Embraer and Bombardier may encounter some competition from the ARJ21. Comac and supplier Avic will lobby the central government to force airlines to use the type. Avic is also a competitor in the market.