A version of this article appears in the August 4 edition of Aviation Week & Space Technology.
For about a decade after the low-cost airline revolution began to sweep across Southeast Asia, the Civil Aviation Administration of China () was not interested. Then, a year ago, the industry’s overseer quite suddenly began to push the idea.
But not everything in China is as choreographed as is often imagined—certainly not commercial aviation, even though the state has controlling holdings across the great bulk of the industry. Some airlines are responding faster to the CAAC’s call for no-frills flying than others. And those others may have good reasons for holding back.
Of the four major airline groups, Hainan Airlines was already converting subsidiary West Air to budget operations when the CAAC began its push, whilewas planning to learn the ropes by setting up a Jetstar-branded airline in Hong Kong with . As Hainan and China Eastern progress with their plans, is making only a small move while remains aloof, with notions that are not close to execution.
The small private carrier Juneyao is paying heed to officialdom. The government does not own it, but Juneyao, small and lacking the influence and network strength of the big groups, has good reason to exploit policy changes that offer opportunities for growth. The Shanghai airline is not following the CAAC’s recommendation that all private carriers convert themselves to low-cost mode, but it is setting up a budget subsidiary in Guangzhou.
The lack of enthusiasm China Southern and especially Air China are showing for budget operations does not necessarily mean that those two carriers—China’s largest and second-largest—suffer from hidebound and unadventurous management. All over the world big airlines with budget affiliates remain a minority. Running one airline is hard enough; running a second adds headaches.
Further, budget aviation in China faces many of the same problems as regional aviation. The scarcity of runway slots at major airports, airspace along important routes, and skilled personnel all over the country are all strong reasons for maximizing revenue in each aircraft. These problems can be solved with time, but for the moment they are so serious that they not only undermine sales of regional jets and turboprops; they are supporting demand for-300s at the expense of standard narrowbodies. In that environment, it cannot be appealing to allocate precious resources to services that are specifically designed to generate lower fares.
And that makes one of the forthcoming Chinese budget airlines all the more surprising. Hainan Airlines affiliate Capital Airlines plans to convert to low-cost mode, exploiting its runway slots at congested Beijing Capital International Airport to position itself as the strongest budget carrier there. A critic might argue that the best way to exploit runway slots at Beijing Capital would be to allocate them to Hainan Airlines’ A330s, which would have more seats and more revenue per seat.
So the reluctance of Beijing-based Air China to set up a budget subsidiary is not so hard to understand. The carrier has announced no plans, but industry officials say it has two, apparently not firm. One is to convert a subsidiary to budget operations, as other big carriers are doing. The other is to set up a low-cost carrier when Beijing opens a new airport, which is not likely before 2019. The new airport may create enough extra capacity to justify taking slots away from the full-service network.
The converted offshoot could conceivably be Dalian Airlines, set up in partnership with the northeastern city of the same name. It is quite small, with only six-800s, but it could be built up. The local government shareholder may not be keen on losing the business-class cabin, however.
Another possibility is Air China’s business jet operator, Beijing Airlines, which could seek permission to run scheduled services, quite possibly from the new airport. There is a precedent for such a conversion: Capital Airlines is the scheduled-service branch of business-aviation company Deer Jet.
Shanghai-based China Eastern is eyeing the Beijing budget market, but its local subsidiary, China United, is based at Beijing Nanyuan airport, a relatively quiet field south of the city. China Southern is avoiding that problem altogether: Its first baby step toward a low-cost model is to take out the business-class cabin in some aircraft of subsidiary Chongqing Airlines, based at the big southwestern city of that name.