Where theory meets reality

The bad news is that despite the Civil Aviation Administration of China (CAAC) planning to add nearly 80 new airports by 2020, including a $15. 4 billion second airport at Beijing, things are probably not going to improve any time soon. Indeed, they could get worse given the government’s new-found enthusiasm for encouraging more low-cost carriers (LCCs) to take to the air.

For several years China has really had only one successful budget operator, Spring Airlines, which carried 11 million passengers last year, still less than five per cent of the total Chinese market. It claims to have been profitable since launch in 2006 but that is somewhat misleading.

The Shanghai-based carrier is planning a float to raise some $435 million in capital for expansion and the IPO (initial public offering) documents show that government subsidies – mainly from local governments and airports – have represented more than 90 per cent of its operating income for the past three years, or an average 75 per cent of its overall revenue for the same period. Spring received total subsidies of $90 million last year from governments and airport operators, accounting for 52. 9 per cent of its overall profits.

The problem for Chinese LCCs was that until recently local regulations limited their ability to operate as true budget airlines. For example there were limits on airfare discounting and rules that forced carriers to provide certain services free that their Western counterparts could charge for. Pilot shortages and getting slots at major airports has also been a big problem because precedence is given to the state-owned big three, Air China, China Eastern and China Southern. That recently prompted Spring founder and chairman Wang Zhenghua to complain about his struggle to get prime landing slots at Beijing Capital International Airport, causing the carrier to rack up $13. 7 million in losses on a route from Shanghai that should be profitable. “We only get to land in Beijing either early in the morning or late at night… slots are pretty tight, but unfairness and discrimination are the main issues here,” he said.

The CAAC has now promised to assign slots to all airlines in a fairer way and its deputy director general Xia Xinghua has endorsed the

In practice it could place new strains on an aviation infrastructure landscape that is seriously struggling.

development of budget travel and indicated the government will do all it can to encourage it. Airports around the country are also being urged to build new terminals and convert existing facilities to handle budget airlines. There are signs that as a result China’s LCC sector is finally coming to life. The HNA Group, parent of Hainan Airlines, has already converted its Chongqing-based subsidiary West Air into a budget airline. The privately-owned Juneyao Group has set up Jiuyuan Airlines, a budget carrier based in Guangzhou. According to local reports Air China, China Eastern and China Southern are also all studying no-frills subsidiaries.

This will likely spark a surge in traffic over the next few years, placing even more pressure on crowded facilities. And local LCCs aren’t going to be the only contributor. Carriers from around the region, the likes of Jetstar, AirAsia, Lion Air, Tigerair and a host of others, are all pressing for more access to existing and additional Chinese destinations. An example: just last month China agreed to an increase in the number of flights to and from Korea, lifting the number from 426 a week on 45 routes to 516 on 62 routes, the biggest increase since 2006. Beijing is juggling with similar requests from across the region. The CAAC’s budget airline-boosting initiative may sound great in theory but in practice it could place new strains on an aviation infrastructure landscape that is seriously struggling to handle what is already there.