New LCC a Product of Chinese Reform

 - April 3, 2014, 11:27 AM
The launch of a new low-fare carrier in August will make Juneyao Airlines to first privately held Chinese carrier outside Hong Kong's HNA Group to operate a subsidiary. (Photo: Airbus)

Shanghai-based Juneyao Airlines plans to take advantage of more aggressive Chinese aviation reforms with the formation of a new low-cost carrier called Jiuyuan Airlines. Plans call for the new joint venture between Juneyao and three private investors to start operations in August. Privately held Juneyao holds a 69-percent stake in the new carrier, whose registered capital base totals $96 million. Based in Guangzhou, Jiuyuan translates in English to “Nine Yuan,” reflecting starting fares of $1.46.

Under the terms of the joint-venture agreement, Jiuyuan will first operate three Airbus A320-family jets, then expand the fleet over the next five years to 26 aircraft. Although its plans call for its route network to extend into South Asia, Southeast Asia and Northeast Asia, Jiuyuan hasn’t yet announced its initial destinations. The launch of the new carrier would make Juneyao the first privately owned Chinese carrier outside of Hong Kong’s HNA Group to operate a subsidiary.

Recent economic reform efforts in China spell good news for the aviation sector, long hindered by the country’s one airline-one route policy and a preference for state-controlled carriers. China’s move toward a freer market reflects a bid to expand and meet macro-economic conditions, allowing private and low cost carriers (LCCs) a chance to end the monopoly of public airlines and allow the country to expand its international network.

Neither prohibited nor outright allowed, LCCs currently operate on the fringes of China’s aviation sector. However, the Civil Aviation Administration of China (CAAC) has notably pushed toward expansion as it increasingly recognizes LCCs as a source of greater economic growth. The North Asian market remains relatively underserved by LCCs. However, in an undeniable sign of reform, the CAAC lately has approved the establishment of more private carriers than public ones.

Today, LCCs such as Jiuyuan appear better placed to meet China’s growing need for regional and short-haul international flights. However, the CAAC needs to tread lightly in order not to disrupt the status quo. While LCCs will no longer face the same limitations they have had to endure in the past, they can still expect strict regulation. Although the CAAC promises to welcome start-ups and make airport slots available, it will most likely restrict LCCs to operating between secondary cities that align with China’s expansion plans, such as Kunming and Urumqi.