Hainan Airlines subsidiary Yunan Lucky Air (YLA) has confirmed plans to establish a joint-venture low-cost carrier (LCC) with two Chinese state-owned agencies. With start-up capital of $460 million, it will operate under the name Chengdu Shenniao Airlines (CSA). Kunming-based YLA will hold a 35 percent stake, Yunan Xiangpeng Investment Company a 45 percent share and Chengdu Communications Investment Group a 20 percent interest. Scheduled to start operations during next year’s first quarter, CSA will operate domestic flights out of Chengdu Shuangliu International Airport (CSIA) in Sichuan province using Boeing 737-800s.
CSA will become the seventh carrier to use CSIA as its hub but the airport’s only LCC. China Southwest Airlines, Sichuan Airlines, Tibet Airlines, Chengdu Airlines, Shenzhen Airlines and China Eastern Airlines are the others.
Hainan Airlines parent HNA Aviation participates in several joint ventures with local partners in airlines, including Fuzhou Airlines in Fuzhou province, GX Airlines in Guangxi Province and Urumqi Airlines in Xinjiang province.
Hainan Airlines official Chen Xiaoxin said the group aims to increase its presence in the Sichuan region with its participation in CSA.
Despite China’s standing as the world’s second biggest aviation market, a developed LCC segment has not managed to take hold. Like local private airlines, LCCs face a string of regulatory barriers that hinder their plans to tap the huge growing aviation market.
Regulatory policies even govern business decisions such as what routes to operate and when to order aircraft. LCCs must also contribute 5 percent of their revenue to the Civil Aviation Administration-run China Airport Development Fund.
Only five LCCs operate in China, namely China United Airlines, Spring Airlines, Urumqi Air, West Air and 9Air. Okay Airways, which launched operations in February 2005, ditched its low-fare model after only seven months and switched to that of a full-service airline.
Spring Airlines has managed to survive with the financial backing of parent company Shanghai Spring International Travel Service, one of the largest travel agencies in China and the most profitable.