Viewpoint

Assessing China’s start-up revival

After a six-year moratorium on new airline approvals, China could see a flurry of applications from prospective operators following the confirmation of operating licences for Qingdao Airlines and Ruili Airlines.

Many of the proposals to cross regulator CAAC’s desks are likely to come from municipal authorities such as Qingdao's governors, who are to own a quarter of Qingdao Airlines; alongside Air China subsidiary Shandong Airlines, which will own a fifth; and Nanshan Group, which is investing $155m to take a 55 per cent controlling stake.

 

Local governments like dedicated regional carriers because they bring in tourism and business; in Qingdao’s case through lucrative connections to nearby South Korea and Japan, although the airline is expected to initially offer domestic services when it takes off in March using leased A320s and CRJ700s from Shandong Airlines.


CAAC’s restored green light for new carriers is also good news for Airbus, which has just logged orders for five A320ceos and 18 A320neos from Qingdao. That follows a December commitment from another start-up, Zhejiang Loong Airlines, for 11 A320ceos and nine A320neos.


Those orders are a concern for Boeing, which can ill afford to grant any momentum to Airbus in a market as potentially decisive as China’s, especially since its 737 MAX already trails the A320neo in the affections of start-up carriers elsewhere in the world.


Thankfully for the US airframer, new operator Ruili appears to have plumped for the 737 having already received second-hand models, although media reports that the Kunming-based start-up ordered 18 new 737s last year cannot be confirmed on Boeing’s orders and deliveries website.


Another question concerns how much China’s airline market needs the dozen or so new carriers in contention for launch. CAAC has indicated that it will only approve three new airlines per annum, but even those named above are entering a market that contracted almost eight per cent last year and could face further difficulties associated with China’s slowing growth rate.


Any over-capacity should, in theory, benefit passengers, but even that benefit may prove elusive due to a confusing web of cross-shareholdings among Chinese airlines that effectively results in three big state-owned groups – Air China, China Eastern and China Southern – controlling 75 per cent of the market.


And although many of the new carriers have significant private investment, a shortage of experienced personnel means that all will recruit senior management from state-run carriers, again limiting the possibility for diverse operating models to emerge in the country.

 

It seems a true Chinese airline revolution will have to wait.

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