China's soaring potential a springboard for budget airlines

Thu Apr 10, 2014 6:03am EDT
 
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By Fang Yan and Matthew Miller

BEIJING (Reuters) - The chairman of Spring Airlines requires his employees to use both sides of a sheet of paper before throwing it away and even removed most of the bulbs lighting the corridor to his office - all part of his quest to save money.

China's first low-cost airline has been profitable since 2006, its first full year of operation, but the budget aviation market is about to get a lot more competitive as the government moves to promote low-cost travel to meet a surge in demand from an increasingly wealthier population.

Over the last 18 months, Spring has been joined by two new competitors. China's big state-backed carriers are also looking at launching budget carriers, a strategy industry executives say would be an additional boon to plane makers Airbus Group (AIR.PA: Quote) and Boeing Co. (BA.N: Quote).

The Civil Aviation Administration of China (CAAC) plans to add nearly 80 new airports by 2020, including a $14.5 billion second airport in the capital Beijing, and is urging other airports to build new terminals and convert existing facilities to handle budget airlines.

The initiative, industry observers say, would usher in a new era for low-cost carriers (LCCs) in a country where one in four people travelled by air in 2013. That number is set to rise to almost the whole population in the next two decades, according to Airbus executives, with China to replace the United States as the world's largest aviation market during the same period.

"There will be a number of new entrants," said Andrew Herdman, director general of the Association of Asia Pacific Airlines. "We know that model works well for short-haul flights elsewhere. There is no reason it shouldn't work well in China."

For Wang Zhenghua, founder and chairman of Spring Airlines, progress has been slow. The Shanghai-based carrier has been flying for nine years and still struggles to get prime landing slots at Beijing Capital International Airport, causing Spring to rack-up 80 million yuan ($12.90 million) in total losses on a route that has been highly profitable for the wider industry.

"We only get to land in Beijing either early in the morning or late at night," Wang told Reuters. "Slots are pretty tight, but unfairness and discrimination are the main issues here."   Continued...

 
A Spring Airlines crew member sells food onboard an Airbus A320 aircraft near Shanghai July 6, 2012. REUTERS/Aly Song