How can a low-fare carrier operate in a country that prohibits low fares?
That is the question China’s new stable of private carriers must grapple with as they try to compete against more established government-owned airlines.
The parent of Spring Airlines, China’s first self-proclaimed low-cost carrier, has been fined 150,000 yuan ($19,000) for selling tickets too cheaply. Chinese regulations prohibit airlines and travel agents from offering discounts of more than 45% off full standard fares, which are set by the government.
Jinan Spring Holiday Travel, which launched Spring Airlines in 2005, allegedly sold over 400 Spring Airlines tickets at the end of November between Jinan and Shanghai for only one yuan, well under the government regulated minimum one-way fare on the route of about 500 yuan.
Shanghai-based Spring is China’s second private carrier after Tianjin-based Okay Airways and was the first to unveil a budget carrier strategy, which is supposedly modelled after Southwest Airlines. There are now two other private carriers in China – Wuhan-based East Star Airlines, and Chengdu-based United Eagle Airlines. Hainan Airlines also has established a low-cost operation earlier this year known as Lucky Air.
While several of these carriers claim to be low-cost they acknowledge they are not true low-fare carriers because the government does not allow them to sell heavily discounted tickets. Low-cost is also really not an accurate description given China’s high operating costs and taxes. Most operating costs, including airport charges, are fixed and set by the government at relatively high rates compared to other countries. So far China simply does not seem to be interested in opening up China to true low-cost players despite all the international hype about the potential of China’s low-cost market.
if the Chinese government were interested in creating a low-cost market which would enable more of its citizens to fly (something the government may not want to encourage) it would have to allow airlines to sell tickets at whatever prices they see fit. There is nothing stopping low-cost carriers from North America, Europe or even other parts of Asia from selling promotional fares of less than one euro, dollar or ringgit. Spring claims to be profitable although it only operates four Airbus A320s in a high operating cost environment. If this is really the case how can it be low-fare or low-cost?