Liberalisation would create new Chinese airlines: AAPA

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Any liberalisation of mainland China’s aviation market would likely result in the birth of new provincial Chinese airlines, but private-sector operators wishing to enter the market would face immense challenges, says the head of airline body the Association of Asia Pacific Airlines (AAPA).

While China already has a number of regional carriers such as Chengdu Airlines, any efforts to encourage new operators to enter the market could result in the proliferation of new provincially backed airlines, argues Andrew Herdman.

“If they [the Chinese] opened up the market, you might find provincially backed rather than state-owned airlines being launched by local governments, which could be interesting," he says. "We have seen a bit of that happening in [South] Korea. That raises issues in terms of state aid and what their objective be in launching such a venture.”

But Herdman says it is unlikely that the kind of overseas private-sector competition now found in the Hong Kong market would be repeated in mainland China, asking: “What is your edge?” New overseas or new private airlines would, he adds, have to pay the “same airport charges; you’re going to have the same airspace congestion; you will have the same problem of securing airport slots at congested airports.”

“Can you improve on the cost and service levels of the majors? Chinese airlines may not be low-cost in terms of how we understand that label, but they are pretty low-cost by global terms because they have low labour costs and achieve efficiencies in fleet utilisation.

“The criticism of the Chinese carriers used to be that they had low load factors compared to other operators globally, but that’s no longer the case. The load factors in China are now high,” he says.

While low-cost carrier Spring Aviation has been a success, that is the "exception" to the rule and the kind of low-cost revolution seen elsewhere in Asia remains a long distant prospect in mainland China, he adds.

Herdman says China’s state-owned airlines are able to get good prices on aircraft orders and have good levels of distribution, and that their frequent-flyer programmes are steadily developing, further reducing the economies of scale a private operator could hope to bring to bear in the market.

Where overseas carriers could find opportunities is in international collaboration, as Chinese carriers “don’t have international distribution, they don’t have brand recognition, they don’t have the product or service reputation” and so they cannot compete as effectively as European, US or other Asian carriers on many international routes, in Herman's view.