China's long-standing hopes for the creation of a hub and spoke network looks set to become reality, with plans by Shenzhen Airlines to create a new regional carrier in partnership with Mesa Airlines.

The new airline is expected to begin flying before the end of 2007, initially operating 50-seat jets on domestic routes. Its working name is Beijing Airlines and it will focus on services to Shenzhen, Beijing, Chongqing, Xiamen, Nanjing, Kunming, Dalian, Shenyang, Xian, Zhengzhou and Nanning.

Plans call for it to be operating 20 50-seat regional jets before the August 2008 Olympic Games in Beijing. The partners say they expect the fleet to grow to more than 100 aircraft within five years, including 70- and 90-seat types.

Regulatory approval is expected to come easily, as Chinese civil aviation officials have for years been trying to convince the country's airlines to add regional jets to create a US-style "hub and spoke" network to enable feed from lower-populated areas. At present Airbus A320- and Boeing 737-sized aircraft operate primarily on domestic routes, including many thin routes that are served less than daily, and only a relatively small number of turboprops and regional jets are in service.

US regional Mesa, which operates Bombardier and Embraer regional jets, is expected to have a 25% stake. Foreign ownership in Chinese carriers is capped at 49% and no single foreign shareholder may have more than 25%.

Mesa chief executive Jonathan Ornstein says his is the first US passenger airline to forge a joint venture of this kind in China. He says Mesa will provide "significant technical capability, including pilot, maintenance and operations support and training, as well as the sourcing of aircraft".

These will be important in the early days of the new airline, as all Chinese carriers have had trouble sourcing pilots in recent years and Shenzhen Airlines does not have expertise in operating regional jets. For Mesa, it is also a way to find new homes for some of its 50-seat jets, which have declined in popularity in the USA as fuel costs have increased.

Whether the new airline can make money will be an open question, as most Chinese carriers with regional jets say it is difficult - if not impossible - to fly 50-seaters in China profitably. Some of the problems include low yields, high taxes and controls on ticket pricing.

But Mesa is confident: "The potential for Mesa to grow our business with Shenzhen Airlines through this partnership is significant."

Shenzhen Airlines is based in the southern city of Shenzhen, near Hong Kong. In addition to domestic and international operations of its own with Airbus and Boeing narrowbodies, it has a joint-venture cargo carrier called Jade Cargo International created in partnership with Lufthansa Cargo.

Shenzhen's new plans come several months after another fast-growing Chinese carrier, Hainan Airlines, ordered 50 Embraer ERJ-145s and 50 Embraer 190s in the biggest-ever single regional jet deal in China's history. Deliveries of both types will begin late this year.

Source: Airline Business