China Eastern goes low cost

HONG KONG – For too long, China has taken a strong stance against any low cost airline development in the country. Confronted to increasing competition on its domestic market, Chinese authorities had banned any new airline’s creation. This was seven years ago and the ban was only lifted last year. But blocking the emergence of Chinese budget airlines did not deter low cost carriers from other countries to venture into the Chinese market. Consequence: while AirAsia, Tiger Airways, Jet Star or Cebu Pacific increased their offer into China, Chinese traditional carriers start to be under pressure with their market shares getting eroded. In total, budget carriers represent only 5% of all capacities in China due to their almost complete absence on domestic air routes. 
 

China Eastern, based in Shanghai, is the first to react to increased competition. Last week, the carrier announced to convert its affiliate China United Airlines into a low-cost airline. It is then the first Chinese state-run carrier to go into the budget-airline market. China United is based on a secondary airport in Beijing (Nanyuan Airport), in a former military base. 
 

China United now has 26 aircraft, increasing to a fleet of 31 Boeing 737 by the end of the year, according to James Wang, a spokesman for China Eastern who talked to news agency Bloomberg. By 2019, when Beijing’s second airport is projected to be operational, the airline will operate out of that and expects to carry 23 million passengers annually and to have a fleet of 80 aircraft. “We believe the low-cost carrier market has enormous growth potential in China given its low penetration rate,” said Mr. Wang.

 

The Chinese government is now realizing the importance of having a vibrant budget airlines sector. It unveiled earlier this year new guidelines to establish low cost carriers, simplifying approvals to allow budget carriers to take off.  
 

Among China’s three state-run carriers, Shanghai-based China Eastern is already embarked in Hong Kong into the creation of a new budget carrier in partnership with Australia-based Jetstar. However, due to the resilience of Cathay Pacific, Jetstar Hong Kong is facing troubles to take off. Last September, In September, Cathay Pacific filed a formal objection with Hong Kong’s government against Jetstar Hong Kong’s plan. China Eastern is probably now looking at being more pro-active in Mainland China, especially as the government is turning more favourable towards low cost carriers…