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China's second privately-owned carrier, Spring Airlines, made a fully booked maiden voyage Monday, with the domestically lowest fare to allure passengers. But will the low-price strategy last long? Industry insiders doubt it.
At around 9:15 Monday morning, an Airbus 320-214 airplane leased by the Spring Airlines took off from Shanghai Hongqiao Airport for the eastern port city of Yantai, kicking off the company's official operation.
As the first operational budget carrier on the Chinese mainland, Spring Airlines was virtually the second private airways that started operation in the country, following Okay Airways, based in the northern China municipality of Tianjin. The Spring, however, had air fares lower than the Okay, which made its maiden voyage early last March.
Zhang Junyu, who was among the 180 passengers of the Monday's maiden flight, said "Last Tuesday I bought the ticket on-line for the Spring's Shanghai-Yantai flight at 199 yuan (US$24), only one third of the regular fare."
"A lower fare does not mean low input in security," said Wang Zhenhua, president of Spring Airlines. "Though eager to slash operation costs, my company makes investment high enough to ensure flight safety," Wang added.
Though Spring has not yet got an official go-ahead from the General Civil Aviation Administration of China (CAAC) for its one of its major attempts to reduce costs, some measures, including luggage limits and no catering services except for a 300-ml bottle of mineral water, have actually been taken in the company's maiden voyage.
In late June, the CAAC held a special hearing on flight fares and no-frills services of the Spring, which was the first the Administration organized on air service in China. At the hearing, the company suggested no tarmac ferries and air bridges should be used so as to further cut costs, but this was challenged by passenger representatives. In Monday's maiden voyage, tarmac buses were used.
Early this year, China issued a series of rules to allow private capital into some traditionally state monopolized sectors,such as the civil aviation, telecommunications, oil, and railway sectors.
Five private airways, namely the Okay, Spring, Eagle, Shenzhen Airlines and Eastern Express, have been approved by CAAC. At least another five private companies are waiting for nods by the Administration to grab a slice of the Chinese air service market, which is believed to boast huge development potential.
A recent CAAC report said that last year, China's civil aviation sector recorded a passenger turnover of 120 million, up 37 percent year-on-year. The figure will keep an annual average pace of 8.2 percent in the coming 20 years, the report predicted.
"The private airlines' amibition to tap the huge market, however, is challenged by some regulatory barriers behind their endeavors to slash cost," said Zhou Liqun, president of the Schoolof Economics under the Tianjin-based Nankai University.
Generally speaking, Chinese airlines have tariffs on aircraft imports, charges on taking-off and landing at airports, costs for market access. Aviation fuel purchases account for 80 percent of its total operation cost. Most of these are not controllable for the carrier, Zhou said.
Currently, fuel alone makes up 30 percent or so of a carrier's cost, which is 10 percentage points higher than the proportion for airlines abroad, Zhou noted. This is due largely to high fuel prices in China compared to international oil markets. The higher prices were shored up by the monopoly of a state aviation fuel corporation.
"Since last March, aviation oil prices have been raised twice in a less-than-four-month period, from 4,100 yuan to 4,920 yuan (US$494-593)," complained Zhao Zhongying, president of Hainan Airlines based in China's southernmost island province.
With the domestic fuel market yet to be liberalized, flight fares are still under control by the CAAC. Also under strict control is the import of aircraft, which helps drive up purchase cost for Chinese carriers.
Liu Jieyin, president of the Okay Airways, considered it will take "at least five years for the low-budget aviation market to mature in China."
Liu's argument was also based on a recent rule jointly issued by the CAAC and four other ministries. Under the rule, an airline should pay 700,000 - 2.1 million yuan (US$84,337 - 253,012) to employ a pilot who formerly served for another company.
Liu said, "This rule helps keep the status quo and protect vested interests."
There are 80 pilots at Okay Airways, more than a dozen of whom are subject to the policy, Liu noted. The company will most likely train pilots by itself in the future, Liu added. Usually, it takes five to six years to complete the training courses.
It is reported that China is mulling over regulations on domestic investment in the non-state aviation sector. The new rules will provide market access for private companies to almost all air services except for trunk carriers and airports at provincial capitals and major sightseeing destinations.
(Xinhua News Agency July 19, 2005)
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