China United Airlines converted into budget carrier

Parent China Eastern says move is intended to create mainland's biggest low-cost airline

PUBLISHED : Thursday, 03 July, 2014, 2:08am
UPDATED : Friday, 04 July, 2014, 4:20pm

China Eastern Airlines has converted fully-owned subsidiary China United Airlines into a budget airline, it said yesterday, making it the first of the mainland's three big, state-owned aviation players to enter the low-cost-carrier (LCC) market.

China Eastern said in a brief post on its Sina Weibo microblog that China United would strive to be the mainland's biggest budget operator.

"China Eastern is the first of the 'Big Three' to announce an LCC subsidiary, although China Southern is studying converting Chongqing Airlines while Air China has been doing its own studies," said Will Horton, senior analyst for North Asia at the Centre for Aviation, an industry data provider.

Andrew Orchard, analyst at CIMB Securities, said the mainland's LCC market had been "rather restricted" in the past, with Shanghai-based Spring Airlines, established in 2004, the only significant player. "It is still a relatively new industry within China, there's not a lot of competition in that space," he said.

The Civil Aviation Administration of China said in November that it would relax controls on the LCC market and encourage full-service carriers to establish low-fare subsidiaries.

"We are seeing a lot of liberalisation in the Chinese aviation industry," Orchard said. "[The China United conversion] is a reinforcement of the view that the government is encouraging competition."

China United operates out of Beijing, the home of China Eastern's rival Air China, but is the only commercial airline based at Nanyuan airport, Beijing's military airport, thanks to its military background before it was bought by China Eastern in 2010.

The Beijing Evening News reported that China United's fleet of 26 aircraft would grow to a fleet of 31 Boeing 737s by the end of this year and a fleet of 80 planes by 2019.

Horton said: "The LCC model is more suitable to China United, which has low frequencies and a larger number of secondary and tertiary destinations."

HNA, the fourth major player in China's aviation industry, transformed subsidiary China West Air into an LCC last year.

China Eastern is also a shareholder in proposed budget carrier Jetstar Hong Kong, a joint venture with Australia's Qantas and Stanley Ho's Shun Tak Holdings that is still seeking Hong Kong regulatory approval.

Orchard said yesterday's announcement would not trigger any immediate responses from China Eastern's competitors because they had different priorities. "Air China has always been more focused on the international market and China Southern long-haul," he said.