New Pilots

New Chinese domestic airlines successful

2016 01 11

China is seeing some heartening growth stories in civil aviation, as new airlines launched last year aim to fly high despite the overall economic slowdown.

In 2013, the Civil Aviation Administration of China lifted its 2007 suspension of new airline licenses. Since then, four new players have entered the industry, in addition to five new transport airlines.

But Guangxi Beibu Gulf Airlines Co may be the most remarkable. Launched in 2015, it has achieved a rare feat: immediate profit.

"We are very competitive. We earned a profit in our very first year of operations, which is very rare in the civil aviation industry," said Wu Chongyang, the company's president and chairman.

The airline is competing for several awards within HNA Group, its parent and the fourth-largest airline group in China.

Many local governments are eager to cooperate with existing airlines to launch new carriers because they believe aviation could drive local economic growth.

Guangxi Beibu is one such private-public joint venture. State-owned Guangxi Beibu Gulf Investment Co put up 900 million yuan ($136.5 million) for a 30 percent stake in the carrier.

The fleet increased to 10 planes in 2015 - surprising performance for a new carrier in its first year, Wu said. It uses E-190 aircraft built by Embraer SA of Brazil. All 114 seats are economy class.

The carrier also plans to receive Airbus 320 aircraft for use on international routes this year, Wu said.

"We expect to fly to all capitals of the Association of Southeast Asian Nations in three years. The first international route in the region will be launched in 2016."

It's natural for Guangxi Beibu to fly to Southeast Asia, since it is based in the Guangxi Zhuang autonomous region, which is China's gateway to to the region. The carrier has targeted business travelers between China and the ASEAN region as bilateral trade is on the rise, necessitating more air traffic, Wu said.

China-ASEAN trade amounted to $480.39 billion in 2014, up 8.3 percent year-on-year, and is expected to reach $1 trillion by 2020.

Guangxi Beibu Gulf Airlines operates 18 routes to more than 20 domestic destinations. Its average load was over 80 percent last year.

In order to avoid competing with major carriers directly, Guangxi Beibu chose routes between provincial capitals and third- and fourth-tier cities, Wu said.

The numbers are showing the strategy works.

The routes operated by new local airlines will help local governments to attract investors and travelers, said Chen Zhuo, an analyst with China Merchants Securities.

Thanks to support from local governments, "our fleet growth rate will be 27 percent annually in the next five years, while the average growth of the whole industry will be 10 percent", said Guangxi Beibu's Wu.

The reason local governments extend subsidies and preferential treatment to aviation is simple: They believe that for every 1 yuan invested, the local economy will earn 6 yuan in return, said Li Xiaojin, a professor at Civil Aviation University of China in Tianjin. "Which is why there are new local airlines."

Like Guangxi Beibu, Hongtu Airlines in Yunnan province, Colorful Guizhou Airlines in Guizhou province, Guilin Airlines in the Guangxi Zhuang autonomous region and Jiangxi Airlines in Jiangxi province launched in 2015.

Jiangxi Airlines received its first Boeing 737 aircraft on Dec 14 and expects its flights to take off on Jan 18.

"We spent no more than nine months getting the necessary approvals and licenses, which is a record for a new domestic airline," said Wang Lexi, general manager of Jiangxi Airlines.

State-owned Jiangxi Aviation Investment Co has a stake in the airline, and Xiamen Airlines holds a 60 percent stake.

Wang said the carrier's fleet will increase at the rate of three aircraft per year and will reach 20 by 2020.

Initially, Jiangxi Airlines will fly domestic routes connecting Nanchang, Chongqing, Shenzhen and Xiamen, Wang said. It also aspires to introduce international flights to Asian destinations and even to Europe, Australia and the United States in the future.

Experts say the new airlines are likely to face stiff challenges given their rapid growth in a short time. For one, they will likely face shortages of professional human resources like pilots and technicians - an old problem in the aviation industry.

Guangxi Beibu Gulf Airlines already has about 100 pilots, but that won't be adequate to meet the projected demand.

"Compared with major airlines based in big cities, local airlines like us are less attractive for the pilots, who prefer to live in big cities," said Guangxi Beibu's Wu.

The carrier chose to recruit foreign pilots to overcome the local shortage, Wu said. It now employs three foreign pilots. "We plan to recruit more foreign pilots, and they should account for one-third of our pilot team in five years."