Comment
China a major test for plethora of LCCs
May 1st 2012
Considering the Asia-Pacific arrived late on the low-cost carrier (LCC) scene it is astounding that by the middle of next year there will be more than 50 budget operators – or hybrids of the model – operating in the region. Read More »
The latest prospect, if it receives regulatory approval, is a 50-50 joint venture between Qantas Airways and Shanghai-based China Eastern Airlines (CEA). Scheduled to launch in mid-2013, Jetstar Hong Kong will be the first budget carrier to involve a Mainland Chinese major carrier.
There are currently no home-based LCCs in Hong Kong, although Hong Kong Express will re-launch as a budget carrier in July or August. However, Hong Kong is no stranger to LCC operations.
Eleven LCCs serve the Chinese Special Administrative Region (SAR). The big question is whether or not Jetstar can win approval to operate from Hong Kong, given local law states the city has to be the owners’ principal place of business. Clearly, this is not the case for either Qantas or CEA.
Hong Kong-based legacy carrier, Cathay Pacific Airways, will likely apply for a judicial review, which will inevitably delay the project. But if approval is granted, there is little doubt Jetstar Hong Kong, with powerful backing and links to the regionwide Jetstar brand, will succeed.
Whether that prompts Cathay, which is the only major network carrier in the region not to have an LCC subsidiary, to change its mind, remains to be seen.
With or without Jetstar Hong Kong, LCCs s will continue to pose a threat to network carriers. It is no surprise that most of them are placing emphasis on China and the estimated pool of 450 million passengers forecast to be in the market by 2015.
How that access is granted is an intriguing poser for Beijing. It wants to encourage air traffic growth, but apart from Spring Airlines it has no LCCs itself. It wants to protect the development of China’s three major network operators – Air China, China Southern Airlines and China Eastern - so they will remain strong and competitive.
To do that it has to considerably limit LCC access to their prime passenger supply sources: Beijing, Shanghai and Guangzhou. Mostly, LCCs will be given access to thinner, less-profitable secondary routes.
That is why they should be extremely cautious. For them, China may not bring the expected bonanza. There is little doubt that not all of the more than 50 LCCs in the market, or about to enter the fray, will survive.
