* China pledges to boost long-ignored low-cost carrier
* Spring Air bullish on low cost flying
* Juneyao, HNA join the budget airline league
* Air China, China Eastern, China Southern eye low cost
* Boeing, Airbus to benefit from low cost carriers boom
By Fang Yan and Matthew Miller
BEIJING, April 10 The chairman of Spring
Airlines requires his employees to use both sides of a sheet of
paper before throwing it away and even removed most of the bulbs
lighting the corridor to his office - all part of his quest to
China's first low-cost airline has been profitable since
2006, its first full year of operation, but the budget aviation
market is about to get a lot more competitive as the government
moves to promote low-cost travel to meet a surge in demand from
an increasingly wealthier population.
Over the last 18 months, Spring has been joined by two new
competitors. China's big state-backed carriers are also looking
at launching budget carriers, a strategy industry executives say
would be an additional boon to plane makers Airbus Group
and Boeing Co..
The Civil Aviation Administration of China (CAAC) plans to
add nearly 80 new airports by 2020, including a $14.5 billion
second airport in the capital Beijing, and is urging other
airports to build new terminals and convert existing facilities
to handle budget airlines.
The initiative, industry observers say, would usher in a new
era for low-cost carriers (LCCs) in a country where one in four
people travelled by air in 2013. That number is set to rise to
almost the whole population in the next two decades, according
to Airbus executives, with China to replace the United States as
the world's largest aviation market during the same period.
"There will be a number of new entrants," said Andrew
Herdman, director general of the Association of Asia Pacific
Airlines. "We know that model works well for short-haul flights
elsewhere. There is no reason it shouldn't work well in China."
For Wang Zhenghua, founder and chairman of Spring Airlines,
progress has been slow. The Shanghai-based carrier has been
flying for nine years and still struggles to get prime landing
slots at Beijing Capital International Airport, causing Spring
to rack-up 80 million yuan ($12.90 million) in total losses on a
route that has been highly profitable for the wider industry.
"We only get to land in Beijing either early in the morning
or late at night," Wang told Reuters. "Slots are pretty tight,
but unfairness and discrimination are the main issues here."
Beijing, one of China's busiest airports, is home to Air
China and a critical hub to other
state-backed carriers. The CAAC recently pledged to assign slots
to all airlines in a more fair way.
Unlike Europe, where budget carriers control 50 percent of
the short-haul market, Spring booked about 11 million passengers
last year, or less than 5 percent of the total China market.
Pilot shortages, limited airspace and regular delays have
held back growth, industry executive say, while fast and
affordable rail also poses a threat. China's State Council
announced last week that it was speeding up construction of
SMELLING THE MONEY
The low fares and no-frills model now popular in China was
pioneered by Southwest Airlines Co in the early 1970s
and successfully emulated by Ryanair Holding PLC,
AirAsia Bhd and easyJet Plc.
"The growth potential for LCCs is huge because China has a
big population and many people have never taken a plane," Spring
Airlines' Wang said. "Our clients can be anyone who is
price-sensitive, it's not just wage earners."
In November, CAAC deputy director general Xia Xinghua
endorsed the development of budget travel when he appeared at a
Beijing low-cost carrier forum.
That month, Wang Junjin, chairman of privately owned Juneyao
Group, set up Jiuyuan Airlines, a budget carrier based in
Guangzhou, southern China's most important aviation hub.
Juneyao also operates a namesake full-service Shanghai-based
carrier, which services 60 domestic cities, and a handful of
Asian destinations, with a fleet of 34 Airbus A320 aircraft.
HNA Group, parent of Hainan Airlines Co Ltd,
converted its Chongqing-based subsidiary West Air into a budget
airline at the end of 2012.
West Air, which mainly shuttles between small cities, flew
3.3 million passengers in 2013, its first full year of service.
More importantly, it reported a load factor of about 90 percent,
10 percentage points higher than the industry average.
China's biggest government-backed carriers are also eyeing
China Southern Airlines Co Ltd is
considering setting up a low-cost subsidiary, its chairman Si
Xianming told Reuters recently. Air China is also "studying" the
low-cost market, Chief Financial Officer Fan Cheng told China's
state radio this week.
China Eastern Airlines Corp Ltd is
turning Beijing-based subsidiary China United Airlines into a
budget carrier, local media said.
OFF THE RAILS
More competition may mean more margin pressure. Spring
Airlines now has a profit margin of 10 percent, higher than the
industry average of 8 percent.
Wang attributes Spring's success in part to stringent cost
cutting: all staff, Wang included, must fly with heavily
discounted tickets or take trains for business trips. Employees
are expected to stay in budget hotels, and no one leaves the
office without turning off the lights.
When the company moved its headquarters into an ageing hotel
near Shanghai's Hongqiao airport, Wang not only took away eight
of the 10 bulbs that light his office corridor but also voted
against refurbishing, a decision that makes think twice when he
has trouble flushing the toilet.
"The pipes in the bathroom are too old. It's a pain to flush
the toilet," he groaned.
($1 = 6.2123 Chinese Yuan)
(Reporting by Fang Yan and Matthew Miller in BEIJING; Editing
by Emily Kaiser and Miral Fahmy)