China to ease 'one route, one airline' policy for Chinese carriers

SHANGHAI (Reuters) - China will ease its near decade-old “one route, one airline” policy for Chinese airlines, the country’s aviation regulator said on Monday, allowing for increased competition on long-haul international routes.

The Civil Aviation Administration of China (CAAC), in a statement on its website, said it has revised rules in response to a changing aviation market as well as the 2019 opening of a second international airport in Beijing, which in turn is aimed at creating the world’s largest aviation hub in the city.

The CAAC introduced the policy in 2009 for long-haul international routes to prevent mainly China’s state-backed airlines from competing too aggressively on routes deemed difficult to profit from.

But the policy made it difficult for airlines to expand international networks at a time of growing overseas travel, and has allowed airlines to develop control of popular non-stop routes such as Beijing-Los Angeles, operated by Air China Ltd 601111.SS0753.HK.

The revised rules were issued in draft form in August last year, and will become effective on Oct. 1 this year. They involve dividing international routes into two categories.

The first category will comprise unrestricted routes to destinations in countries with at least a partial open skies agreement with China, such as Australia, Thailand and the United States.

Long-haul destinations in the second category will be subject to certain restrictions.

China defines a long-haul route as one that requires flying over 4,500 kilometers (2,800 miles) one way.

“This will be a positive long-term development for Chinese airlines whose international route expansion have been limited by traffic rights access,” said Corrine Png, chief executive of transport research consultancy Crucial Perspective.

However, further liberalization could increase competition and pressure passenger yields, while foreign carriers with higher cost structures and inferior services could lose market share to Chinese airlines, Png said.

At present, Air China has priority on routes out of Beijing, but the eased policy will allow China Eastern Airlines Corp Ltd 600115.SS0670.HK and China Southern Airlines Co Ltd 600029.SS1055.HK to grow market share from their bases at Beijing's new Daxing Airport.

Shares in the three main carriers closed higher on Monday, with Air China's Hong Kong-listed shares rising 2.6 percent, while China Eastern and China Southern both rose 4.7 percent. Privately owned Juneyao Airlines Co Ltd's 603885.SS Shanghai-listed shares closed up 7.1.

Reporting by Brenda Goh; Additional Reporting by Jamie Freed; Editing by Christopher Cushing