Lin Lan, a modestly paid teacher in Xiamen, now has another reasonably priced option when travelling from Xiamen to Bangkok.

Malaysia-based, no-frillss carrier AirAsia is gearing up to open low-cost air services between the two destinations.

"Once it is available, I will try it, because it may be amazingly cheap. The price of a round-trip ticket is said to be only half of that of a one way flight offered by traditional carriers," Lin said.

But whether to soar or not in China remains a major question for budget carriers.

As China's aviation market continues to open, discount airlines from overseas might have no option but to land in the Chinese mainland.

AirAsia, a well-known budget airline, plans to launch its maiden flight to the Chinese mainland either later this month or early next month.

It is expected to become the first foreign no-frills carrier to land in China. The flight will be operated by AirAsia's joint venture in Thailand.

"We are busy working with the Xiamen Gaoqi Airport to put all the finishing touches on our preparations for the virgin trip," Ethan Lew, AirAsia's assistant manager responsible for publicity and promotions, told China Business Weekly.

"Details, such as the exact flight date and ticket prices, are not hammered out yet, since almost everything in the local market is new to us, we are also new to local customers and Xiamen's airport receiving us."

For instance, e-ticketing, AirAsia's traditional way of lowering costs, is not widely available in China. That means the carrier must rely on agents to sell tickets, which will no doubt increase costs.

There is one certainty amid all the uncertainties: AirAsia's maiden flight to China will make history in the country's aviation industry.

"We are coming to promote the concept of low-cost flights in China. We follow a different way of doing business, and we expect local recognition. Of course, it is crystal clear we have much more work to do to soar in the local market," Lew said.

General Administration of Civil Aviation of China (CAAC) sources said early last month, the agency, China's aviation industry watchdog, had also granted AirAsia the right to fly to two other Chinese destinations - Chengdu, in Southwest China's Sichuan Province, and Kunming, in Southwest China's Yunnan Province.

Lew would not say when his firm will begin flying to those destinations.

He said it was too early to talk about flying to the next stop.

"For the time being, we are still focused on Xiamen and our maiden flight," Lew said.

Welcome

Su Yanhua, a marketing manager with the newly established business development department of Xiamen Airport Group Co Ltd, told China Business Weekly the airport is optimistic about AirAsia's arrival in the city.

"Our overall attitude towards market openness to low-cost airlines is positive. The no-frillss carrier is a new phenomenon in China, and we welcome the landing of such airlines at our facilities," she said.

Su said the airport will remain neutral, and will welcome all airlines, regardless if they no-frills or traditional, foreign or local.

It would be a good idea to diversify the airport's business and management, by attracting carriers of different business styles, she added.

That would allow the airport to cater to demands of customers from different market tiers, she continued.

"It would also be a chance for us to get in line with international standards, in terms of airport operations," Su stressed.

As more airlines arrive at the airport, there will be greater business chances.

More importantly, the local economy will benefit, because budget carriers will help revive the local tourism industry and other commercial segments, such as accommodations, tourism spots and shopping malls, Su said.

"Besides benefits to the airport, we also look at the issue from a broader perspective," Su said.

Gaoqi airport, located in southeastern China's city of Xiamen, has spared no effort in preparing for the landing of the no-frills carrier, as the requirement for receiving low-cost carriers is quite high in terms of service delivery efficiency.

As to the costs of accepting budget carriers, Su emphasized it might not necessarily be high, since AirAsia does not need all the services requested by traditional airlines.

"Of course, no service provided, no money paid," Su added.

Su refused to release whether Xiamen's airport has committed to discounting landing fees and other service charges for AirAsia, only saying all practices follow CAAC's guideline.

The aviation watchdog is busy co-operating with the Ministry of Finance and the State Development and Reform Commission to draft and implement a regulation governing the pricing mechanism of Chinese airports, an official with CAAC's Financial Department said on condition of anonymity.

Presently, airports in China usually follow pricing guidelines set by CAAC. But they occasionally offer some discounts.

"Sometimes flexible prices will be offered. The situation usually applies to newcomers and foreign carriers," the official added.

Given the fact CAAC has approved the landing of the no-frills carrier in Xiamen, and maybe other places in China, the air authority is at least not against no-frills carriers' operating in China.

Another official with CAAC's International Department, who would only give her surname, Bai, said CAAC is keeping an open attitude about the budget carrier's entry to China.

There are no restrictions in this regard, although price and cost pressures imposed by no-frills carriers on traditional counterparts are mounting, Bai said.

Of course, market liberalization will be based on bilateral aviation pacts between China and respective countries.

Bai said besides AirAsia, Valueair, from Singapore, is also applying to fly to China's Chengdu.

The decision may be made very soon, Bai said.

Why so cheap?

Ticket prices of AirAsia's maiden flight from Bangkok to Xiamen have not been determined.

There are rumours the return ticket will cost up 1,500 yuan (US$181).

The current one-way ticket offered by traditional carriers linking Xiamen and Bangkok is about 2,600 yuan (US$314).

Overseas no-frills carriers hold an upper leg on local counterparts, in terms of jet fuel costs and the cost of renting or buying aircraft, Huang Shaohui, a press officer with the Xiamen Airlines, said.

"In overseas markets, they can get access to cheaper jet fuel and they enjoy lower prices when renting, buying or repairing aircraft. It is hard for local airlines to compete with overseas low-cost carriers in these regards," Huang said.

Besides, service fees imposed by the airport on local airlines are higher than those charged to the no-frills carrier.

"If we are granted the same privileges, in terms of charges turned in to the airport, we can also trim our costs by a large margin and offer consumers tickets at lower prices," Wu Rongnan, general manager of Xiamen Airlines, was once quoted as saying by Xiamen local media.

Such factors suggest it will take time for China's budget airlines to really take off.

Shi Boli, deputy director of CAAC's Transportation Department, said the current aviation market environment does not favour the birth and/or development of local budget carriers.

Two market conditions are needed before a low-cost airline can take off: A fully market-oriented air-ticket-pricing mechanism, and less government control, he said.

"Local carriers do not have access to cheap jet fuel, aviation gears or maintenance services. And they are also subject to stringent State controls, in terms of ticket pricing and launching of new services," said Tao Guirong, an aviation analyst with Liverpool University.

"All these make their efforts to kick off low-cost services doomed to failure, at least in the short run."

Okay Airways, co-founded by three companies and three individuals, is to launch its maiden flight, earlier this month, as the first privately funded Chinese no-frillss carrier.

However, Liu Jieyin, president of Okay Airways, once openly said since the domestic aviation market environment is totally different from those of other countries, the future of his low-cost company could be in question.

"Nobody knows for sure what lies ahead. In fact, we do not know how far and how high we can fly (as a budget player)," Liu stressed.

He did not rule out the possibility of failure.

Besides Okay Airways, Shanghai-based Spring International Airlines, Chengdu-based Eagle Airlines and Huaxia Airlines in Gansu Province have also received CAAC approval to fly as low-cost airlines.

Open attitude

Despite creating challenges for their fledgling local counterparts, overseas budget carriers can help educate the market and stimulate a particular segment's development, Shi said.

Han Shengchou, secretary-general of the International Flight Affairs Office under Hainan's provincial government, supports no-frills airlines entry to China.

The entry of foreign rivals will boost the development of local carriers, the area's commerce and tourism, Han told China Business Weekly.

Han, an official with Hainan's aviation market opening panel, said compared with international counterparts, especially low-cost carriers, domestic airlines are underdogs, especially in terms of cost control and operation efficiency.

"Our carriers are in an inferior position because of higher costs of management, jet fuel and other items. This makes us vulnerable in the face of harsh international competition," Han said.

Since market opening is unavoidable, the only way to cope is to strengthen ourselves, Han said.

Hainan is a test region for China's aviation market liberalization. A dozen foreign airlines now fly into the province.

Of course, accepting a no-frills carrier to land was not an easy decision.

Haikou Meilan Airport, in South China's Hainan Province, is widely expected to receive a foreign no-frills carrier, and reportedly is weighing the pros and cons of such a decision.

"We did negotiate with an overseas low-cost airline in this regard. But till now, there has been no substantial results from the talks," said an official with the airport, on condition of anonymity.

The potential partnership is an opportunity for Meilan to expand its business, he said.

"Our principle is we welcome the landing of all kinds of carriers, including no-frills ones, at our airport. In fact, as passenger inflows pick up, there will be business chances arising for the airport," the official said.

Of course, if discounts requested by the potential partner on landing fees and other service charges are too much, that will be another issue, the official added.

"Budget carriers can increase passenger flows, and maybe bring us more business opportunities and help the local community. But is that enough to balance the discount we give? The consumption power of no-frills air passengers is also in question," he said.

The official said the gap, regarding service fees, between the two sides is quite large, and, for the time being, it is hard to predict the outcome of the negotiations.

The co-operation, if it comes to fruition, will give AirAsia the opportunity to fly to Hainan.

AirAsia reportedly hopes to also fly to destinations in Hainan Province, which is the pioneer of China's aviation sector opening.

(China Daily 03/07/2005 page1)