HONG KONG—China is warming to the idea of domestic budget flights and demand will be "tremendous" as airlines rethink their offerings to compete with high-speed rail and road travel, HNA Group Co. Chairman Chen Feng said.
Mr. Chen, the founder of China's fourth-biggest airline, said the development of budget-carrier services in the country is "an inevitable trend" even though local airlines have been slow to adopt the low-cost model. High-speed trains running throughout the country have stolen away customers on short-haul domestic routes, he said.
Chinese regulators have protected state airlines from the incursion of low-cost carriers, but that stance now appears to be changing as the government encourages airlines to boost efficiency and reduce costs in the face of competition from Asian budget airlines. The domestic market accounts for the bulk of revenue at Chinese airlines.
"The low-cost airline era in China has arrived," Mr. Chen told The Wall Street Journal in an interview on Friday. "We have anticipated this trend and made ourselves ready by investing in two budget airlines."
China's deputy civil aviation chief said last week the government is looking at measures such as easing restrictions on plane purchases and imports and reforming how airport slots are allocated, in the hope of providing a more favorable environment for budget carriers. Those comments followed the lifting in May of a six-year ban on the establishment of independent airlines.
Mr. Chen said HNA Group, which has businesses ranging from transportation to hotels, has converted its regional carrier Hong Kong Express Airways and Chongqing-based West Air Co. into low-cost airlines, in competition with the nation's sole budget operator Spring Airline Co.
"China has restrictions on aircraft purchases, so it's hard to predict our fleet growth plans. The faster [regulators] approve our purchase plans, the quicker we can expand," Mr. Chen said.
Budget flights into China are only available on a handful of routes. Malaysia's AirAsia Bhd., Singapore's Scoot and Australia's Jetstar Airways operate some of those flights.
Mr. Chen said he doesn't expect HNA's low-cost operations to directly compete with its full-service airline, Hainan Airlines Co., which will continue to focus on expanding key routes and to international destinations. Hainan Airlines, which counts billionaire financier George Soros as an investor, competes with the state-run Air ChinaLtd., China Southern Airlines Co. and China Eastern Airlines Corp.
In just over a decade, Mr. Chen expanded HNA Group from a relatively unknown entity outside the country to a major Chinese purchaser of international assets. Its investments include several commercial properties in New York City, as well as a stake in Spanish hotel chain NH Hoteles SA and in marine container leasing company GE SeaCo, formerly part-owned by General Electric Co.
Mr. Chen said the group will continue to look for overseas investment opportunities to take advantage of lower asset prices.
"Now is a good time to invest overseas. We're looking for investments which complement our existing businesses." He also noted that listing plans by its Hong Kong Airlines Co. unit remain on track, without giving a time frame. "Hong Kong Airlines will soon go public, in the foreseeable future…the more funds we raise the better."
Mr. Chen said HNA Group's shipping unit has settled most of its disputes with shipowners involving ship charter contracts, but he declined to elaborate.
The shipping operation had signed on to charter rates of more than $50,000 a day at the peak of the shipping boom, but the financial crisis in late 2008 and subsequent oversupply in shipping capacity drastically reduced the prevailing rates to $10,000, pushing the company to seek lower contract prices.
In one dispute, Chinese shipowner Shagang Shipping Co. accused HNA Group's shipping unit of defaulting on payments and attempted to seize the cruise ship involved. The ship was sailing in South Korea at the time, and the action left more than 1,500 passengers stranded.
Source: Wall Street Journal by Joanne Chiu
from China Travel & Tourism News http://www.chinatraveltourismnews.com/
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