As Shanghai Airlines subsidiary China United Airlines relaunches services following low-cost principles, Okay Airways says it has been forced to ditch the no-frills model.

China United reinstated services from its Beijing base late in October. The carrier will initially operate Boeing 737s on domestic flights to Chengdu, Dalian, Harbin and Wuxi. Plans call for three aircraft to be operated by the end of this year and another three next year.

The airline is based at Beijing’s secondary Nanyuan airport, which is a military facility. It was owned by the Chinese air force until last year, when Shanghai Airlines acquired a controlling interest and China Aviation Supplies Import and Export took a minority stake. Until its recent relaunch it had not operated services since 2003.

Shanghai Airlines chairman Zhou Chi has said China United was acquired to give the Shanghai-based airline group a Beijing base and to allow it to have exposure to the growing low-cost sector. However other new Chinese airlines that have adopted the low-cost model are finding it difficult to adhere to in a country where there are so many restrictions on operations.

Okay Airways for one has found it too difficult and says it is being forced to drop its low-cost, no-frills business model. “Given the current conditions, it’s impossible for Okay to really succeed as a low-cost, budget airline,” said president Liu Jieyin. Okay has found it cannot stick strictly to original plans as around 80% of the costs in China are out of an airline’s control. “There are too many costs that we cannot control, which makes it difficult for us to reduce costs in a large scale. This is the major reason that we ditched the low-cost business model.”

Tianjin-based Okay launched domestic passenger services in March, when it became China’s first new airline in many years and the first without government ownership, using Boeing Capital-owned Boeing 737-900s leased from Korean Air.

Like a handful of other new privately owned carriers that have since started operating within China, Okay said it would adopt the low-cost model, with, for example, short aircraft turnaround times, no frills, lower ticket prices than incumbent carriers and the use of a single aircraft type. It says now, however, that it needs to adopt a “more conventional business model” to survive.

Liu says that as well as being unable to control costs, there are many regulatory barriers including restrictions on ticket pricing, rules on which airports can be served and tightly controlled jet fuel pricing.

“After Okay was established, 40-50 airports have called us to open flights, but we could not fly to these places because airline companies cannot decide on the flight routes,” he says. “We need a more loose policy and market environment. It will take at least 3-5 years for the low-budget aviation market to mature in China.”

NICHOLAS IONIDES/SINGAPORE

Source: Airline Business