Intense competition could lead to local govt debt: experts

As four airlines monopolize first-tier cities, more carriers, backed by local governments, are leading another wave of setting up airlines across the nation.

On Monday, the Civil Aviation Administration of China (CAAC), the airline regulatory agency, announced Jiangxi Airlines is being developed.

With a registered capital of 2 billion yuan ($319 million), the company will be based in Nanchang, capital of East China's Jiangxi Province, and cater to both the domestic and international markets.

It's the latest airline to be established, following GX Airlines, which began service on February 13 from Nanning, South China's Guangxi Zhuang Autonomous Region, to Haikou, Hainan Province.

According to the website of the State-owned Assets Supervision and Administration Commission of the State Council, GX Airlines will use five ERJ190s, and 10 ERJ190s are expected by the end of this year.

More routes from Nanning to the Association of Southeast Asian Nations (ASEAN) countries are expected.

The entry of GX Airlines will introduce Guangxi to ASEAN countries, and benefit the "One Belt, One Road" initiative, the website said.

Figures from CAAC show that, by the end of November 2014, a total of 51 firms are now involved in the air transportation business in the Chinese mainland, and in 2014 alone, six airlines began operations.

"The investment in airlines shows the local governments' enthusiasm, as it could prop up the local economy, as the return on investment is 8 yuan for every 1 yuan invested," Zhu Wenchuan, a professor at the University of Science and Technology of China, told the Global Times on Thursday, adding there is growing demand for airlines especially in second- and third-tier cities.

Li Xiaojin, a professor at the Civil Aviation University of China, agrees, saying that investors could also enjoy tax and land benefits, and also benefit from local government subsidies.

The HNA Group has teamed up with local governments for more airlines, including Tianjin Airlines, West Air in Chongqing Municipality, Lucky Air in Southwest China's Yunnan Province, Urumqi Air in Northwest China's Xinjiang Uyghur Autonomous Region, and Fuzhou Airlines in East China's Fujian Province, as well as GX Airlines.

The group is awaiting an airline approval in Guangxi's Guilin.

However, experts warn that competition will get intense as more local governments enter the airline business.

Local carriers could face pressure from an insufficient number of passengers, and it will also place a burden on the finances of the local government, and worsen local government debt, Zhu said.

China Business Journal reported there are still three carriers in the pipeline, including two cargo carriers in Northwest China's Ningxia Hui Autonomous Region, and Hangzhou in East China's Zhejiang Province, as well as a carrier in Northeast China's Heilongjiang Province.

The report also said more applications are coming in to service provinces like Anhui and Guizhou.