Qingdao Airlines has completed preparation work and has applied to the Civil Aviation Administration of China (CAAC) for an operator’s license. The airline is expected to heighten market competition and aggravate the overcapacity problem in the domestic airline industry.
Qingdao Airlines has a registered capital of CNY1 billion ($161 million). Nanshan Group holds a 55% stake with an investment of CNY550 million, Qingdao Transport Development Group has a 25% ownership with a CNY250 million investment, and Air China subsidiary Shandong Airlines provides aircraft to equal an investment of CNY200 million to hold the remaining 20%.
The Qingdao-based carrier is expected to initially operate three Airbus A320s. It plans to take delivery of 51 aircraft between 2014 and 2020 and expand its fleet to 100 aircraft by 2025.
Since the regulator has loosened its grip on approving new domestic airlines, many new entrants have sprung up, such as Hangzhou-based Loong Airlines, which started formal operations last December. Ruili Airlines has received its operator’s license while Fuzhou Airlines and Jiuyuan Airlines have both been approved to launch. Since 2013, six new domestic carriers have been approved to begin operations.
Some provincial or municipal governments are now taking an active part in starting local airlines in conjunction with domestic carriers to stimulate local GDP growth. Of China’s 34 provinces, 25 have launched or are preparing to launch local airlines.
Industry analysts say these new entrants face fierce competition from legacy carriers for airport slots owing to slots shortages in China, especially Beijing and Shanghai, as well as shortages of pilots and MRO staff. In addition, the overcapacity problem could be worsened with many more new aircraft deliveries, making it difficult for domestic airlines to raise decreasing airfares, further impacting their financial performances.