China's domestic travel boom brings rush of start-up airlines, jet orders

By Brenda Goh ZHUHAI, China (Reuters) - China's appetite for planes and pilots is building up, whetted by a slew of new airlines launched in the last three years as local governments, private firms and larger carriers fight for a share of the country's fast-growing domestic travel market. More than 10 Chinese carriers have begun flying since Beijing's aviation regulator relaxed a six-year suspension on new airlines licences in 2013. They now operate or have ordered at least 100 jets made by Europe's Airbus Group , U.S. giant Boeing Co and Embraer SA of Brazil. Such breakneck expansion might give cause for alarm in mature aviation markets. But China's new breed of carrier is focusing on second and third-tier Chinese cities that have gleaming, newly built airports that helped stoke an 8.2 percent rise in domestic China passenger traffic in 2015, according to the International Air Transport Association. While state carriers like Air China <601111.SS> <0753.HK>, China Eastern Airlines <600115.SS> <0670.HK> and China Southern Airlines <600029.SS> <1055.HK> dominate for now, the newcomers have deep-pocketed backers like conglomerate HNA Group, plus support from local authorities as well as Air China itself. "By 2020 we want to have 40-50 planes," said Lan Yu, brand manager at Guangxi Beibu Gulf Airlines, a newcomer set up by the government of southwestern Guangxi province and Tianjin Airlines in 2015. Tianjin Airlines is a unit of HNA, an aviation and shipping giant with more than $100 billion in assets that itself is expanding fast into the hotel trade overseas. Guangxi Beibu will fly 13 Embraer E190 regional jets and three Airbus A320s to 28 Chinese cities by the end of 2016, Lan said. With average seat occupancy of more than 90 percent since flights began, Lan said the carrier was already profitable. Aircraft makers like Boeing welcome the newcomers, provided they are financially sound. "We obviously look a little more closely at new airlines to make sure we account for the risk, but we're not seeing any issues with the ones that have started up in China," said Darren Hulst, Boeing Commercial Airplane's managing director of marketing for Northeast Asia. "We assess the funding that they have, the access to financing that they have, and then from a going-concern perspective, some of these carriers that have started, how are they performing, are they generating profits?" PRICE WAR? As well as the newcomers already up and running, at least another 10 airlines have applied for air operator certificates, according to company statements and local media reports. At the end of last year, China had 48 passenger airlines, up from 36 at the end of 2012, according to data from the Civil Aviation Administration of China (CAAC). Along with racking up aircraft orders, the new airlines are also advertising pay packages up to 50 percent higher than their established rivals as they find it tougher to lure staff, said general manager of Hong Kong-based crew recruitment firm Smile Aviation Sherrie Luo. Hongtu Airlines, based in the southwestern city of Kunming, is offering Airbus A320 pilots monthly salaries of up to $25,500, according to advertisements on Smile Aviation's website. Pilots heading to China Eastern can expect up to $18,500 a month. Some industry experts caution that China's blossoming aviation market runs the risk of a price war, as the CAAC relaxes restrictions to allow airlines to set ticket prices for more routes. "Some of the airlines may lower their pricing drastically to get the competition out of the route so they can maintain market share," said Bjarki Arnason, head of Shanghai-based consultancy AviAsia. "The competition can be pretty fierce in this environment." Still, Arnason said, Beijing will be vigilant to protect its growing industry. "I doubt that the government will actually allow that (a price war) to happen." ($1 = 6.7367 Chinese yuan renminbi) (Reporting by Brenda Goh; Additional reporting by SHANGHAI Newsroom; Editing by Kenneth Maxwell)