The central government says it will consider allowing budget air carriers to be set up in China for the first time in order to bring cheaper air fares to the country.

Two private companies and a large travel agency have already applied to set up budget carriers, Yang Yuanyuan, director of the Civil Aviation Administration of China, told a press conference in Beijing Thursday.

"They've already filed applications with our administration, but we haven't approved any so far," said Yang, without naming the companies.

Yang said the central government hasn't set a definition of what a budget carrier is or what they will be allowed to do. Internationally, the term refers to airlines that offer short flights, usually no longer than two to three hours, at budget fares made possible by cutting out luxuries such as hot food, drinks, in-flight entertainment as well as first and business-class seating.

Before any company is allowed to set up a budget airline, they will have to meet a series of financial requirements, covering issues such as registered capital and projected routes, he said.

But, he noted, budget carriers won't be allowed to carry passengers or freight until they pass a CAAC inspection to make sure they meet security requirements.

Several investors from Hong Kong and Macao have also approached the CAAC about setting up budget airlines offering services to the mainland.

Industry officials question the feasibility of setting up budget carriers in China, given that air fares are set by the central government.

"How can a budget carrier be set up in a market where pricing of air fares hasn't been liberalized," asked Philip Wickham, an industry analyst at ING's Hong Kong office.

If budget carriers are allowed to be set up, it will be unfair to existing carriers which have little room to set their own prices, Wickham said.

The government will also introduce rules allowing airlines to offer discounts during slow periods and charge premiums during peak seasons. Many airlines already offer discounts from government-set prices.

The government is also going to ease its air ticket pricing system by allowing carriers to decide on prices around a basis, but they're still within a certain range, which will be no lower than those available on the market.

Yang also said the government is looking at other reforms that would allow smaller airlines to offer more routes and change the various fees carriers pay to airports around the country.

He said airports nationwide will be allowed to raise the fees they charge for each landing and take-off and reduce a civil aviation administration fee, which the government charges carriers to raise fund for building infrastructure, such as new terminals.

According to Yang, the administration also plans to let smaller carriers like Shanghai Airlines Co Ltd and Xiamen Airlines Co Ltd offer more international flights, which are currently dominated by the country's three largest airlines.

(Shanghai Daily January 16, 2004)