Restrictions holding back China's aviation sector

Controls over air fares, fuel supply and aircraft purchases are among the restrictions keeping China's aviation sector from growing at its full potential, an industry consultancy said.
With the economy growing 8.0-10 percent annually, China's aviation sector has what it takes to expand by up to 10 percentage points above current growth levels if these restrictions were lifted, the Centre for Asia Pacific Aviation said in a statement issued late Sunday.
It did not give the current growth levels for China's aviation sector but said double-digit air traffic growth is possible.
"Double-digit air traffic growth is a certainty in an economy growing by 8-10 percent annually," said Peter Harbison, the consultancy's executive chairman.
"But controls over fares, routes, aircraft purchases, airport charges, fuel supply and distribution services are keeping China's aviation market from achieving its full potential."
These restrictions are also likely to stifle the growth of home-grown low cost carriers (LCCs) and make operating conditions tough for privately-owned airlines, said Harbison.
"An unfortunate by-product of these controls is that they may delay the advent of genuine domestic LCCs in China's market until the end of the decade," he said. "China's nascent independent private airline sector will find the going tough in this environment and will largely remain confined to serving niche roles."
On the outlook, Harbison said national airline Air China can expect a strong 2007 due to its working partnership with Hong Kong's Cathay Pacific. "Well-managed and politically favoured Air China can look forward to another good year in 2007, especially as greater network cooperation with Cathay Pacific comes online," he said.
Harbison expects foreign investment in the country's airport sector to gain momentum this year as the Civil Aviation Administration of China (CAAC) is keen to reduce its burden of financing infrastructure upgrade.
"There is a growing hunger by the government for foreign investment ... to reduce the CAAC's burden of funding airport infrastructure, a role it clearly does not want to retain in the long term," Harbison said.