China Scraps Floor Price for Air Fares to Boost Budget Travel

China scrapped a rule that required airlines to keep a minimum domestic ticket price as the world’s most-populous nation seeks to spur air travel demand.

Eliminating the floor level for fares will help carriers attract more travelers by offering cheaper prices, the People’s Daily reported today, citing Xia Xinghua, the civil aviation regulator’s deputy director. The regulator may also consider adding a budget air terminal in the planned second airport in Beijing, Xia was quoted by the Beijing Youth Daily today.

“The regulator has a mass-market strategy to make sure that Chinese people can afford air travel,” Li Yanhua, a professor at Tianjin-based Civil Aviation University of China, said by phone today. “This is a trend around the world and there’s no exception for China.”

Airlines in China had to set fares not higher than 1.25 times and not lower than 60 percent of a base price, according to a rule published in 2004. The nation is easing aviation regulations and boosting infrastructure spending as Chinese carriers are forecast to require more than 5,000 planes in the next 20 years.

Two calls to the regulator’s office in Beijing went unanswered today.

Spring Airlines Co., based in Shanghai, is the only low-cost operator in China, and budget carriers account for 6 percent of the country’s total seats. By comparison, discount airlines, led by Malaysia’s AirAsia Bhd (AIRA), took 27 percent of seat capacity in Singapore last year, according to data from CAPA Centre for Aviation.

Juneyao Airlines Co., based in Shanghai, has sought approval from the regulator to set up a low-cost carrier based in south China’s Guangdong province, China Business News reported Nov.3, citing an interview with chairman Wang Junjin.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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