China Weighs Deregulating Aviation Market; Change Would Give Startup Carriers Access to Prime International Routes

September 4, 2013, 2:04 p.m. ET

China Weighs Deregulating Aviation Market

Change Would Give Startup Carriers Access to Prime International Routes

DOUG CAMERON

CHICAGO—China is taking steps to deregulate its domestic and international aviation market, and may amend its closely watched air-transport treaty with the U.S., according to a senior Chinese airline executive. Flag carrier Air China Ltd. 601111.SH -0.98% could lose its effective monopoly on some prime international routes within a year while regulators are opening the door to new carriers in the country’s interior for the first time after half-a-decade of breakneck growth, according to Wei Hou, vice president of Hainan Airlines Co.,600221.SH -1.49% the country’s fourth-largest by traffic.Hainan’s international expansion has been restricted to flights to smaller destinations such as Brussels, Berlin and Seattle by a Chinese government policy that allows only one Chinese carrier on each route.

“There’s been serious discussions to lift the ban” between the country’s airlines and the Civil Aviation Administration of China, Mr. Wei said in an interview after Hainan this week launched flights from its Beijing hub to Chicago.

While Hainan’s larger rivals—Air China, China Southern Airlines Co.600029.SH -1.42% and China Eastern Airlines 600115.SH -0.73% Corp.—don’t operate the route, Chicago is viewed by the airline as a precursor to relaxation of the rules, which Mr. Wei said could come within a year.

Hainan is also taking advantage of Chinese government steps to encourage new up carriers after a decade of consolidation, and is investing in a domestic up in partnership with the city of Urumqi, in the country’s northwest.

Mr. Wei said the potential loosening of restrictions on international flying is being driven by Chinese cities in the country’s interior eager to capitalize on their growth, while overseas carriers are also targeting the regions, in part because of intensifying congestion at big airports in Beijing and Shanghai.

British Airways is due this month to start flights from London to Chengdu—which has a metro population of more than 30 million—following in the footsteps of alliance partner Finnair.

International flights from such “secondary” cities are being aided by the arrival of new, fuel-efficient aircraft such as the Boeing Co. BA +1.30% 787 Dreamliner.

Hainan received its second 787 last month, with two more expected this year and another six in 2014. It plans to use the planes on the Chicago service from early November, said Mr. Wei, having launched the flights this week with an Airbus A340-600.

While China Southern also has 787s, Hainan is expected to be the first Chinese carrier to use them on trans-Pacific routes, said Mr. Wei. He said the airline is awaiting so-called ETOPS certification from the Civil Aviation Administration of China, which permits the twin-engine 787 to fly long overwater routes.

The CAAC first required 787 operators to use the aircraft on domestic routes, and took a year before allowing China Southern to fly its Airbus A380s beyond China. However, Mr. Wei expects the Dreamliners—like the Airbus A330s and A340s before it—to be restricted to domestic routes for only about three months.

The U.S. and China have been in protracted discussions about amending their existing aviation agreement, which governs which airlines can fly to which cities, and how often.

Any new deal is seen by analysts as stopping short of an “open skies” treaty, which the U.S. has with more than 100 countries and removing all such restrictions. However, it would likely free passenger and cargo airlines from both countries to open more routes.