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Established in 2005, Juneyao Airlines is a privately-owned airline based in the Changning District in Shanghai, China. The carrier, which is a subsidiary of the Juneyao Group, operates domestic service from its two hubs at Shanghai Pudong and Shanghai Hongqiao airports.
Location of Juneyao Airlines main hub (Shanghai Hongqiao Airport)
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Privately-owned Shanghai carrier Juneyao Airlines is looking to capture growth across multiple segments. Complementing its full-service brand with an increasing array of partnerships is a pending new low-cost carrier, Jiu Yuan Airlines, which will offer “jiu yuan fares” (CNY9/USD1.48) in China's domestic market.
Jiu Yuan will be based in Guangzhou, well away from Juneyao's base, and is a by-product of recent change in China that supports new private carriers, the LCC model and deregulation of minimum fare pricing. It is early days for this more relaxed – but still restricted – environment, so Juneyao’s Jiu Yuan strategy may change. For now the intent is to keep the two carriers separate, which should be easy as Juneyao's only service from Guangzhou is to Shanghai. A shakeup could occur if, or when, there is the emergence of an LCC subsidiary from China’s largest domestic carrier: China Southern, whose fortress hub is at Guangzhou.
In its first year of pursuing partnerships, Juneyao has secured 15 interline agreements and two domestic codeshare partners. It now awaits its first international codeshare.
When CAAC vice-administrator Xia Xinghua proclaimed “We urgently need to develop LCCs” at a public forum in Beijing on 5-Nov-2013, it became clear that fundamental changes are on the way for low-cost carriers and the overall aviation market in China.
Within the overriding goal of ensuring stability for the Big Three Chinese flag carriers, it will not be a simple process. One thing is very clear however: the CAAC is serious about introducing significant change in the sector. This includes approving new carriers, reforming airport charges, introducing LCC terminals, changing aircraft acquisition processes and taxes, not requiring approval for new routes, and the ever-topical matter of airspace reform (albeit largely outside its control).
The forthright move is part of a wider commercial agenda of China's new leadership, which meets again on 9-Nov-2013, seeking to find the right formulas to allow greater play of market forces, while maintaining appropriate regulatory backstops. Purists will see this as being half pregnant. For example, in Oct-2013 the CAAC abolished minimum pricing requirements in the domestic market, an important step for LCCs; but price caps remain as a consumer protection measure – despite total price freedom being integral to LCC structures.
But China has repeatedly shown the ingenuity to evolve tailored solutions that fit the very different environment in this enormously complex country. There will be a "China solution" and it will allow more LCC operations – but there will be differences….
Juneyao Airlines and Spring Airlines will make advances with their forthcoming entry into the highly lucrative cross-Strait market between mainland China and Taiwan, where yields approach an astronomical USD30 cents/km for the one to two hour flights. While they are due to initially serve Kaohsiung, a Taiwanese port city, they should gain entry on the key Shanghai-Taipei route later in 2013. The two privately-owned airlines are the most prominent of the carriers that launched mid-last decade during a period of relative liberalisation. Being new carriers, they have lean bases unencumbered with legacy baggage. Spring also has the distinction of being China's largest LCC by some degree, and will be the first LCC on the cross-Strait market.
The two will be expected to offer lower fares than competitors, but not by much, at least on the Shanghai-Taipei route. Demand far exceeds current supply, tightly controlled by the respective governments since scheduled cross-Strait services recommenced in 2008 as relations between the two governments warmed. There is little incentive to offer cut-throat fares as might be expected in other markets. The routes should do well for Juneyao and Spring from a marketing and profitability perspective, but their limited frequency against a backdrop of high demand means competitors should have little to worry about for the medium term. In the long term, however, these short point-to-point routes seem perfect for LCCs, if airlines are willing to make a fundamental change to their business.
Shanghai Pudong expects its fourth runway to be completed at the end of 2013 but new slots are unlikely to be available until some point in 2014. It is not clear – not even to Chinese carriers – how many new slots will be available, but an early estimate of 242 additional movements (121 roundtrips) between 07.00 to 22.00 each day could be possible. A more deciding factor will be how much additional airspace is opened by China's military for the runway.
The majority of the new slots at Shanghai Pudong Airport – and even upwards of 75% – will likely be allocated to China's domestic carriers. China Eastern, based at Shanghai, will have to battle Air China, which is based at Beijing but looking to establish a hub at Shanghai. As the national flag carrier, Air China and its lobbying network may do well. Private carriers Juneyao and Spring Airlines will also look to expand their home bases.
A number of carriers, including LCCs, will seek to move midnight services to daylight hours while any number of foreign carriers will seek to expand their presence or enter Shanghai for the first time. Strategic allocation will help Pudong, but the decision will be heavy, almost entirely, political.
China's Juneyao Airlines is continuing the progressive international expansion it commenced in 2012, further diluting its mainland domestic market service (excluding "regional" services to Hong Kong and Macau). Thailand is so far a focus, with the country's leisure nature appealing to the privately-owned, and all-A320 family, operator's target market, of consumers in the high-income Shanghai area seeking a boutique service for leisure needs. Juneyao's 158-seat A320s have 150 economy and eight first class seats. The carrier also sees corporate traffic, but downplays this so as to avoid conflict with the state-owned carriers which receive preference on international routes.
Juneyao had considered services to Japan's resort island of Okinawa, but this has fallen out of favour due to political tensions between China and Japan. Chinese carriers are turning their attention to Southeast Asia as they seek new markets, and the region offers year-round pleasant weather. Juneyao is also expanding in South Korea and is considering a presence in Singapore. Juneyao hopes these services will raise its international profile and attract potential partners to work on international routes or feed passengers onto Juneyao's domestic network based around Shanghai. Juneyao is the 13th largest domestic carrier in China and has a fleet of 29 A320s, of comparable size to Virgin America, which has been able to attract international partners.
Spring Airlines is China’s only notable (international) low-cost carrier and a successful one at that, having recently taken delivery of its 35th aircraft. One of China’s few private carriers, it is still a third the size of the AirAsia or Jetstar Groups, but that is largely a result of Beijing’s tight control of fleet growth. No doubt without this restriction Spring would grow even faster.
In 2013, when Spring will carry more than 10 million passengers for the first time, the carrier will look to expand its presence in Hangzhou, 90 minutes west of Shanghai and boasting incomes higher than those in China’s financial capital. Spring’s expansion announcement was quickly followed by competitors Air China and low-cost Juneyao. While the domestic market remains the staple for Chinese carriers including Spring, Spring has expanded regional routes to Hong Kong, international services and is looking to establish a subsidiary in Japan to accelerate growth.
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