Private Airline Tiptoes Around State Goliaths

Reuters interviews Wang Zhenghua, the owner of China’s biggest private budget carriers, and reports on his philosophy for surviving in a state-dominated sector:
“You have to take it a bit slowly, rather than being too aggressive and making enemies everywhere,” says Wang, founder and chairman of Shanghai-based Spring Airlines, of the approach that has enabled him to successfully carve out a piece of the $56 billion-a-year Chinese airline industry.
For Wang, one of the biggest obstacles to expanding has been resistance to his opening new routes from state-owned airlines.
Having learned from difficult experiences in the past – he was famously threatened with a 150,000 yuan fine in 2006 by a regulator in Shandong province for supposedly disrupting market order with promotional tickets selling for 1 yuan each – Wang now takes a more conciliatory approach.
“State-owned airlines have a longer history and are bigger in terms of capital size compared with privately owned airlines,” said Wang Jian, board secretary of Shanghai-based China Eastern. “In terms of routes, we don’t have direct competition (with Spring Airlines).”
While Chinese airlines are mostly state-owned, the aviation industry is one of China’s fastest growing sectors. According to Bloomberg, multiple airlines are gaining in the stock market:
PetroChina rebounded 1.1 percent to 8.96 yuan after falling to a record low yesterday on concern cuts in energy prices will hurt earnings. China, the world’s second-biggest oil consumer, will reduce gasoline and diesel prices for the third time since May after global crude costs tumbled.
“Investors are taking this opportunity to buy up the stock, hence the rebound,” said Li Xin, an analyst at Masterlink in Shanghai. The stock trades at 11.5 times estimated price earnings, compared with the five-year average of 17.1 and the record low of 10.89, according to data compiled by Bloomberg.
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