, HONG KONG, Jul 3 – Shares in China Eastern Airlines closed almost three percent higher in Hong Kong Thursday, after it said it would transform one of its units into a budget airline, making it the first state-run firm on the mainland to do so.
The firm ended up 2.93 percent at HK$2.46 in response to the news. The benchmark Hang Seng Index finished flat.
“They are heading in the right direction because they are trying different ways to attract customers,” Tanrich Securities Vice President Jackson Wong told AFP.
China’s second biggest airline by passenger volume said its Beijing-based domestic carrier China United Airlines would become a low-cost flyer as it looks to tap a growing desire for travel in the country.
The new carrier could be successful as it will have a wide range of domestic destinations to fly to, unlike Singapore Airlines’ struggling Tiger Airways, which is restricted to flying more expensive international routes, Wong added.
“It is a good change, but whether the management can carry out the change successfully, that is up in the air,” he said, citing the airline’s struggle in maintaining profits despite a large customer base in China.
China Eastern said its net profit for 2013 fell 25 percent to 2.38 billion yuan ($383 million), blaming intensifying competition.
“We believe the low-cost carrier market has enormous growth potential in China given its low penetration rate,” company secretary James Wang said Wednesday.
Ticket prices may be reduced by up to 40 percent, the company said according to the official Xinhua news agency, as it seeks to compete with several private budget carriers already operating there, including Spring Airlines and Juneyao Airlines.
China United Airlines, which operates 26 Boeing 737 aircraft flying to around 70 locations in China, plans to triple the size of its fleet to 80 aircraft by 2019.
Chinese airlines carried 350 million passengers last year, up nearly 11 percent from 2012, according to official figures.
The country’s civil aviation authorities said it will have more than 230 airports by 2015, up from 193 last year.