AirAsia plans state tie-up to bring low-cost model to China

AirAsia is planning to enter China, one of the last untapped markets for budget airlines, in a joint venture with the government of Henan province and Everbright, the state-owned conglomerate. Tony Fernandes, the co-founder and chief executive of AirAsia, signed a memorandum of understanding with his potential Chinese partners on Sunday. Under the proposal, which is likely to face opposition from China’s three dominant state-owned airlines, AirAsia and its Chinese partners would establish a budget airline, pilot training centre and aircraft maintenance facility in Zhengzhou, the capital of Henan. “Zhengzhou sits at the centre of a vast rail, highway and air transport network that forms the linchpin of China’s development plans for its central and western regions,” said Mr Fernandes, who has been trying to enter the Chinese market for years. China is forecast to overtake the US as the world’s biggest air travel market by 2024 but budget carriers have made little headway so far because of the dominance of the big three state players: Air China, China Eastern Airlines and China Southern Airlines. Low-cost carriers such as AirAsia and China’s Spring Airlines control less than 10% of the Chinese market, compared to 56% in Southeast Asia, 40% in Europe and 32% in the US, according to AirAsia. While China is an enticing prize, analysts warned that it is a risky market for AirAsia, which is already struggling to build new businesses in India, Japan and Vietnam, and faces problems in markets such as Indonesia because of its rapid expansion.<br/>