Boeing order for discount airline shows low-cost travel increasing

Boeing Co's deal to sell 50 737 jets to a discount airline set up by China's Juneyao Airlines Co reflects an opening of the low-cost travel space as economic growth in the country makes air travel affordable to more people, analysts said.

The low-cost carrier environment is getting increasingly friendlier, said Patrick Xu, a transportation and infrastructure analyst at Barclays in Hong Kong, adding that they are starting to see more startups.

The purchase by Juneyao's 9 Air unit will consist of planes from the 737 Next Generation family and the upgraded Max, with a list value of at least $3.8 billion, based on retail prices.

"We are honored to welcome 9 Air as Boeing's newest customer," said Ihssane Mounir, the Boeing commercial airplanes' division's vice-president of sales and marketing for Northeast Asia. "The success of Boeing's market-leading 737 family of airplanes has proven to be a winning formula for low-cost carriers around the world," Mounir said in a release on Wednesday. "I am confident that this success will be replicated with 9 Air's low-cost business model."

Chicago-based Boeing said the sale would enhance the company's presence in an aircraft market that Airbus Group NV predicts will overtake the US as the world's largest by 2032. China's Civil Aviation Administration in February said it would loosen regulations and study tax breaks to encourage budget carriers, while China Eastern Airlines Corp in March ordered 70 Airbus A320s.

"With this commitment, 9 Air is poised to become another all-Boeing operator in China," Boeing said in its release. The new low-cost carrier plans to launch domestic services to meet growing air traffic demand in China.

Narrow-body models such as the 737 and A320 are the workhorses of the global airline fleet, and are typically used on shorter routes. The 737 is the world's most widely flown jetliner.

Economic growth is helping make air travel affordable to more Chinese, increasing demand for planes from carriers such as Air China Ltd. (1055) and China Southern Airlines Co.

Boeing will deliver about 140 aircraft to China this year, after handing over a record 143 planes in 2013, Marc Allen, the aircraft maker's China president, said in January. Boeing, which delivered a record 648 jets worldwide, secured orders for more than 230 new aircraft from the country last year, he said.

Carriers have taken advantage of low-cost financing to replace older models with newer, more efficient jets. Boeing's 1,355 net orders for 2013 were the second-highest annual sales tally, and an increase from 1,338 a year earlier.

China Southern, Asia's biggest airline by passenger numbers, took deliveries of 37 aircraft last year, according to Boeing's website. That was the second-most among carriers worldwide, lagging behind only American Airlines' 39, according to the website. In March, Juneyao Chairman Wang Junjin said the company was in talks with Boeing and Airbus about acquiring more than 20 more planes in a deal worth more than $1.8 billion. The aircraft would be used by a low-cost airline Juneyao planned to launch in the second half of the year, Wang was quoted by Reuters.

"We are in talks with both of the plane makers now, we are still evaluating the options," Wang said, adding he would not consider the A320neo, a more fuel-efficient variant of the A320 narrow body plane which Airbus has been marketing aggressively in China. Juneyao's budget carrier subsidiary will fly a domestic service from the southern Chinese city of Guangzhou initially and then expand into Southeast Asia in the future, Wang said.

"We are glad if any customers show interest in our airplanes," said Boeing spokesman Wang Yukui. An Airbus China spokesman declined to comment.

In late February, China's aviation authority pledged to promote the country's fledging budget airline industry with supportive policies, a move industry observers say could lead to a boom in low-cost air travel in the world's most populous country.

China's biggest low-cost carrier Spring Airlines, which has a fleet of 40 A320s, was also set to make an order for up to 30 more A320s, according to its chairman Wang Zhenghua.

Juneyao Airlines operates a fleet of 34 Airbus planes and flies on more than 70 domestic routes in China as well as to South Korea and some Southeast Asian destinations.