Big airlines dominate first airport slot auction

Bidders at the auction for nine airport slots at Guangzhou Baiyun International Airport on Dec 30, 2015. [TANG MINGMING / FOR CHINA DAILY]

Seven carriers bagged the rights to nine airport slots at the Guangzhou Baiyun International Airport for three years on Wednesday in China's first airport slot auction.

According to aviation industry sources, the airport slot auction is a precursor to further market opening in China. It is also part of two slot-allocation pilot schemes unveiled by the Civil Aviation Administration of China earlier this month.

Urumqi Air, a subsidiary of Hainan Airlines, China's fourth-largest carrier, offered the highest price of 90.99 million yuan ($14.02 million) of the 550 million yuan auction proceeds.

The other successful bidders included Shenzhen Airlines, China Southern Airlines, China Eastern Airlines and Xiamen Airlines.

Not surprisingly, the successful bidders are the four largest airlines and their subsidiaries despite the presence of some privately owned carriers.

"The auction was too expensive for us," said a senior executive from a private carrier, who refused to be identified.

The bid price, however, represents the carriers' judgment on the slot value, experts said.

"Most of the bidders see it as a future investment. They believe that the slot value will increase in the near foreseeable future," said Li Xiaojin, a professor at the Civil Aviation University of China in Tianjin.

Li, however, does not anticipate carriers adding the bid cost to ticket prices. Ticket prices are mainly reliant on demand.

This year's low fuel costs have also given enough profits for carriers to spend on slots, Li said.

The slot auction is a meaningful step, as most of the airports in big cities are very busy, he said.

The CAAC announced a pilot plan to revamp the slot allocation process at Guangzhou Baiyun International Airport and Shanghai Pudong International Airport on Dec 4.

"Both airports have new runways, which means they will have more slot resources," CAAC said. The two airports will add 196 new weekly slots after the new runways commence operation. About 50 percent of the slots will be used for market allocation, CAAC said.

Slots in the Guangzhou Baiyun International Airport will be allotted through the auction process, while Shanghai Pudong International Airport intends to use a "lucky draw plus charge" model. The total number of slots available in the two airports for domestic carriers would be 98, while the balance would be for international service.

The auction or the lucky draw process will not be made available to foreign carriers, sources said.

"International aviation involves several global laws and it could lead to international complaints, if there are problems," CAAC said in the statement.

The domestic bidders for the auction and lottery also need to furnish a safety record for the past two years and the winners are allowed to exchange, transfer, lease and sell the flight slots during the three-year period.