Chinese low cost carrier crosses the baggage divide; Air Canada prices EETC

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By TESTCustomwebLP TESTCustomwebLP March 12, 2015 21:38

Chinese low cost carrier crosses the baggage divide; Air Canada prices EETC

On the issue of Chinese airline growth there have been a number of milestones, there is however one dreary divide that until this month had not been crossed – charging for checked baggage. China West Air, an HNA Group owned LCC, will begin charging for checked baggage from late March. In the process the airline will introduce a new lower priced “bare fare” ticket. Passengers will have to pay 50 yuan for 10kg checked baggage and 90 yuan for 20kg checked baggage. At the same time the airline will cut carry-on baggage limits from the current 7kg to 5kg. Those who buy a high-fare ticket will be allowed to take carry-on baggage up to 10kg.

Did I mention dreary? Of course the reason why we lead with this story today is because this is the start of something very big indeed. Ancillary revenue opportunities for Chinese low cost airlines is off the scale, the trip lengths are longer and therefore more onboard sales opportunities exist and when we talk about baggage charges we have a recipe for huge earnings potential during Chinese holidays when mass travel (with baggage) is normal. The LCCs have to be weary though, by lowering fares for passengers without hold luggage they risk lower yield per flight, while ticket prices for those with hold luggage are perilously close to the prices of the big three airlines. The matter of unbundling fares in the Chinese domestic market is not as clear cut as in say the USA as yet, why? Well much like India, Pakistan and elsewhere the market is skewed by financial support from the government for the flag carrier (or carriers in the case of China). It will be interesting to see how China West performs during 2015 post March, for the likes of Spring airlines their 15kg of free baggage allowance will become a significant sales advantage over the likes of China West Air in the short term, but investors will be hoping China West Air can make a very good go of this as Spring could earn a fortune by charging for baggage. Spring shares seem to still hold value even after the huge rises since the IPO – Maybe the IPO went off too low? One thing is for sure, with the opportunities that exist and the return of the China/Japan market to normal health Spring looks to be one of the best airline share investments in the world right now. Bring on the next Chinese LCC IPO!

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By TESTCustomwebLP TESTCustomwebLP March 12, 2015 21:38