China’s new Opinions on improving the entry and exit mechanisms for public air transport enterprises signal a shift in industry regulation, moving from a system that emphasized entry but paid less attention to exit to one that gives equal weight to entry, oversight and exit. The policy also states that the number of public air transport enterprises will not increase through 2030. Industry insiders believe this will accelerate the exit of inefficient players through mergers and acquisitions, bankruptcy restructuring and administrative measures.
However, an airline’s exit does not necessarily mean capacity will be removed from the market. After Hainan Airlines’ bankruptcy restructuring in 2021, its aircraft and routes remained in operation, leaving the competitive landscape largely unchanged. The new policy also allows companies whose operating licenses are canceled to transfer their employees, routes and assets to other airlines controlled by the same shareholder or actual controller. As a result, internal consolidation within airline groups is likely to be more common than large-scale cross-group mergers and acquisitions.
Both China’s three major state-owned airlines and Hainan Airlines have loss-making subsidiaries, but the three major carriers are themselves under considerable financial pressure, limiting their incentive to acquire other airlines. By comparison, Joy Air has suspended operations and entered bankruptcy pre-restructuring proceedings, making it a potential test case for whether the new exit mechanism can be effectively implemented. If smaller airlines are unable to exit voluntarily, they may eventually be subject to administrative exit procedures.
The key to ending cutthroat competition in China’s aviation industry is not simply reducing the number of airlines, but actually removing inefficient capacity, including aircraft, routes and flight slots. Industry insiders estimate that the number of public air transport enterprises in China could fall from around 65 today to 55–60 by 2030. However, if fleet and slot growth continues to outpace demand, a reduction in the number of airlines alone may not necessarily improve airfares or profitability.
