East Star Airlines Rises From Hubei
East Star Airlines, China’s fourth registered
private airline, and also the first one in middle China, has been the
focus of attention in many business circles here during the past several
Established in June 2005, the airline, a subsidiary
of China East Star Group Co. Ltd, is headquartered in Wuhan, Hubei Province.
Last November, the airline signed a letter of
intent with Airbus to buy 10 A320’s, and another deal to lease from
GE Commercial Aviation Service (GECAS) another 10 A320’s.
The arrangement valued at USD1.5 billion sets
a record as the largest for China’s domestic private airlines.
Compared with East Star Airlines’ USD10-million
registered capital threshold for establishing an airline in China, the
order raised a lot concern in the industry here.
East Star Airlines took its first flight successfully
on May 19th, featuring an aggressive marketing strategy.
To date there is every indication that East Star
is significantly changing the aviation and traveling market in Wuhan.
Lan Shili, President of the East Star Airlines and East Star Group, is
ranked 70 among China’s most wealthy businessmen according to Forbes
During an exclusive interview in Shanghai, with
FlyingTypers Shanghai correspondent, Mr. Li outlined future plans
for East Star and more.
As to current status of East Star Airlines, Mr.
“The second A320 joined East Star in June
and commenced operating three new flight routes, from Wuhan to Shenyang,
Zhang Jiajie and Guilin.
“Our third A320 is scheduled to arrive this
year and will operate three new routes, adding our total number of destinations
served by the close of 2006 to ten.
“Our ticket reservation activity has been
quite favorable,” Mr. Li smiled.
“We are making the most of our flights,
in many cases our manifests have been full all summer long.
“No doubt that our first year operations
will end in profit, something that other domestic airlines have not achieved.”
In China today in addition to East Star Airlines,
three other private airlines are currently in operation, Okay Airways,
United Eagle Airlines and Spring Airlines.
Of the aforementioned, only Spring Airlines has
ever reported profits, back in February 2005 during the Spring Festival
also known as Chinese New Year.
Mr. Li is convinced the remarkable performance
of East Star Airlines in these months is due to its low-price promotion
East Star Airlines offers every passenger that buys one full rate ticket
in Wuhan, five-day free travel to Hong Kong and Macao.
“This is the big gift we present our passengers,
thus profitability was not our first agenda.
“But low fare flights will not be our only
“Our aircraft are new and advanced, our
scheduled flights are to major cities, such as Guangzhou and Shenzhen,
and so eventually our prices will be comparable with other airlines.
In addition to East Star Airlines’ promotion,
East Star Traveling Agency, a major travel agency in middle China and
also a subsidiary of East Star Group, at the same time, quotes fairly
low prices for several domestic tourist itineraries from Wuhan.
And the lowest quoted price is only half of the
As this fundamentally changed the existing rate
system, all the other eight airlines operating in Wuhan together with
major local ticket agencies boycotted East Star. Ticket agencies do not
sell tickets of East Star Airlines, and other airlines don’t cooperate
with East Star Airlines in any aspect. What’s more, ticket agencies
of East Star Group are blocked to sell tickets of other airlines. “This
is what we had not expected. Their response was that strong and ignored
the principle of market economy.
“Although this status only continued for
some days, I worried a lot during those days. With only one aircraft,
the cost of being isolated is something we can handle for a while, however,
as more aircraft arrive we cannot tolerate that situation.
“With the intervention of the local agency
of Civil Aviation Administration of China (CAAC) and other concerned governmental
agencies, this problem was solved soon.
“Private Airlines still are new for China.
All related parties might need time to find a proper balance.”
the long-standing concern of how East Star will manage to afford the USD1.5
billion, Mr. Li said:
“The 20 A320’s will be delivered in
batches rather than all together. Therefore, East Star Airlines is not
required to pay in one lump sum. And we will use financial leases and
seller's credit to avoid huge financial risks.
Scheduled delivery of the 20 A320s from 2006 to
2010 will be three, three, four, five and five respectively.
“For the ten A320’s bought from Airbus,
Euro Export Bank provided East Star Airlines a 15-year USD 750 million
seller’s credit, with the lowest interest.
“GE Risk Assessment Company in Asia values
East Star Airlines the highest among new airlines of the world in recent
years. In addition to our perfect business plan, the operating record
of East Star Group, Euro Export Bank agreed to provide the credit without
“Typically, cost of every aircraft is about
USD1.25 million per month, and revenue from other sectors, such as real
estate, travel agency and construction, will be able to finance it for
three to five years. And my plan is to break even within three years,
and gain profits within five years.
Last month, East Star Airlines signed an agreement
with Lufthansa that the latter will provide parts and maintenance service
to East Star Airlines. And the amount is estimated to exceed USD 100 million.
About the air cargo business, Mr. Li said:
“Air cargo business will be another profit
engine for East Star Airlines. Recently, CAAC has formally approved East
Star Airlines to operate air cargo business.
“There has been no all-cargo service in
Hubei province. With the change in Hubei’s economy, high value-added
products will be increasing, thus boosting the development of air cargo
business in this province.
“This should be a good opportunity for East