Beijing exerts a tight grip on its state-dominated airline industry, controlling prices for jet fuel and tickets and handling aircraft purchases.

That, combined with low Internet and credit card usage and opposition from bloated state carriers, means low-cost airlines will have to be content to circle the fringes of the world's fastest-growing aviation market for the foreseeable future.

"There still needs to be certain regulatory advances in China before low-cost carriers can be set up. I think it won't be an easy thing to achieve, but I think they have a future in China," Yang Yuanyuan, head of the Civil Aviation Administration of China (CAAC), told Reuters at an aviation forum in Shanghai.

Executives at China's airlines seem unfazed by the potential no-frills threat.

"Flying is still for the elite in China. People expect good service, food, something to drink and pretty air hostesses. It will take a while for these expectations to change," said Zeng Zixiang, director of the research and development department of China Southern Airlines.

Air travel was once out of the reach of millions of lower-income Asians, but the emergence of no-frills carriers such as Malaysia-based AirAsia and Singapore's ValuAir is making air travel more accessible.

Offering one-way fares as cheap as $25, these upstarts have also unsettled the stock prices of establishment foes such as Singapore Airlines Ltd and Thai Airways International Plc.

(CNTA.com May 21, 2004)