Northwest Silk: Urumqi Air

Hainan Airlines and the HNA Group have recently been getting a lot of practice setting up subsidiaries, which give it the local clout it can't get from using its own name and enable it to better compete against the big three Chinese majors. These efforts reach as far as even the remote northwest state of Xinjiang, and recently the HNA Group has also begun to connect its far flung airlines with a new low cost alliance.

Urumqi Airlines Boeing 737-800 B-6268 Panda Models 1:400 Scale Model Airliner

Urumqi is the capital of the Xinjiang Uyghur Autonomous Region of the People's Republic of China in Northwest China. This huge state on the very western borders of China is next to Tibet, Gansu and Qinghai. Most of the provinces' land is made up of mountain ranges and deserts with only 4.3% fit for human habitation. Urumqi with a population of over 3 million people is by far Xinjiang's largest city and a major centre of culture, commerce and transport. Air travel is served from Ürümqi Diwopu International Airport, which handled over 16 million passengers in 2014, when it was the 15th busiest airport in China. It is a major hub for China Southern Airlines (due to its 2003 takeover of China Xinjiang Airlines) and a smaller hub for Hainan Airlines.

Despite its existing presence at Urumqi the HNA Group decided to also invest in a locally based joint venture to be known as Urumqi Airlines (branded as Urumqi Air on the aircraft). Hainan Airlines has the controlling stake, of 70%, and Urumqi Urban Construction Investment hold the other 30%, with total investment capital of 3 billion yuan. As with Fuzhou Airlines Hainan has supplied much of its own expertise and capital to enable startup. This includes equipment which initially consisted of a pair of transferred ex-Hainan 737-800s plus a third leased example.

Urumqi Air's logo 'integrates the three-color Adlai silk and flying dove, which highlights the geographical reputation of Xinjiang Uygur Autonomous Region, symbolizing peace and friendship.'

The new carrier's licence gives it permission to operate full domestic services (including to Macau, Hong Kong and Taiwan) as well as international routes. The latter are likely to focus on Central Asia and the Middle East. Services began on August 29, 2014 between Urumqi and Yining, with services to Kashi and Taiyuan started soon afterwards. Interestingly both the Yining and Kashi routes were already very well served. The former had no less than 3 airlines on it flying 85 weekly flights whilst Kashi had 6 competing airlines with 96 weekly flights.

After only four months the airline had already carried over 300,000 passengers, though unsurprisingly at a cost of a USD2 million loss. Fleet growth has been relatively slow with a 4th 737 not arrving until August 2015, however profitability was attained by the end of the first half of 2015 to the tune of USD2.7 million. By the end of 2015 6 737s were in service and monthly passenger numbers were hitting over 70,000. Profits increased to USD4.5 for the full year 2015.

Big change was signalled for the fledgling carrier in January 2016 when it was announced that it would be one of the four founding members of the U-FLY alliance. The new alliance consists of 3 other HNA group airlines all of whom are transitioning to a LCC model. Urumqi announced on January 27th that it too would become a LCC with predicted passenger growth for 2016 requiring 10 737s. By 2020 the fleet is estimated to have grown to 48 aircraft. The new U-FLY alliance is designed to be more than just an HNA group alliance however initially it will serve to promote cost savings and synergies between the partner airlines.

Despite intense competition it seems that there is still a place for Urumqi Air and now bolstered by the new U-FLY alliance and a low cost focus it seems likely it has the potential to become a major player in China's northwest.