Not many people who know Beijing have ever heard of Nanyuan, the former military airfield 18 kilometres to the south of the city. But bunches of passengers wheeling suitcases and dragging canvas bags board shuttles at the Xidan Aviation Hall for the 90-minute ride out for some of the cheapest flights in China. Getting to the city's main Capital Airport takes around the same time from this giant travel agency tucked away in a popular clothes-shopping zone on Beijing's west side.

From Nanyuan, passengers can fly on the vaguely trans-Pacific-sounding China United on single daily flights to a limited list of domestic destinations: Harbin, Wuxi and Dalian. The model - bussing passengers to secondary airports well outside the city - seems uncannily like the one used by Europe's most profitable airline, low-cost carrier Ryanair.

But there the similarities end. While the Irish airline grabs market share and publicity by offering batches of its tickets for as low as ?2 on flights from Paris to Rome, China United must stick with government-set pricing tables. So a flight from Nanyuan to Wuxi costs no less than the lowest fare every other airline is offering on the Beijing-Wuxi line.

Another big difference is that, thanks to the EU's free-market policy, Ryanair, an Irish airline, is entitled to fly into and out of any of the EU's 27 member states, under the same conditions as an airline from any of those countries. Low-cost operators like Ryanair and UK-based Easyjet also avoid high landing fees by flying into secondary airports and regions keen for the business a low-fare airline brings.

Stalled on the runway

China has about 100 airports that could handle the Boeing 737 or Airbus A320 planes favoured by low-cost carriers, but landing fees in China are set by a state body, the Civil Aviation Administration of China (CAAC), so secondary airports don't have much room to give incentives to discount carriers. The government also controls that other commodity that keeps airlines in the skies: Jet fuel prices are set by the regulators and fuel is sold by a state monopoly.

The Chinese business press predicted a wave of copycats when China's first low-cost airline, Spring Airlines, launched a Shanghai-Yantai flight in July 2005. Beijing-based China United followed, along with Okay Airways, based in Chengdu. But each has remained small, using two or three jets to connect just a few Chinese cities.

China has all the right ingredients for the low-fare model, thinks Richard Pinkham, a Singapore-based analyst at the Centre for Aviation, a multinational consultancy advising airlines and airports. "All that you look for in a low-fare model are there. China has rising levels of GDP and personal consumption. The size of the country and population makes it compelling, too."

The main obstacle, says Pinkham, are the regulators. The low-fare model has been especially constrained by China's pricing controls, says Pinkham. "The government sets minimum prices. One of the country's first privately-owned airlines, Okay, was forced to change its business model after only a few months because it wasn't possible to survive as a low-fare [carrier]." There are other missing links. Low credit card usage in China contrasts with the classic budget model in the United States and Europe, which saves on agent commission through through customers booking tickets on the internet. China's travellers still prefer to pay in cash to agents. Shortages of investment and pilots have also stalled domestic low-cost airlines, says Mikko Rautio, general manager of Finnair's China operations and chair of the European Chamber's Aviation Working Group. "Some of the companies who set up the low-cost airlines did so because they expected foreign companies may invest money. They didn't. Now there is a shortage of pilots and good slots in big cities like Beijing or Shanghai."

Yet another reason budget carriers are struggling is that the mainland's busiest route, Beijing to Shanghai, has effectively been declared off-limits to low-cost carriers by China's authorities, says Pinkham. "Aviation authorities don't want national champions like Air China or China Eastern to be undermined on these routes." Beijing, which spared no effort recently getting the state-owned airlines fit for public listings, no doubt looks at how the stock prices of established companies like Singapore Airlines and Thai Airways were unsettled by low-fare operators entering the market.

Well acquainted with the realities of China's aviation industry, Rautio says he's "very pessimistic" about the future of low-fares airlines in China. The rush for cheaper flights didn't happen in China because the country's main airports - the places people want to fly to - are congested as they are. "Flight delays are common and form quite a barrier to newcomers," he explains.

Despite perceptions to the contrary, operating costs for airlines are high in China, says Frank Legre, GM of Air France's China operations and a member of the Aviation Working Group. "Newcomers will have to demonstrate to customers that they are able to give a basic service at a lower price than the established carriers."

Where the younger airlines may have a chance is in servicing China's underdeveloped regions. As capacity at airports in Guangzhou, Chengdu and Kunming tightens, the CAAC wants foreign airlines to open more new routes to northern and central cities like Chongqing, Xi'an and Shenyang, says Rautio. Plain-carriers may then have a future after all in China, where domestic and passenger numbers are "boiling", according to Legre.

Few role models

So far in the Asia-Pacific region the low-fare model has had mixed success. Japan's low-cost carriers have had a rocky ride, while South Korea's staid aviation scene was shaken up in 2005 when the first low-cost carrier started operation. Hansung Airlines and Jeju Air both connect from Seoul to several other domestic cities. Air Asia has been the main exception.

India, the only other developing market with dynamics comparable to China, has an airline market that has been liberalising more rapidly than China, says the Centre for Aviation's Pinkham. "More laissez-faire government in India has made the low-fare model more visible there." Air India Express, the low-cost spin-off of state carrier Air India, operates to domestic and Middle Eastern destinations. But it and carriers like Kingfisher Airlines suffer from India's chronic infrastructure shortage, Pinkham says. "They have different obstacles and dynamics. The restrictions there are de facto rather than de jure. There are so few markets to compete in - only about five cities with the infrastructure worth servicing." The result, says Pinkham, is that many Indian low-cost carriers are "bleeding money" in a vicious price war for passengers.

China, meanwhile, busily building airports all around the country, has infrastructure in spades. Beijing Capital Airport's new terminal and extensions to Shanghai Pudong will both come online the end of this year, not to mention expansion projects at Shanghai's mainly domestic Hongqiao Airport and dozens of second-tier hubs. That's good news for carriers like Rautio's Finnair. It also frees up tarmac for low-cost operators to use, if policies on fuel and landing fees can change.

If China's regulators are not quite yet ready for low fares, some would argue that Chinese fliers may not be either. Zeng Zixiang, director of the research and development department of China Southern Airlines, recently commented to Reuters: "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." That may be true, in the current environment. One wonders, however, how fast those expectations would change if genuine competition on price were allowed.