The regional joint venture between Shenzhen Airlines and Mesa Air Group, announced last December, will be called Kunpeng Airlines and will launch operations in Xi'an with three CRJ200s at year end.

The new carrier is expected to be approved soon by CAAC. The news came shortly after Hainan Airlines parent HNA Group unveiled its own regional subsidiary, Grand Xinhua Express, which also will fly to Xi'an. HNA said it intends to capture two-thirds of China's regional market by 2012.

Kunpeng will handle both passenger and cargo traffic as well as charter flights when it launches, Shenzhen Airlines said. The Chinese carrier will have a 51% stake in the new entity with an investment of US$32.6 million, while Mesa will put in US$31.3 million for the remainder.

Kunpeng Airlines expects to add an average of 20 aircraft each year and will begin taking delivery of ARJ21s when they enter service in 2009. The fleet eventually will comprise 160-200 jets with 50-90 seats. The carrier will serve second-tier destinations to complement Shenzhen's trunk routes.

Based in its namesake city in southern China with additional hubs in Guangzhou, Nanning and Wuxi and recently-added bases in Shenyang, Zhengzhou and Changzhou, Shenzhen Airlines is hoping to establish a foothold in the west by basing Kunpeng in Xi'an, where it will compete with Grand Xinhua Express. HNA Group told the Shanghai Securities Gazette that "competition is unavoidable in the future as Shenzhen is taking a similar approach to ours."

Industry analysts have suggested that this "western attraction" for regional start-ups is based not only on the fact that the area's size and smaller population seem to create a suitable breeding ground for regionals but on CAAC's policy of encouraging growth in the area through subsidies.