Early indications are that CAAC's decision to bar most new domestic entrants from the market until 2010 will have the desired effect, as LCCs and airlines still seeking approval are struggling to move forward in the wake of the regulator's action.

Haitong Securities aviation analyst Ma Yin noted that a dozen companies that had expected to enter the market now likely will fail to secure CAAC approval because of the policy announced.

"Now all we can do is to comply with this new policy, under which we are not qualified to make preparations for our new carrier," an insider at Delong United Aviation Co. said. The Xi'an-based carrier has a registered capital of 80 million yuan (US$10.5 million) and planned to launch operations with charter cargo flights to Nuremberg. CAAC had said it plans to adopt a "supportive" policy and green-light new cargo airlines and new carriers that operate in the west or northeast part of the country, "but so far, CAAC hasn't sent us a clear signal on whether it will approve our new carrier or not," the DUA source added.

Gasmine Air, Ningbo Pan Asia Airlines and 10 other new entrants are in a similar situation. "CAAC will have the final say on whether to approve these applicants or not, but I am not optimistic about their outlook," Ma said.

While new companies struggle, LCCs face their own challenges as a result of the revised regulations. Okay Airways Chairman Liu Jieyin pointed out that the policy also has imposed strict control on fleet expansion by limiting capacity growth of newer carriers and the ratio of crew to aircraft. A Spring Airlines spokesperson said China's pilot shortage is the critical handicap for LCCs. CAAC dictated that five captains and five copilots must accompany the addition of each aircraft. Spring operates eight planes and employs 200 pilots plus trainees.

China Securities Co. analyst Li Lei said the new policy is not targeted specifically at LCCs but that it inevitably will slow their growth. Shortages in domestic airport capacity, slots and pilots are prominent throughout China's air transport industry. Flight safety will be threatened if more new carriers are approved for launch, he said.