CHINA will fully deregulate domestic air routes by 2010, allowing smaller carriers to compete in the highly lucrative routes between the nation's busiest airports.

Yang Guoqing, head of the General Administration of Civil Aviation (CAAC), announced the promise last month, triggering excitement in the aviation industry.

"The administration aims to implement a register-and-record system in all domestic routes by the later half of the 11th Five-Year Plan (2006-10)," said Yang, referring to the new less restrictive system.

He said airlines had previously been "smaller in scale and not mature enough to adapt to the market."

"But now the industry is maturing, and firms have expanded, hence it's time to change the policy," he said in a statement posted on CAAC's Website.

The CAAC move is part of its stated long-term plan of gradually giving up economic control of the aviation industry while maintaining a tight hold on safety issues.

Before 2005, airlines had to apply to the authority for approval before it could fly any given route. Private airlines complained that they were less likely to win approval than state-owned carriers.

After 2005, the CAAC switched some airports to the register-and-record system, under which airlines were free to negotiate with airports for time slots and needed only to register the routes they were flying.

However, this new system was not extended to routes between the eight key airports - Beijing, Shanghai's Pudong and Hongqiao, Shenzhen, Guangzhou, Chengdu, Kunming and Dalian - and other airports within the top 15 based on passenger volume.

This meant smaller airlines still lacked easy access to some of the most profitable routes.

For example, Spring Airlines, a private carrier based in Shanghai, applied last year for the right to fly from Shanghai to Guangzhou, but was initially given the Shanghai-Zhuhai route instead. It won the go-ahead to fly to Guangzhou after an appeal.

Such instances feed the suspicion of smaller carriers that the CAAC was trying to shield large state-owned airlines from fair competition.

That's why the latest announcement is seen as a positive development for smaller airlines.

"We welcome the change. It will bring about fairer competition for private airlines as we can fly to more destinations," Liu Jieyin, president of the Tianjin-based Okay Airways, told Shanghai Daily.

Ma Ying, aviation analyst at Haitong Securities, also said the move will intensify competition on routes between key airports, evening the playing field for private carriers.

"Smaller carriers will be able to gain a foothold on these routes, as some consumers will be attracted by the lower ticket prices typically offered by them," she said.

However, industry players were quick to warn against seeing the change as a panacea for private airlines. Companies will still face difficulties in competing on busy routes.

Zhang Lei, a spokesperson for Spring Airlines, a private carrier started in 2004, said smaller carriers would have trouble winning the most sought-after time slots at busy airports. Many had already been sold to the state-owned carriers.

Liu agrees. "We might be free to fly, but we won't win the best time slots, which are between 8am and 9pm. Business travelers are usually not keen on travelling outside these times, which leaves you with the tourists."

Huang Bin, board secretary of Air China, the largest carrier in China, acknowledges this problem, but said this should not be seen as unfair.

Larger airlines, he argued, bore the risk of being early entrants into these airports. They could have lost money if business failed to pick up. Hence, it was only right that they enjoy the fruits of their investments.

Another possible factor holding private carriers back is their lack of airplanes.

"The smaller carriers don't have enough planes to take full advantage of the policy change. They have applied to the authorities to purchase more, but they know they won't gain approval for all of them," said Ma.

In the meantime, state-owned carriers are not resting on their laurels.

Analysts say the larger airlines are busy increasing their flights and grabbing the best time slots in key airports to ensure they are well-positioned for the competition by the time the deregulation takes effect.

But Huang said that larger carriers were more confident because of their brands. "To the consumer, a good brand means better safety and better service."

He also predicts that smaller carriers will still be hampered by not having the resources of state-owned airlines, such as full maintenance systems and aviation schools.

But with state-owned carriers contemplating a possible loss of business and private ones complaining that changes will not go nearly far enough, airports seem poised to be the only clear winners.

Said Ma: "The benefit to airports in unambiguous, as increased flights will surely bring about higher revenues for them."