The new carrier, named Kunming Airlines, will be 80 percent controlled by Shenzhen Airlines with the remaining portion owned by a local businessman.
The Civil Aviation Administration of China (CAAC), the industry regulator, posted a notice on its website on Jan 9 to seek public opinions before issuing operation license to the airline.
Kunming Airlines, with a registered capital of 80 million yuan ($11.68 million), will not only operate flights within Yunnan province, but also routes connecting Kunming and other cities, an unnamed company official told China Business News.
The airline also plans to fly between Kunming and ASEAN (Association of Southeast Asian Nations) countries in the future, the official said.
Shenzhen Airlines will transfer two B737-700 and one B737-800 airplanes as well as 30 pilots and 26 flight attendants to the new airline, according to the notice on the CAAC website.
Southwest China's Yunnan province, endowed with rich tourism resources, has 11 civilian airports, the largest number among Chinese provinces.
The Yunnan subsidiary of China Eastern Airlines, the country's third largest airline group, controls over 50 percent of the local aviation market.
HNA Group, parent of Hainan Airlines and China's fourth largest airline group, said in 2008 it would create a new carrier in the southwestern province with the local government. The carrier, called Yunnan Airlines, will comprise mainly the assets of Lucky Air, an HNA subsidiary launched in 2006 in Yunnan with a fleet of six aircraft.
Shenzhen Airlines, based in the southern city of Shenzhen, has been busy expanding nationwide in recent years. The airline launched a regional carrier based in Xi'an, in Northwest China's Shaanxi province, last year. Shenzhen Airlines controls 51 percent of the carrier with US regional carrier Mesa Air Group and Wilmington Trust Corp holding the rest of the shares.