China Eastern has joined forces with a range of partners to launch a new carrier based on the island destination of Hainan, home to eight million and a free-trade hub.
Investors include the biggest online travel agency in China, Trip.com
The move comes despite the severe global downturn in passenger numbers caused by the coronavirus pandemic.
Government-backed China Eastern will own a majority 51 per cent share in the new carrier, which will be called Sanya International Airlines.
Other backers include Shanghai-based Juneyao Airlines, according to an announcement made to the Hong Kong Stock Exchange on Sunday.
No timeframe was given for the launch of the new airline, which will need regulatory approval.
Hainan is about 30 times the size of Hong Kong and is a popular holiday destination for Chinese tourists.
Chinese president Xi Jinping also wants to turn the island into a large free-trade zone.
The destination is already home to Hainan Airlines, owned by HNA Group.
However, the carrier has been hard hit by the coronavirus pandemic and could be vulnerable to new competition.