Yangtze River Airlines is the third domestic freight carrier moving to passenger traffic. Two privately owned cargo carriers－Loong Air in Hangzhou, Zhejiang province, and Donghai Airlines in Shenzhen, Guangdong province－have already added passenger traffic to their business.

The weakness of the cargo business will continue for a while, and passenger traffic is recovering with strong demand, said Li Xiaojin, a professor at Civil Aviation University of China in Tianjin.

"It is reasonable for freight carriers to look for more profitable businesses," Li said.

As Yangtze River Airlines expands to passenger traffic, HNA, the fourth-largest airline group in China, entered the Shanghai market, an important hub with stiff competition, some industry sources said.

Shanghai-based China Eastern Airlines Corp Ltd, one of China's big three carriers, occupied a market share of around 50 percent in Shanghai and some privately owned carriers are also developing well in Shanghai, such as Spring Airlines and Junyao Airlines.

"The air traffic market in Shanghai will grow further in 2016, as Shanghai Disneyland Park will open in 2016 spring," said Yu Nan, an analyst from Haitong Securities Co.