American Airlines has made its first key strategic move in China.
It has purchased a small stake in China’s largest carrier, China Southern Airlines.
CGTN’s Daniel Ryntjes has more on what this means for the industry.
American Airlines has purchased a 2.76 percent ownership stake in China Southern for $200 million–the carrier’s first major strategic move in the country.
“China Southern gives us a great opportunity to cooperate and build a foundation for much broader network,” said Robert Isom, President of American Airlines. “American Airlines is the world’s largest airline. China Southern is the largest airline in China. It is an ideal partner for us.”
They’ve agreed to work on a code-sharing arrangement. This means passengers booking with one airliner may board a plane operated by the partner. The key benefit is that passengers can connect to a range of smaller airports without having to recheck bags while in transit.
“We cooperate with American Airlines mainly in shareholding, but also in other commercial terms such as code-sharing, personnel exchanges, and technology cooperation,” said Tan Wangeng, General Manager of China Southern Airlines
American Airlines is emulating its rival Delta which the purchase of a 3.55 percent stake in China Eastern in 2015.
United Airlines has developed a strong partnership with Air China without buying an ownership stake, leveraging its strong hubs in Los Angeles and San Francisco.
“In 2015, the spending on airline tickets in the United States only grew 1.7 percent, whereas in China during that same year the spending on airfares increased 10.6%. So, all of these large airlines in America recognize that there’s likely to be a very large increase in both tourist and business travel from Asia and China in particular into the United States,” said James Simmons of the Metropolitan State University of Denver.
Having an ownership stake allows American to benefit financially from China Southern’s future growth, especially if it is not able to secure new direct routes to China in the near future.
During a meeting with U.S. airline executives last month, President Trump indicated that he would support major U.S. carriers against perceived unfair competition from Gulf country airliners.
It’s unclear whether that would also lead the White House to unwind the global trade liberalization movement known as “Open Skies,” which seeks to bring historic airline trade barriers down to earth.
Michael Planey discusses China and U.S. airline partnerships
For more on U.S. and China airline partnerships, CGTN’s Elaine Reyes spoke with Michael Planey, an airline consultant with H&M Planey Consultants.