MIAMI — In what has been a very agitated post-Skyteam departure for Guangzhou-based China Southern (CZ), the much-expected codeshare agreement with American Airlines (AA) has been signed.
Less than one week ago, the Chinese airline announced its departure from Skyteam, looking to “better align with the new trend of co-operation model in today’s global aviation industry and the evolution of alliances.”
The Guangzhou-based carrier said it will be leaving the alliance on January 1, 2019.
China Southern said that it would “explore possibilities to establish new partnerships with advanced airlines around the world, promote bilateral and multilateral co-operation, and provide quality services to passengers around the world.”
Today, both airlines announced the start of this relationship pending regulatory approvals.
The new codeshare routes, according to today’s announcement, will be available for sale soon. Both carriers expect that, once approved, the first codeshare flight will take off in early 2019.
“We are very pleased with the progress we have made so far in our newly formed relationship with the largest airline in Asia,” said Robert Isom, President of American Airlines.
“We look forward to building on our successes with a significant expansion of our codeshare cooperation and the addition of reciprocal frequent flyer benefits and lounge access,” he said.
From China Southern’s side, Zhang Lin, Assistant President of China Southern, declared that this “partnership with American is an important move in China Southern’s initiative to build new international relationships.”
Lin added that the advanced cooperation “will help both of us extend networks and meet passenger demands through sharing resources.”
“Our cooperation is market- and passenger-oriented, founded on a win-win relationship. It corresponds to the need for frequent and intimate exchange between China and the U.S. and is in line with our value proposition of customer first,” he said.
Sidelined By Delta?
China Southern’s exit from SkyTeam comes following American Airlines’ $200 million investment in the Chinese carrier, which in context, represents a 2.68% ownership stake.
At the time of the stock purchase, American Airlines said that China Southern was “a terrific partner.”
“We are very pleased with the progress we have made so far in our newly formed relationship, including the launch of a reciprocal codeshare agreement earlier this year,” said AA.
This financial move by American Airlines injected an important level of confidence in China Southern, especially after Delta Air Lines (DL), its Skyteam partner, invested over $450 million into competitor Shanghai-based China Eastern Airlines (MU) in 2015.
Delta’s involvement with MU inherently sidelined China Southern. In fact, aviation analysts say that the Guangzhou-based carrier isn’t leaving the Skyteam Alliance, but the Delta Alliance instead.
The Atlanta-based airline has continuously pushed its way into China by adding more flights between Atlanta, Detroit, Seattle, Los Angeles and Shanghai-Pudong International Airport (PVG), all in codeshare agreements with China Eastern.
In October, Delta continued to push hard into Shanghai, announcing yet another route from Minneapolis-St. Paul, set to launch in 2020.
Because of this, China Southern has gone on to look for alternatives and keep its way into the US market open.
The airline signed codeshare agreements with other oneworld partners, including British Airways and Qantas, hinting of a possible alliance swap.
And with American Airlines now in the game, China’s largest airline will keep its US cards at hand, especially with the imminent opening of the new Beijing Daxing International Airport next year.
The new code-share agreement between both carriers puts the AA code on all China Southern flights to and from the United States, and viceversa.
Moreover, both carriers will place their codes on each of their extended domestic services.
With this agreement, the reach of both airlines grows exponentially. China Southern and American Airlines are the largest airlines in their countries, boasting 594 and 951 airplanes in their fleets, respectively.
China Eastern top-tier customers will also enjoy American Airlines Admirals Club lounge access as if the Chinese carrier were part of the oneworld alliance, also giving all customers the possibility to earn and redeem miles on both carrier’s frequent flyer programs.
American Airlines says that current AAdvantage members “will be able to earn and redeem miles throughout China Southern’s network of more than 3,000 daily flights to 224 destinations in 40 countries and regions.”
Likewise, China Southern Sky Pearl Club members “will have the ability to earn and redeem miles throughout American’s network of 6,700 daily flights to nearly 350 destinations in more than 50 countries.”
The Oneworld Outlook
It is unclear whether China Southern will pursue a full integration into the oneworld alliance, as it may want to spare the cost of leaving and joining two very different groups of airlines.
The fact that the Chinese carrier has struck a major codeshare agreement with American Airlines already grants it access to the only market where it was losing presence.
China Southern’s efforts are focused on its domestic market and its US routes, which are facing increased competition from other Chinese counterparts.
Conversely, American Airlines needs to keep its hands on all its traffic rights between its US hubs and Chinese destinations, most of which were axed earlier this year because of poor performance.
The Dallas-based carrier had recently divested its presence in China by canceling some of its routes to the country.
American Airlines terminated its Chicago-Beijing (PEK) service, followed by its Chicago (ORD) and Shanghai-Pudong (PVG) routes in October because of “the current fuel and competitive environment.”
Even though AA canceled these routes, it obtained a dormancy waiver from the U.S. Department of Transportation (DOT) for the routes authority to China.
Commercial airline service between the U.S. and China is governed by existing agreements that limit the ability of U.S. and Chinese carriers to establish new flying between the two countries. Therefore, this new codeshare agreement is a win-win for both AA and CZ.
By putting AA’s code on all of China Southern flights, the Dallas-based carrier continues to offer its customers unlimited access to China, without having to invest on physical presence until margin forecasts level up again in the future.
The Cathay Pacific Questionmark
Both China Southern and Cathay Pacific are headquartered in the neighboring cities of Guangzhou and Hong Kong, respectively.
Even though both players are major global operators, Cathay Pacific’s intra-China presence is lukewarm, whereas China Southern is the country’s largest domestic operator.
Currently, the oneworld alliance’s presence in China has been limited to Cathay Pacific’s network. With the potential addition of China Southern, oneworld would gain a sizeable partner in terms of size, reach, and overall presence in the world’s most booming economy.