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Analysis: Does China Southern’s new Mexico City service via Vancouver make sense?

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Analysis: Does China Southern’s new Mexico City service via Vancouver make sense?

Analysis: Does China Southern’s new Mexico City service via Vancouver make sense?
February 07
12:08 2017

MIAMI — Links between Mexico and Asia will continue to grow in 2017 now that Guangzhou-based China Southern Airlines has unveiled plans to launch 3-weekly services to Mexico City in April 2017 utilizing 787-8s.

The route will originate in Guangzhou Baiyun airport and operate with a stopover in Vancouver in each direction. The flight opened for reservations last week with the inaugural date scheduled for April 10, 2017.

China Southern is the latest example of an East Asian carrier who has taken note of the evolving political landscape between Mexico and its largest trading partner – the United States – and how the, “hard ball” renegotiation tactics that the Trump administration have adopted can work out favorably for foreign carriers.

China Southern will not have local pick-up rights between Vancouver and Mexico City. While China Southern has an established presence at Vancouver airport, currently operating 7 weekly flights between YVR and Guangzhou, the route authorities permitted by the proposed Mexico City route will allow the carrier to grow its presence to 10 weekly flights in total, of which 3 will continue to and from MEX.

Because China Southern will not have local traffic rights between Canada and Mexico, it will need to depend entirely on origin-and-destination traffic between Mexico City and Guangzhou.

This will be a challenge for China Southern given the fact that Mexico City – Guangzhou is not an underserved market. Per OAG data, the local market comprises of roughly 3 passengers traveling per day, each way between the two cities. Without the traffic rights to Vancouver, China Southern will face an uphill battle in stimulating demand for its Guangzhou service.

Additionally, Guangzhou’s geographic position is far more circuitous relative to the other Asian stopover points currently connected to Mexico City, either via nonstop links (ANA and Aeromexico to Tokyo) or 1-stop connections to Seoul and Shanghai via Monterrey and Tijuana, respectively.

Map

The route is politically-driven, rather than commercially-driven


Undoubtedly, China Southern will present itself as an attractive alternative for Mexican and/or Chinese citizens traveling between the two countries due to growing tensions with the United States under the Trump administration, whose anti-global sentiments will likely continue to set a harsh precedent for visa-free transit waivers over U.S. hubs.

Citizens of both countries are required to have a formal transit visa in order to make a stopover in the U.S., whereas Canada waives this requirement. Naturally, this has worked to Canada’s advantage in heightening its appeal as a transit point.

Furthermore, Guangzhou is among the list of roughly a dozen Chinese cities that offer a 72-hour visa free visit while in transit, meaning that Mexican tourists can freely disembark in Guangzhou while en-route to other Asian destinations.

China Southern will operate the inbound flight from Vancouver to Mexico City as a red-eye, before making an early morning turn back to Vancouver which arrives slightly before noon local time. Although it is a SkyTeam partner carrier, it does not have an existing relationship with Aeromexico, one of the founding SkyTeam carriers and who has a hub at Mexico City airport.

Currently, neither carrier codeshares on either of each other’s routes, although OAG data shows that Aeromexico is a feeder carrier onto China Southern’s flights from Los Angeles and New York JFK to Guangzhou, and from Aeromexico’s route into Shanghai.

China Southern is growing its fleet of 787s and wishes to bolster is international hub profile


China Southern is one of the “big three” largely or fully state-owned Chinese carriers that has recently been making a push into longer-haul markets. The carrier has 10 of the 787-8 variant in its operation, which it uses on long-haul routes to Auckland, Christchurch, London Heathrow, San Francisco and Rome, along with a handful of domestic Chinese markets. It also has 20 787-9s in its order book that will be delivered starting in 2018.

Coinciding with this timeline will be the opening of a second terminal which will dramatically improve the connecting capabilities of the Guangzhou hub.

That being said, luring traffic from North America will still be a challenge. China Southern offers an attracting gateway to Oceania, which is one of its largest core outbound markets, but again, the circuity involved renders it as a suboptimal route.

It is unclear whether China Southern will eventually gain local rights between Mexico and Canada. Even as both countries grow their alliances against the protectionist rhetoric employed by the Trump administration, they also have their individual interests to protect against in the event that China Southern seeks local traffic rights between Vancouver and Mexico City.

Both Air Canada and Aeromexico offer 7 and 10 weekly flights between the city pair, respectively, and a long-standing concern is that 5th freedom operators tend to undercut fares in order to fill seats. In prior occasions, fifth-freedom operators between Mexico and Canada, such as Japan Airlines (who withdrew from Vancouver – Mexico City in 2010) were publicly-traded carriers and therefore could not derive the necessary yield premiums to sustain the route.

Conversely, China Southern, being largely state-owned, would be able to hand onto loss-making routes for the sake of strategic importance and commercial prestige.

That said, many of these considerations are hinged on the uncertainty of landing slots at Mexico City’s Benito Juarez airport which, being maxed out at peak hours, will continue to prevent major disruptions from airlines like China Southern. Furthermore, the political uncertainty surrounding Mexico City’s preparations to build a new airport to open in the early 2020s will be weighed against the allotments that will be granted to foreign carriers.

Once more details are known about that effort, it is probable that the landing slot restrictions, being less of a concern, may allow airlines like China Southern to compete on a more level playing field with Canadian and Mexican counterparts.

Nevertheless, the salvo of foreign carrier presence in Mexico to bridge the gap with Asia may become a growing concern for U.S. carriers moving forward.

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A Global Review of Commercial Flight since 1994: the leading Commercial Aviation publication in North America and 35 nations worldwide. Based in Miami, Florida.

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