A major Chinese airliner is set to solidify its relationship with a US carrier in a move that industry analysts believe bodes well for freight transportation in the burgeoning China-US air routes.
The relationship between China Eastern Airlines and Delta Air Lines is also designed to tap into the expertise of the US carrier as the Chinese airliner seeks to build a strategic foothold in the up and coming new seven-runway airport located in Beijing, as reported in The South China Morning Post.
Both China Eastern Airlines and Delta Air Lines are members of the SkyTeam alliance, one of the three huge alliance groupings between major carriers that are the cornerstone of the aviation industry. The other two are Star Alliance and Oneworld.
The new airport in Daxing, located in the southern part of Beijing, is due to open in 2019. The $12.9B project should allow China Eastern, whose main routes at present emanate out of Shanghai, to challenge Air China on Beijing-focussed long-haul flights, according to sources in The South China Morning Post. The American airline has expertise in successful airport development, and its operational input in the second Beijing airport is viewed as an essential component in developing air routes out of Beijing and for the Chinese aviation sector in general.
According to Ellis Taylor, Asia Finance Editor at aviation intelligence provider FlightGlobal, China Eastern and Delta both have a lot to gain out of this relationship; and more broadly, by being cornerstone members of the SkyTeam alliance.
He suggested the tie-up makes it more likely that Delta will look to launch flights from the US to Beijing Daxing in the future. The partnership could lead to it bringing forward the development of the new airport’s future stages if traffic rises quicker than initially forecast. However, it is unlikely to affect immediate development plans, Taylor intimated.
He explained, “For both carriers, they gain greater access to the US and Chinese markets at a time when there has been explosive growth in the number of flights between those two countries. For Delta, the big appeal is greater access to the Shanghai market, China Eastern’s home base.”
He suggested that this move for closer cooperation between the two carriers is part of an ongoing strategy to co-invest in other airlines within the SkyTeam alliance. He pointed out that China Eastern and Delta also have co-invested in Air France-KLM, which, in-turn, has invested in Virgin Atlantic.
He added, “It is no coincidence that Delta is one of the largest shareholders in Virgin Atlantic, so the tie-up between the two airlines is part of a much bigger play among the SkyTeam carriers.”
There are important ramifications for the air routes between China and US, as the tie-up with Delta should allow China Eastern to gain more connections for passengers and cargo in the United States.
This should open more belly cargo capacity, especially as those services will be operated by wide-body jets such as the Boeing 787 and 777, which can carry large amounts of cargo.
He stated, “While that won’t add large amounts of cargo capacity to the market, it will prove useful for some shippers of small and perishable goods.”
It is also likely, added Taylor, that there would be some joint network planning, and there is potential for Delta to gain feed at Shanghai from China Eastern’s flights to southeast Asia and other parts of the region.
Analysts anticipate the new airport in Beijing to be a major up for China’s aviation sector – and propel competition between the three state-owned Chinese airliners.
Taylor explained, “Beijing Capital is the fortress of Air China, which has meant that the other carriers have only had limited access to routes from there. The opening of Daxing will see China Eastern and China Southern set up new hubs there, and that could bring about new levels of competition – not only with Air China but between their respective alliances.”
For Joanna Lu, Head of Advisory Asia, Flight Ascend Consultancy, once the new capacity is available at the airport Beijing Daxing, the network to/from Beijing along with the competitive landscape in the Chinese airline sector will change. The tie-up between China Eastern and Delta Air Lines could allow collaboration in hubbing to other destinations, due to the large capacity available at the new airport. She suggested that as airline capacity might increase in that region, this could be advantageous for the cargo sector. However, if road transport costs and convenience are issues, then freight forwarders will be cautious.
While she believes the tie-up could have beneficial implications for the development of the airport, she warned, “We will still need to monitor and be convinced the airport development follows market needs rather than executive order.”
However, Torbjorn Karlsson, Senior Client Partner, Civil Aviation Practice, Korn Ferry, believes the new airport will allow Chinese carriers to build a truly global network hub. This will alter the competitive environment and have the potential to significantly impact the US and Middle Eastern airlines on the China market, and Asia Pacific to Europe and US routes.
At this stage, Karlsson stresses it is difficult to assess precisely how these developments will play out in terms of freight rates and capacity within the cargo sector.
He said, “The cargo sector is driven by its closeness to manufacturing hubs, and large-scale consumption is more likely to drive growth. However, on the longer sectors, slot and noise constraints in the global hubs will make new evening slots attractive.”
It was reported in the South China Morning Post that the Chinese carrier China Southern might shift alliance to Oneworld.
Karlsson commentated, “Cooperation between carriers is shifting towards joint ventures, such as Qantas and Emirates, that allows for much closer capacity and fare cooperation that increases profitability. In the last 10 years, this has resulted in airlines regularly joining and leaving alliances.”
He added, “In the longer run, this trend will continue as the industry will increasingly allow carriers to act on the global stage in a way like other consumer companies, as out-of-date ownership rules are broken.”
The onset of a more competitive Chinese airline sector also has implications for Hong Kong. He explained, “On the freight side, cargo flows through Hong Kong Airport are likely to see similar trends that Hong Kong port has seen – with major Chinese exporters increasingly choosing to ship out of closer mainland ports. “