American Airlines’ 200 Million Dollar Solution to Its Struggles in China

After recent struggles in the Chinese market, American Airlines is now committing US$200 million to partner with China Southern Airlines. The partnership is expected to result in codeshare and interline agreements that will be rolled out later this year, making it easier for American Airlines customers to reach China Southern Airlines destinations, and vice versa. For American Airlines, which has struggled with Chinese authorities in its previous expansion efforts in China, partnering with China’s largest state-owned carrier also holds the promise of easier access to the Chinese market. For Chinese travelers, the deal will make it easier to reach American Airlines’ many destinations throughout the Americas. Before the tie-up with China Southern Airlines, American Airlines has been engaged in a legal battle to launch a new daily flight that would traffic Los Angeles-Beijing after winning a bid for rights to launch the route in 2016. However, the China Aviation Administration of China (CAAC) refused to grant American Airlines any landing and takeoff slots at Beijing International Airport. In response, American Airlines filed a formal objection with the U.S. Department of Transportation that would stop Air China from renewing its permit to fly between Beijing and Houston. Air China is the only airline that currently offers direct flights between Beijing and Los Angeles. “By denying American the same opportunity to introduce Los Angeles-Beijing service in a timely manner, the [Civil Aviation Administration of China (CAAC)] has acted to preserve Air China’s non-stop monopoly on this route, to the detriment of the U.S. traveling public, U.S. carriers, and the U.S. Government,” American Airlines argued at the time. If everything goes according to plan, the partnership with China Southern Airlines could mitigate some of the problems American Airlines has run into with Chinese authorities, especially for its American clientele—which will be able to travel to China Southern Airlines’ many destinations across China through the announced codeshare and interline agreements. If American Airlines’ willingness to make a US$200 million investment in a Chinese state-owned company will ease its challenges being granted more competitive takeoff and landing slots at Chinese airports remains to be seen, but the move has certainly not gone unnoticed by the CAAC. For China Southern Airlines and its Chinese customers, the partnership means better access to not only American Airlines’ many destinations throughout the United States, but also the many destinations it serves throughout all of the Americas. For China’s increasingly adventurous travelers, the partnership could make it cheaper and easier to visit destinations off the beaten track that are serviced by American Airlines flights. Until now, China Southern Airlines has been limited to codesharing with Delta Air Lines in the United States—both members of the SkyTeam airline alliance. No announcements have been made that would indicate that American Airlines will substitute Delta Air Lines as China Southern Airlines’ only American codeshare-partner, in practice giving China Southern Airlines’ customers access to flights and destinations served by both U.S. airlines. Arguably, United Airlines is late to the game in comparison to its U.S. competitors. Aside from its codeshare agreement with China Southern Airlines, Delta Air Lines acquired 3.55 percent of China Eastern Airlines in 2015, another fellow SkyTeam member. United Airlines has been part of a close partnership with Air China, the third state-owned Chinese airline, since 2003, and the partnership that was strengthened further in 2016. For American Airlines, the deal may just be what it needs to invigorate its efforts to expand in China and transpacific flights—at least that’s what it’s betting US$200 million on.

American Airlines’ 200 Million Dollar Solution to Its Struggles in China

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Published March 29, 2017

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American Airlines’ 200 Million Dollar Solution to Its Struggles in China