Intro: CZ-exit Confirmed(90%)
Ten years ago was a great day! In 2007,China Southern Airlines(CZ) was the very first mainland Chinese carrier to join Skyteam alliance. Marking on its title of being the only mainland carrier to operate A380s together with its extensive network in Asia, its ‘’marriage’’ into the Skyteam family surely was honey-sweet at first, but competitors befalls overnight just like storms gather without warning in nature after China Eastern Airlines’(MU) decision of also joining the Skyteam alliance in June 2011 together with its acquired subsidiary Shanghai Airlines(FM) which both are based in Shanghai – the most geographically advantageous aviation market in the greater China region. In an attempt to further strengthen its position as the biggest airline in Asia, its own subsidiary – Xiamen Air(MF) also joined Skyteam Alliance November the same year, making Skyteam the alliance that covers the most destinations with unprecedented frequencies through its hubs in Shanghai(SHA and PVG), Guangzhou(CAN) and Xiamen(XMN). We all agree that China has great potential but the network overlap rate is competitively high for any airline to benefit from it not to mention the deficiency between member airlines.
Besides competition with regional markets in Asia against China Eastern, Shanghai and China Airlines(CI); its desire on feeding connecting passengers to other Skyteam members’ base airports was also not satisfied; as China Eastern smooth up relationships with Air France-KLM (AF) and Delta Air Lines-Virgin Atlantic (DL) by completing a series of share transactions. Targeting China Eastern as the main connecting airline between the China-Europe and China-North America market, this resulted China Southern being further out of the loop in the Skyteam family.
A recent article published by the South China Morning Post has triggered a wider uproar within the industry, the story was widely reported by various news outlets and an employee survey on leaving the alliance circulated on the internet has ensured the rumour with higher credibility. The industry predicts that such decision was led by American Airlines’(AA) $200 million investment in China Southern in 2015.
The China Eastern on Top?
In recent years, China Southern has been feeling the potential harm can be done by continue to compete with China Eastern with similar expansion strategy. In light of the newly opened Disney Resort in Shanghai, China Eastern is bound to be more popular within the Skyteam family; in addition, the plan for all non-star alliance airlines to move to the new Beijing Daxing airport from the current Beijing International Airport would also have resulted into China Eastern and China Southern facing direct competition for flights there. China Southern wouldn’t really be getting lots of advantages if they maintain the status quo.
In the meanwhile, China Eastern is heating up with partnerships and cooperations, judging by its initial stance for being the last out of the ‘big 3’ in China, with its relatively small and less developed fleet and route network, it’s fair to say prospects are surprisingly good for China Eastern.
The Holy Trinity in Beijing?
The new airport in Daxing, Beijing is projected to become the world’s biggest airport in terms of annual pax number. With Air China(CA) and Hainan Airlines(HU) stay based on current Beijing International Airport(PEK) and China Eastern and China Southern along with several low cost carriers to become hub operators at the new Beijing Daxing Airport(n/a). If China Southern decides to join Oneworld, the commercial aviation market in Beijing will be interestingly not only a holy trinity of the big 3 in China, but also the holy trinity of the major airline alliances. The possibilities for frequent travellers would be amazingly fascinating.
The biggest victim for China Southern’s decision to leave Skyteam and join Oneworld would be the flagship carrier of Hong Kong – Cathay Pacific (CX) together with Cathay Dragon(KA) would be face stiff competition within the same alliance with its crazy approximation to Guangzhou Baiyun Airport – 121KM.
Based on the story on China Southern leave Skyteam to join Oneworld, another story developed that Cathay Pacific will leave Oneworld and join Star Alliance, the ramifications of such behaviour would be of great complexity, although it make sense as Air China was the second biggest stakeholder of Cathay Pacific, however, Qatar Airways’ recent purchase of 9.6% stake in Cathay Pacific would make such decision unreasonable, not to mention another China Southern – China Eastern situation could occur within the new Star Alliance between Cathay Pacific and Singapore Airlines, as they are both Skytrax 5 star airline based in a city state who are fighting for connecting passengers from other countries.
The possibility for Cathay to change to Star Alliance seems unlikely, but will a dual-hub Oneworld market is southern China truly benefit either of them, especially seeing from the already troubled failure in bringing in revenue in Cathay’s side. So no pun intended, if Pret-á-Porter means ready to wear, for Cathay, you can prepare to be ‘poor’.
FFP: Narrow Path to The Pointy End
Many people are fascinating about the new possibilities for different alliances’ miles redemption if such changes were put into place, however, I would like to point out the unavoidable industry trend for airlines to devaluating miles redemption rate despite which airline alliance they are part of.
So if you are thinking of sipping champagne in first class with China Southern miles, it will be a narrow path for everyone, my friend.
Thank you for reading this analysis, please leave a comment to share your thoughts.
If you want, follow me on instagram and talk with me there 🙂