The last couple of weeks have been very exciting in the commercial aviation world. Most of the news has centered around the three big alliances: OneWorld, SkyTeam and Star Alliance. One of the biggest headlines was that China Southern was leaving SkyTeam. The airline is part owned by American Airlines, a member of the rival OneWorld alliance. This had been speculated for a while, and probably happened because the Delta-influenced SkyTeam had been putting pressure on China Southern. With their departure, the future alliance participation and partnerships of the airline are in question. I want to look into how China Southern, if it were to join OneWorld, would partner and cooperate with its neighbor Cathay Pacific.
The Arguments Against
Most people are saying that if China Southern joins OW, Cathay will try to block their entry, or leave the alliance all together. This argument has some merits. Cathay is part owned by Air China, a member of Star Alliance. Guangzhou, China Southern’s main hub is just a few hundred miles from Hong Kong. The two airlines could potentially be competing for the same customers, and feeding flights from mainland China to Guangzhou or Hong Kong could be a challenge.
However, I disagree with the fundamental argument that the Air China stake would push CX over to Star Alliance. CX is also part owned by Qatar Airways. Although Qatar has been complaining and threatening to leave OW, I don’t feel like this would happen given the repercussions it could have with their own investment airlines. (AA has joint venture partnerships with BA, IB, and LATAM, all airlines QR owns to a degree). I see it more likely that Cathay will stay in OW, because it is in the interest of both CX and QR to keep the airline in OW.
The Arguments in Favor
This is where I have some ideas as to how the two airlines could cooperate. Currently, Cathay gets mainland China feeder passengers from Air China. Since China Southern and Air China are both state-sponsored enterprises (please correct my terminology if it is wrong), the CAAC would not be likely to oppose the two carriers codesharing with Cathay Pacific. In fact, it would be in Beijing’s political interest to have more connections to Hong Kong, and offer Chinese nationals more connections to the world, given the limitations of the “one route, one carrier policy”.
Further, there can be synchronicity between two hubs close to each other. In the US it works for two airlines. United operated a hub out of Newark and a hub out of Washington Dulles. American operates a hub out of Philadelphia, Washington and New York (both La Guardia and JFK). These airlines have been able to make hubs in close proximity work, and I believe that if the airlines were to cooperate, they could easily make China Southern and Cathay Pacific respective hubs a powerhouse for global aviation.
China’s Plan for the Pearl River Delta
Closer ties between China Southern and Cathay Pacific would likely be seen as a positive by the Chinese authorities. The country is looking to integrate Hong Kong and Macau closer with the mainland. If the largest airline in China, and the largest in Hong Kong, decided to partner up, the government would see it as a step towards the integration they so desperately yearn for. The two airlines could create an airline shuttle between the two airports, similar to shuttles that run between NYC and Boston/DC, LAX and SFO, London and Paris/Frankfurt, among others. There is a strong potential for synergies between the two carriers and there’s no denying it.
Cathay is one of the strongest brands in Hong Kong. China Southern is the largest airline in China. Although unlikely that China Southern will join OneWorld in the short term, there is a lot of potential for cooperation between the two carriers. If the two airlines do decide to cooperate, I suspect that it will be readily approved by the Chinese government. China Southern has a lot to offer American, and OneWorld as a whole, but their current strategy of playing it solo seems to be working out pretty well.
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