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May 2017

26

www.read-eurowire.com

The air travel market

A small but strategic Chinese

investment could help American Airlines

to a lucrative trans-Paci c future

Growth in air tra c between China and the USA is likely to be

approximately zero for some time. But according to Sydney,

Australia-based

Bloomberg

contributor David Fickling, “wise

airline executives tend to think in decades, rather than years.”

As forecast by Boeing Co (Chicago), trans-Paci c will be almost

as large a market as north Atlantic in 2035.

There will also, by that time, be more domestic air tra c in

China than in the USA, a prospect which dominates US airline

executives’ thinking and leads them to this question: how do

you get a foot in the world’s soon-to-be-biggest aviation market

in the face of o cial intransigence from its government?

Mr Fickling reported that American Airlines Group thinks it has

found a way. People familiar with the matter told

Bloomberg

News

that the world’s biggest airline company is in talks to take

a stake of about $200 million in China Southern Airlines Co

via a private placement. (“American’s Southern Comfort in

China,” 22

nd

March)

Barely enough to cover the cost of a single Boeing 787, that

sum is tri ing to a carrier that posted more than $40 billion in

revenue over the previous year. With China Southern worth

about $10 billion, $200 million would barely net American a two

per cent stake. It is “in the high-stakes diplomacy of international

aviation” that

Bloomberg

sees the logic of the purchase.

‘Virtual’ capacity/real tickets

As a loosening of visa restrictions between China and the USA

spurs travel demand, American has been trying to catch up to

Delta and Continental on trans-Paci c routes.

But airlines in both the USA and China are already stymied by

hard caps on ight frequency. There just are not enough slots

available under a 2007 air transport agreement between the two

countries to enable the companies to meet the forecast demand.

Mr Fickling bluntly stated the generally acknowledged view

that the di culties USA carriers experience in navigating China’s

allocation system for airport slots place them at a substantial

disadvantage to their Chinese counterparts. It holds that

the frequent inability of USA carriers to obtain commercially

viable slots in China in a timely manner deprives them of their

bilaterally conferred rights, and harms the interests of the USA

and the travelling public.

Teaming up with China Southern would be “an alternative way

to skin this cat” for American, wrote Mr Fickling. The Texas-based

airline – which has petitioned the USA Department of Transport

for extra time to start services on one of the last available routes

from Los Angeles to Beijing – cannot increase its penetration of

China by way of its own equipment.

But a code-share agreement with a Chinese carrier would allow

it to buy seats on a partner’s plane and o er “virtual” capacity

instead.

†

The investment in China Southern could also be a rst step

to bigger things for American. According to

Bloomberg

,

CEO Doug Parker thus raises the odds of getting the

Guangzhou-based carrier to join American in Oneworld, the

third-largest global airline alliance in terms of passengers.

This would mean access to “the real prize” of coordinating

code-shares, frequent- ier programmes and airport schedules.

China Southern and its Shanghai-based rival China Eastern

Airlines are both partners of Delta in the Sky Team alliance,

the world’s largest. But Delta has favoured Shanghai as

its hub for connections to the rest of China. So, noted

Mr Fickling, with its Guangzhou connection “American [is

apparently] pushing on an open door in attempting to make

itself China Southern’s new best friend.”

Bans, detentions, vetting and

restrictions on electronic devices imperil

the $250 billion USA travel industry

In a 24

th

March interview with

Bloomberg

’s Justin Bachman, the

CEO of the US Travel Association (USTA) commented that “travel

is a very fragile thing, and perception is a factor.”

To Roger Dow, a former Marriott International Inc executive,

actions taken during the young presidency of Donald J Trump

have already exacerbated that fragility and altered perceptions

of America as an attractive and hospitable destination for the

visitor. (“US Travel Industry Fears a ‘Lost Decade’ Under Trump,”

27

th

March)

Mr Dow does not expect arrivals to decline as much as after

the terrorist attacks of 2001 in New York City – at least not yet.

For now, he does expect a dip of as much as four per cent.

“We haven’t seen the big damage yet,” he told Mr Bachman.

“What we’re getting is the noise level.”

Transatlantic Cable

Image: www.bigstockphoto.com Photographer Zsolt Ercsel