EuroWire May 2017

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May 2017 26
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,” 22nd 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 24th 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,”
27th 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