China Southern In Discussions To Join oneworld Alliance

In 2015 Delta Air Lines made a $450 million investment in Shanghai-based China Eastern Airlines. That left fellow SkyTeam member Guangzhou-based China Southern Airlines out in the cold. Two years later, American Airlines followed with a $200 million investment (for a 2.76% stake) in Chinese state-controlled China Southern.

China Southern left SkyTeam. They introduced AAdvantage mileage-earning and redmeption and entered into a joint venture with British Airways. BA’s largest shareholder, Qatar Airways, took a 5% stake in China Southern as well.

However that’s where things stalled. There had been early talks about China Southern joining the oneworld alliance. China’s largest airline would give oneworld greater reach into their mainland, but oneworld member Cathay Pacific could veto that. And there was speculation about whether Cathay could make a jump to Star Alliance (which has a strong presence throughout Asia already. As a compromise there was speculation that China Southern could join as a oneworld Connect member.

Even before the pandemic American had written down its investment in China Southern by 26% and it looked like it had been a poor strategic play, copying Delta for its own sake. But now there’s renewed discussions about the partnership, though progress has been slowed by an inability to meet in person due to Chinese Covid restrictions.

Reach into China is likely valuable over the long-term to the alliance. In the shorter-run, China’s pandemic restrictions and broader turn inward limit the connectivity potential this brings. Any tradeoff with Cathay Pacific means a reduction in quality experience for passengers, but Hong Kong as a destination is less important than it was before China abrogated its commitment to the region’s independence.

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