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American Airlines taps China Southern for Asia expansion

Editor: Qian Ding 丨CCTV.com

03-29-2017 15:18 BJT

By Tom McGregor, CCTV.com Panview Opinion page

The largest carrier in the United States, American Airlines, has agreed on a $US200 million private placement to capture a 2.76 percent stake of China Southern, the state-owned airlines with the highest passenger volume in China.

The deal will boost American Airlines' more aggressive position in the Asia-Pacific markets. Its two main US-based rivals Delta Airlines and United Continental Airlines already have more flight routes and larger passenger flows between the US and China.

Foreign airlines are seeking more joint deals with Chinese carriers to embark on surging growth in the country's air travel market.

In 2015, Chinese spending for air travel had risen 10.6 percent, compared with 1.7 percent increase in the US market, according to the International Air Travel Association (IETA).

China's air travel market remains lucrative, despite a slowdown in national GDP (gross domestic product) annual growth rates in recent years.

Flying higher on consumption

China has enjoyed remarkable economic development in the past three decades on account of its strong manufacturing industries and exports-driven economy. Nonetheless, all good things have to come to an end.

Beijing officials are focusing on a 'new normal,' by forming a stronger services sector that encourages more consumer spending.

The Chinese middle class has larger disposable income on hand, while more Chinese families are eager to take overseas vacations, particularly to the US.

Foreign and domestic airlines can cash in on lower oil prices, rising passenger demand and an increase of tourism between China and US. American Airlines (AA) stands poised to win big with its China Southern (CS) stake.

AA has struggled to expand air routes to smaller Chinese cities, and can take advantage of CS' huge presence in China's second-tier cities.

Partnership to complement each other

American Airlines, headquartered in Fort Worth, TX. has risen to prominence as the leading US-based airlines by developing a top-notch management team and upholding the highest professional standards.

Meanwhile, Guangzhou-based China Southern struggles with growing pains due to rapid expansion. CS has faced above-average flight delays and cancellations, nationwide.

A number of Chinese consumer surveys have cited CS for poor customer service. China Southern can overcome its challenges by working in closer cooperation with American Airlines.

CS operates over 2,000 flights daily with 224 destinations in 40 countries and regions in Asia, Europe, North America and Africa. IETA reports that China Southern had 115 million passengers last year.

But AA dwarfs CS in size, by offering 6,700 flights per day in more than 350 destinations in 50+ countries.

Chinese connections grow stronger

At China's New Urbanization Development Forum held last week, Beijing announced a new strategy to urbanize the country's rural countryside to reduce traffic jams, pollution and over-crowding in China's mega cities.

The plan is to "put forward constructing 1000 towns with distinctive characteristics nationwide by 2020 to achieve industrial upgrading," according to CCTV.com.

More airports will likely be built. China Southern could play a crucial role to increase new flight routes in the country, while American Airlines can provide further assistance for expansion.

Additionally, experts forecast that in the next two decades, China will overtake the US as the world's largest air travel market. But, the US air travel market may witness stronger growth if the domestic economy takes an upswing.

China Southern could team up with American Airlines to invest in more flight routes between China and US. The partnership can raise revenues for both carriers in the long-term future.

Soaring ahead for better future

Despite AA taking a small stake in CS, less than 3 percent, the move could set the stage for American Airlines to expand it's market reach in China.

China Southern benefits with access to a high-level management team and better training programs for pilots, flight attendants and customer service representatives.

This is a win-win deal for both major carriers to fly off with surging profits and revenues streams.

 Tom McGregor, CCTV.com Panview Opinion page commentator and editor


(The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com)


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