Chinese flag carrier Air China has become the first Chinese airline to enter fully into an international alliance, but its decision is likely to trigger similar alliance moves from other Chinese carriers.

Air China is set to join a strategic alliance with Northwest Airlines and its partners Continental Airlines, Alaska Airlines and America West in the first deal of its kind signed by a Chinese carrier. China Eastern Airlines has only a limited codeshare in place with American Airlines while China Southern Airlines has signed a memorandum of cooperation with Delta Air Lines.

Under the terms of the deal, Air China is to codeshare on Northwest's five non-stop services between Beijing and its Detroit hub and on other domestic services in the US. Northwest, meanwhile, will codeshare on Air China's services from Los Angeles and New York to Beijing and to beyond destinations in China, subject to US government approval. Also included in the deal are Northwest partners Alaska Airlines, America West and Continental Airlines. The carriers will cooperate on frequent flyer programmes, marketing, sales and information technology.

Under the existing Sino-US bilateral air services agreement, Air China and Northwest can codeshare on up to five destinations. However, the pair hope to further the scope of their cooperation, once the US and Chinese governments have concluded negotiations on a new bilateral air services deal. The US is said to be optimistic about talks but remains concerned that Chinese bureaucracy could inhibit progress. The annual debate about renewing China's most favoured nation status was also underway in June.

Most analysts agree that for US airlines, an alliance with a Chinese carrier is desirable due to the enormous revenue potential of the market. One source says the Americans have more to gain from the alliance in terms of a boost to short-term revenue, which is set to follow the opening of the China market.

But as the source points out, the Chinese will also benefit from the expertise of their new US partners. According to Tom Folinsby of Caspian Securities, the Chinese government is particularly keen for Chinese airlines to start building a reliable global network that measures up to international alliance standards.

As Air China moves into the global alliances game, more Asian partnerships are likely to be announced soon. Analyst Peter Negline of Salomon Smith Barney sees the renewed interest in alliances as a purely economic decision allowing airlines to maintain Asian routes that have seen cuts in demand. 'In the past, airlines were bent on pursuing growth through increasing capacity but now the goal posts have shifted and this is no longer possible,' says Negline. He believes such agreements will be in place for one to two years, or as long as they are needed in the light of the Asian economic collapse.

Those in the industry excited by growth prospects in the Chinese market should take heed, however, of a cautionary note. Though relatively unscarred as yet, China is unlikely to escape completely unscathed from the Asian meltdown. According to Negline, the next tranche of aircraft orders for China is likely to be smaller than many have predicted and will not include Boeing 747-400s or 777s. Orders are likely to be instead for narrow-bodied aircraft. Boeing admits that it expects the number of aircraft orders from China to fall short of last year's numbers.

Source: Airline Business