China Southern Airlines' upcoming departure from SkyTeam will be closely watched, and could lead the way for airlines leaning towards building individual partnerships and shying away from global alliances, should it continue to flourish outside a grouping.
Last week, the carrier announced a bold move to exit SkyTeam to "better align with the new trend of co-operation model" in the global aviation industry. It will "explore the possibilities to establish new partnerships with advanced airlines around the world, promote bilateral and multilateral co-operation", it added.
In a Chinese statement, the airline singled out plans to work more closely with Oneworld's American Airlines. American, in turn, called the state-owned Chinese carrier a "terrific partner" and described its leadership team as "innovative", adding that China Southern's departure presents an opportunity for an expansion of the duo's relationship.
Rumours that China Southern could depart SkyTeam for Oneworld originally surfaced in 2017, after American invested $200 million for a 2.68% stake in the airline.
The China Southern-American partnership followed Delta Air Lines' $450 million purchase of a 3.55% stake in China Eastern Airlines in September 2015. In October 2017, China Eastern also completed the acquisition of a 10% stake in Air France-KLM, as part of a wider tie-up that involved it and Delta taking equal stakes in the European carrier. All three carriers are part of SkyTeam.
ODD MAN OUT
All this left China Southern feeling sidelined, sources say. They add that while China Southern and Delta continue to codeshare despite Delta's deeper involvement with China Eastern, interactions are less frequent and kept at arm's length. This leaves the carrier in an uncomfortable position in its own alliance.
Industry players add that China Eastern is also seen as the Chinese "golden boy" in the alliance, due to its position in the financial hub of Shanghai, deemed as more important and cosmopolitan than China Southern's Guangzhou base.
China Southern joined SkyTeam in 2007, making SkyTeam the first alliance to welcome a carrier from mainland China. China Eastern entered the group in 2011.
With plans to become more intimate with American, joining Oneworld looks like a logical option for China Southern. Besides, it already codeshares with Qantas, Japan Airlines and, more recently, British Airways. Having China Southern under its banner would also be a major win for Oneworld, the only alliance without a mainland Chinese airline as a member.
Such a move would, however, be far from straightforward. Cathay Pacific, one of Oneworld's founding members, will likely oppose any advances from China Southern into the alliance, considering the latter's main hub in Guangzhou is less than an hour's high-speed rail ride from its Hong Kong base.
Cathay’s opposition will also be backed by 30% shareholder Air China, which will do what it can to prevent China Southern from strengthening its position, especially in the flag carrier's coveted Beijing backyard. The Canton carrier has long been trying to make a bigger play out of the Chinese capital and is finally getting the chance with a new airport coming up in Beijing. Already, China Southern has said it will base 250 aircraft at Daxing International by 2025, more than three times the 70 aircraft it currently has at Beijing Capital International.
DAXING DREAMING
American is also standing ready to team up with China Southern in Beijing: "With the opening of Beijing Daxing International airport in 2019 and the ability to co-operate fully with China Southern, we are excited about our future in the Chinese market," says the airline.
With Cathay in its path to a Oneworld membership, China Southern will more likely remain independent, at least for a while, after it leaves SkyTeam in January 2019.
China Southern Airlines network - November 2018
FlightMaps Analytics
FlightGlobal schedules data shows that the carrier codeshares with 13 SkyTeam carriers. China Southern and its 51%-owned subsidiary, Xiamen Airlines, also have a joint venture with Air France-KLM, covering routes from Paris and Amsterdam in Europe to Chinese cities Beijing, Chengdu, Guangzhou, Hangzhou and Xiamen.
Flight Ascend Consultancy's chief economist, Peter Morris, expects China Southern's codeshare arrangements with airlines both in and outside the alliance to continue.
"They are, after all, the largest Chinese carrier and one of the biggest airlines in the world, so they command powerful respect and business clout," he says.
"China Southern is big enough to stand alone, with codeshare agreements as needed."
He adds that while alliances have shown proven benefits from a marketing perspective, the operational cost benefits have been more varied, and some aspects of alliance co-operation may also work against the individual airline's business strategy. Rather, partnerships need to have a strong business case – usually based on geography and traffic flows.
Industry observers believe that alliances continue to have a role to play and will remain relevant, especially since loyalty programmes are a strong proposition, which customers still want and value. These alliances have also helped spawn many of the joint ventures now in place across key markets.
"I think the alliance groups will continue to metamorphose, but until the regulatory framework for ownership liberalises further, they still seem to offer net benefits to the participants," says Morris.
Source: Cirium Dashboard
