DAVID KNIBB SEATTLE United Parcel Service (UPS) has won out in the contest for new routes to China after the US Department of Transportation (DoT) concluded it was important to create direct competition for FedEx.

But in a move that could have far-reaching effects, the DoT is encouraging American Airlines and Delta Air Lines, who lost out in their bids for China routes, to circumvent the whole process by negotiating wet-lease deals with their Chinese codeshare partners.

In a market growing 20% per year, Washington had only 10 frequencies available to allocate to US carriers, based on last year's agreement with Beijing. Moreover, DoT can only designate one new US carrier to serve China when these frequencies take effect on 1 April. It would have needed 51 to satisfy all requests from incumbents Northwest, United, and FedEx, and newcomers American, Delta, UPS and Polar Air Cargo.

Sifting through these conflicting demands, the key point for the DoT was that Northwest and United already compete against each other in this market, but no US carrier competes with FedEx.

Given the $12 billion air cargo market with China - the USA's fourth largest overseas trading partner - DoT concluded that it was more important to designate a second all-cargo carrier than to add a third combination carrier. With that decided, it was simply a matter of weighing the proposals by UPS and Polar. DoT judged the UPS proposal superior and awarded it six weekly frequencies. UPS will operate the services with Boeing 747s into China from its Anchorage hub providing competition to FedEx. Four of the flights will originate at the UPS hub in Ontario, California, with the other two originating in Newark, New Jersey.

With only four other frequencies left to hand out and no authority to pick another airline, the DoT gave two to United and one each to Northwest and FedEx.

American and Delta expressed disappointment at losing out entirely, but that could be short-lived. DOT Secretary Rodney Slater announced that US and Chinese officials discussed in October the separate idea of US carriers offering wet-leases to their Chinese codeshare partners to operate 10 dormant frequencies held by Chinese carriers, and possibly some of their new ones.

Slater says both countries agreed to invite American, Delta, and their respective Chinese partners, China Eastern and China Southern Airlines, to explore this use of so-called "zombie" codeshares.

If everyone agrees, American and Delta could gain a physical as well as codeshare presence in China, even though they lack routes of their own. American says it has already held "fruitful discussions" with China Eastern on this, and believes both airlines view this as mutually beneficial.

DoT is encouraging similar agreements by American and Delta with their Chinese partners on opening ticket offices in Shanghai and Guangzhou.

Source: Airline Business