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.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Don’t forget that at the same time Delta invested in China Eastern and later signed a joint-venture with the communist state owned-airline, Delta (1) pulled out of Taiwan despite having a nominal partnership through Sky Team with Taiwanese airline China Airlines, (2) pulled out of Hong Kong, (3) eliminated its intra-Asia flights from Japan, and (4) ended service to U.S. territories and closely allied independent islands in the Pacific that China covets as part of its expansion in the Indo-Pacific.

  2. Delta’s investment in China Eastern was part of a broader strategy (pre-COVID) to establish a hub in Shanghai (PVG). That never happened obviously, and for the foreseeable future, will not either.

  3. And if you want to fly to Asia you either need to fly Delta to Seoul and then Korean’s mediocre product to wherever or fly United. It’s sad to see how Delta’s Asia network has collapsed within 7 to 8 years.

  4. Delta does not have a joint venture with China Southern and no US carrier can because the US and China do not have Open Skies; neither does the US and Hong Kong.
    Delta restructured its Tokyo-hub based Asian route system which it gained from Northwest because that route system lost money; Delta was using an entire widebody aircraft’s worth of flying to serve points beyond Tokyo where half of the passengers were connecting from the US at yields below nonstop US to Asia levels as other airlines flew nonstop across the Pacific.
    Japan’s decision to reopen Haneda to longhaul international flights cemented the restructuring of DL’s Pacific network which resulted in the creation of the Seattle hub and strengthening ties with Korean. Pre-covid, Delta was still the #2 carrier across the Pacific and Korean was #3, both behind United. The difference is that Delta has consistently made money flying the Pacific in contrast to United which lost money for years flying the Pacific even pre-covid.
    American also lost billions flying the Pacific trying to homegrow a Pacific network to match Delta and United, each of which bought their way into the Pacific market with United having a 30 year headstart.
    The notion that Delta dropped intra Asia routes from Tokyo because it was trying to appease China is complete nonsense.
    Seoul ICN has far more connecting capacity than Tokyo HND or NRT. The joint venture partnerships AA had with JL and UA had with NH allowed Delta to win the most flights when HND opened to US carriers and become the largest foreign carrier there, just as it was at NRT. DL’s operation at HND, though, is 100% focused on the local market.
    Perception of quality is subjective but Korean is as high quality as JAL or ANA; and it doesn’t matter how much better JAL or ANA are, if there isn’t sufficient capacity for expansion, other hubs will take over.
    Chinese airlines aggressively competed for connecting traffic based on excess transpacific capacity which the Chinese government subsidized and that is not going to return. HKG will be a weaker market which will make CX a weaker player. Japan and S. Korea will be the two major connecting markets and ICN simply has much more capacity. As soon as KE gets the Asiana merger sorted out, there are endless marekts which DL and KE can add.
    Finally, DL used the pandemic to get rid of its 777s and has now fully replaced their capacity with new A330-900s and A350-900s and is reportedly ready to order 20 new A350-1000s which include the rejected Qatar orders. Delta already has the most efficient widebody fleet among US carriers and has more capacity on order even before the A350-1000 order.
    DL has also displaced AA as the largest carrier at LAX and is very likely to start adding its own expanded transpac flights there as well as at SEA and their eastern hubs. DL has enormous transpac growth potential and you will see their plans unfold in the next few years.

    AA has simply recognized that they cannot be a significant player across the Pacific and will do what they can from DFW (a poor hub for Asia travel) and in partnership with JAL (where AA will have a token presence.) China Southern might help some but there is nothing that will make AA any more successful with a non-JV partnership than they have been in other Asia cities.

  5. Tim J,
    and AA has the smallest transpacific route system. All those brand new A321NEOs and 737MAXs don’t fly the Pacific.
    and United has the oldest fleet among US airlines, not Delta.
    American and United both have 777s which are older than Delta’s A330 and A350s.
    American did manage to get rid of its 767s because they never bothered to keep them maintained – so flights were constantly delayed or cancelled – and then replaced them with 787-8s which cost as much as 767s including ownership costs. Not exactly a strategic or financial win.

  6. @Tim: That’s just not true. Delta does in fact have an extensive relationship with communist China state-owned China Eastern

    Delta got in bed with the CCP before COVID. Not only did Delta abandon Americans on U.S. soil in the Pacific as well as U.S.-aligned islands, but Delta abandoned Taiwan and settled for its less than desirable partnership with Korean. Delta tried its hardest to get a Japanese airline partner but the Japanese didn’t want them. You say Delta is 100% focused on the Japanese market out of HND. Except Delta fired its Japanese flight attendants and other staff when it pulled out of NRT. Whatever staff Delta has at HND are a fraction of its operations in Asia-Pacific before. I also believe Delta eliminated the Singapore call center.

    The fact is Delta doesn’t fly to Kuala Lumpur, Singapore, Hong Kong, or Manila. Yes, Hong Kong is a mess but Delta eliminated that route well before COVID and increased communist Chinese oppression in Hong Kong.

  7. Nick,
    forgive me but it appears you started drinking a little early today. Your post honestly is disconnected from all kinds of reality.
    First, Delta is a for-profit company. It is under no obligation to serve any route or city if they can’t make money doing so. As much as you want to believe otherwise, Delta’s Pacific network as it inherited it from Northwest vaccilated from minimal profitability to deep unprofitability. They cut what did not make money. DL’s Pacific network is the ONLY ONE of the US carriers that has been consistently profitable.
    Second, trying to connect Delta’s efforts to make its Pacific network profitable with its equity acquisition in China Eastern is foolish. Plus, you do realize that American bought equity in China Southern and they don’t fly to most of those cities? And United “got in bed” with Air China long before DL and AA’s equity purchases – and they still don’t fly to all of the cities you list.
    And third, you are free to argue about Korean’s quality but they don’t run out of food in business class as United has done and Gary has documented here.
    and fourth, multiple airlines have closed foreign crew bases so that argument can be equally applied to any number of airlines. As a US airline, I expect Delta to predominantly employ Americans or people that are authorized to work in the US just as the same is true about JAL with Japanese and Lufthansa with Germans….

    try again tomorrow. Your logic doesn’t make any sense.

  8. Let’s just face it – the only US carrier with a transpacific network worth the name is United.

    Asia service by DAL and AAL is a joke.

  9. China Southern would be a great addition to Oneworld. It offers a good hard product and very good service. Its lounges aren’t bad either. As far as new Chinese partners, China Southern is the best option for any alliance since Cathay is already a Oneworld member. China Eastern doesn’t come close.

    China Southern, like all Chinese airlines including Cathay Pacific, has one big weakness. It must dance to the tune of the CCP. What the CCP did to Cathay during the Hong Kong protests was a shame. (That’s a political comment folks, but I doubt there will be an uproar over it. People don’t mind political comments. They mind political comments that embarrass them.)

    It has become clear that the CCP cannot tolerate facts and opinions that clash with its worldview. Sooner or later, that will be an issue for foreign companies doing business in China. So far almost all foreign businesses (the NBA being one example) have caved to CCP demands.

    I’m not sure how this post became about Delta. But while we are on the subject, China Southern is the only airline that lets you book first class on an A380 with Skymiles. The catch is the flight is domestic; so technically those seats sell as business class. A three-hour Guangzhou to Beijing flight in an A380 first class suite used to be 40,000 Skymiles. Lord knows what Delta charges now.

  10. @ Nick Thomas and others

    You do not need to fly United, Delta, or AA to Asia when JAL, ANA, and Singie are around.

  11. Marco,
    United lost money flying the Pacific for three consecutive years (2017 – $249 million, 2018 – $86 million, and 2019- $84 million) even before covid
    You might like to have someone subsidize your travel but the stockholders of United aren’t particularly interested in seeing the largest airline in the region lose money; if the largest company in any market can’t make money but others can, the money-losing company is doing it wrong.

    And once again, Delta was the #2 airline pre-covid, Korean was #3 and everyone else was behind them. If size matters, then every other airline you and others listed don’t matter.

    Asian airlines typically score higher in service levels but they also don’t allow may employees – including flight attendants to work for more than a few years. Not sure what kind of job you have done but I doubt seriously that you would be happy to work for a company where you can be disposed of after a few years. There are decent quality airlines that still have high employee standards.
    Delta was just voted as the 6th best company in the world to work for – right behind Apple.

    As for those that don’t want to see this discussion be about Delta, double check what Gary wrote. The third word in the article – and the first proper noun – is Delta.

    The simple reality is that Delta and United will be the largest airlines across the Pacific and they, not the Asian airlines, will set the pace. With the US as the largest market in the transpacific market, the Asian airlines will line up where they see the best opportunity which is why United was the first choice of Asian airlines given United’s 30 year headstart in building its Asian network compared to DL and AA. Now that American has walked away from most of what it built and with Delta as the largest airline at Haneda – the highest revenue airport in E. Asia – and with DL and KE likely to return to the #2 and #3 positions, the future of alliances will focus around DL and UA. The difference is that DL will make a whole lot more money – if United makes money at all

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