This story is produced in partnership with PaxEx.Areo - The Business of Passenger Experience
SkyTeam lost its largest mainland China airline this week. China Southern announced it will quit the alliance in 2019. The non-renewal of the membership contract will see the carrier transition out of its alliance relationships in the coming year. This is not a hard stop of relations; rather, the changes are likely to roll out over time. It is also not a surprise.
SkyTeam’s presence in mainland China is significant. While the one airline, one route policy historically helped prevent overlap on international services the overall density of SkyTeam services in the country remains significant. This lowers the value of the alliance as a competitive advantage for airline members. The shift is also supported by foreign partnerships and investments. SkyTeam partner Delta Air Lines chose to focus its resources on developing a stronger relationship with China Eastern. That relationship evolved in 2017 to see Delta and China Eastern join with Air France/KLM and Virgin Atlantic in mutual investments. American Airlines, a oneworld member, holds a financial stake in China Southern. It was simply a matter of time.
Based on the needs of the Company’s development strategy and to better align with the new trend of cooperation model in the global aviation industry, the Company decided not to renew its SkyTeam Membership Agreement from 1 January 2019 and will complete the transition arrangements in 2019. During the transition period, the Company will work closely with SkyTeam on a cooperative process to ensure a sound transition for customers and partners. The Company will explore the possibilities to establish new partnerships with advanced airlines around the world, promote bilateral and multilateral cooperation and provide quality services to passengers around the world.
The carrier’s statement announcing the decision highlights a shift in airline cooperation models. Joint ventures supplanted alliance membership as the driving force behind many of the strongest cooperative efforts. Indeed, China Southern does not believe the alliance relationship brings it material value at all. The filing made with financial regulators claims that “the commercial decision mentioned above will not have any material impact on the business operations of the company.” That’s a harsh assessment given the theoretical value alliances bring to the market.
The joint ventures span the globe, where permitted by national regulators. Joint venture operations between US and Chinese carriers are not permitted by authorities, but other countries are more permissive. China Southern participates in a JV with Air France/KLM, for example, and was rumored to be considering a similar arrangement with IAG’s British Airways. Swapping partners between China and Europe will shift some passenger patterns but the China Eastern situation protects the SkyTeam members somewhat and would be a boon for many oneworld passengers, even if China Southern does not join that alliance.
End of the alliances?
Is the declaration by a top 10 global airline that alliance membership is not compelling a death knell for the three groups? That is an unlikely result of this action. Full ascension into the oneworld alliance may not be in the cards for China Southern owing to Cathay Pacific‘s general opposition to mainland China members. But a similar value proposition can likely be established with smaller, bilateral agreements. That works because of China Southern’s size. The carrier is large enough to build the necessary systems and partnerships to fill in gaps and establish deals. For smaller airlines the alliances still deliver better interline passenger flows and infrastructure support than can be developed independently at a reasonable cost.
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