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RUMOR: China Southern to exit Skyteam, Cathay Pacific to join Star Alliance?

November 27, 2017

 File Photo of a China Southern Airbus A380 at Hong Kong. Image Courtesy of Maarten Visser via Flickr. 

 

On Monday, several news outlets reported on a surprising rumor that has been in the pipeline for quite a few months now. According to the South China Morning Post, "The airline industry is bracing for the mainland's biggest carrier," referring to commercial aviation giant China Southern Airlines, "to pull out of one global alliance and join another in a move that could have a significant impact on Hong Kong's Cathay Pacific group." 

 

Most large international carriers generally belong to one of three major alliances: Star Alliance, Oneworld, and Skyteam. Out of these three, Skyteam is the only alliance that contains two airlines from mainland China (China Eastern and China Southern), while Oneworld does not contain any airlines based in mainland China (except for Cathay Pacific, which is based in the special administrative region of Hong Kong, but for our purposes, we do not consider CX as a "true" mainland Chinese airline). It has been known that Oneworld has been lobbying for a mainland Chinese airline to join its ranks for quite a while, as it remains the only global alliance to not contain such a carrier. 

 

The way I see it, China Southern's move from Skyteam to Oneworld is imminent. Earlier this year, Oneworld founding member American Airlines purchased a 2.76% stock, worth US $200 million. This deal would allow the American carrier to expand its presence in mainland China, by connecting passengers on American Airlines flights directly onto flights operated by China Southern. According to an airline spokesperson, the new partnership is "expected to provide continuous impetus for the company's long-term growth." Given the current circumstances of China Southern's partnership with American Airlines, its not surprising that they would like to expand their partnership under the same alliance. For now, a move to Oneworld seems highly likely, as even Delta Air Lines' Greater China Chief, Wong Hong, has stated that "I think we have to accept the reality. It is more for them to think through and decide," referring to China Southern Airlines. Now a new question remains: How will China Southern's move affect Cathay Pacific Airways, the only other Oneworld carrier based in China? 

 

China Southern operates out of its hub in Guangzhou, Guangdong, which is surprisingly not far from Cathay Pacific's main hub, Hong Kong. The South China Morning Post has stated that, for Cathay Pacific, "remaining in Oneworld with China Southern would bring the two carriers’ home bases of Hong Kong and Guangzhou too close together, with destinations they serve overlapping and the airlines competing for the same pool of long-haul travelers." As such, Cathay Pacific, an airline that is already hitting major losses every quarter, cannot afford to compete with China Southern, as many travelers might prefer taking a nonstop flight directly into mainland China, instead of connecting in Hong Kong on Cathay's regional subsidiary, Cathay Dragon. 

 

If Cathay Pacific is forced to switch alliances, its most likely pick would be Star Alliance. Air China, a member of Star Alliance, currently holds a 30% share in Cathay Pacific. Joining Star Alliance would allow Cathay to be a close partner of Air China, allowing passengers to connect onto more flights into mainland China, as well as to destinations currently not served by Cathay Dragon. In addition, Cathay Pacific has recently strengthened partnerships with Lufthansa and Air New Zealand, both members of Star Alliance. However, it is not uncommon for airlines to have other airlines as partners in addition to their alliance partners. 

 

Despite these rumors, it is unlikely for China Southern to leave Skyteam and join Oneworld in the near future. Tan Wangeng, China Southern's President, has declined to comment on the aforementioned matters, describing its possible alliance switch as a "sensitive topic." Furthermore, Oneworld CEO Rob Gurney has dismissed plans of China Southern requesting membership in Oneworld. Cathay Pacific also said in a statement that it was "committed to Oneworld" and is "proud to be a founding member" of the alliance, signifying that any significant alliance switch is currently unlikely. 

 

No matter the outcome, any alliance switch between airlines represents a "very emotional" issue for passengers, according to Torbjorn Karlsson, a senior client partner at recruiting firm Korn Ferry's civil aviation practice in Singapore. That's because global alliances "give passengers more choices - both in terms of destinations and fares - and increase an airline’s top line and bottom line simultaneously," according to Karlsson. 

 

What are your thoughts on the rumor of China Southern joining Oneworld and Cathay Pacific joining Star Alliance? 

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