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Hong Kong aviation

China Eastern unites with Delta to gain edge at Beijing’s seven-runway Daxing airport

Cutthroat competition is expected between China’s three big state-owned carriers

PUBLISHED : Saturday, 25 November, 2017, 7:31pm
UPDATED : Saturday, 25 November, 2017, 11:34pm

China’s third largest airline is teaming up with the world’s most valuable and profitable carrier in a bid to secure an edge over its rivals at Beijing’s new seven-runway airport, setting the stage for cutthroat competition when it opens in 2019.

As the country’s three big state-owned carriers look for the advantage, with the airport being built in Beijing’s southern suburb of Daxing, China Eastern Airlines will tap into US giant Delta Air Lines’ operational experience that helped with the success of Hartsfield-Jackson Atlanta International Airport, the Post has learned.

China Eastern is poised to relocate to the capital’s new US$12.9 billion (HK$100 billion) Beijing Daxing International Airport within two years to challenge flagship carrier Air China, which will remain at the existing Beijing Capital Airport. China Southern Airlines, China Eastern and Air China currently compete from their “home” airports in Guangzhou, Shanghai and Beijing respectively. Each currently runs smaller operations in rival cities, but will now compete for the first time on a much bigger scale in the same city.

The capital’s two airports would make Beijing “one of the most competitive markets in the world”, according to OAG Aviation’s Mayur Patel, highlighting “how much confidence the aviation industry has in China”.

Daxing, when fully operational, will be capable of handling 100 million passengers a year. In contrast, Beijing’s existing three-runway airport flew 94 million passengers in 2016, according to official statistics.

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With its new home, China Eastern is hoping to attract transfer passengers and expand its customer base. It is counting on the experience of Delta Air Lines, which is valued at US$35 billion and made a profit of US$6.6 billion in 2016.

Delta’s main base at Atlanta, in which it has a 75 per cent market share, handled 104 million passengers last year, making it the busiest on the planet.

“With new infrastructure developments [coming], that will give China Eastern a tremendous uplift, and they can base aircraft over there and set up a very sizeable network,” Delta’s China president, Wong Hong, told the Post.

“We see that as a very strong second hub we develop, together with Delta. We have a lot of experience in developing hubs in the United States, so using that experience, working with China Eastern, we are so excited to partner with them, expanding a market like Beijing.”

China Eastern could not be reached for comment.

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Delta, which owns a 3.55 per cent stake in the Chinese carrier and has a seat on the airline’s board, is looking at the bigger picture with China Eastern. The pair share stakes in Air France-KLM as well, enjoying access to customers from China, the US and Europe.

China Eastern and China Southern will jointly control an 80 per cent market share of travellers at Daxing – up from the estimated 29 per cent they hold together at Beijing Capital, versus Air China’s 37.5 per cent share.

China Eastern will base 200 aircraft at Daxing, while China Southern said it would place 250 aircraft there by 2025 – amounting to 900 daily flights, compared with 1,200 at Hong Kong International Airport.

Both Chinese airlines have picked up partners among the three major US carriers, which are among the biggest in the world. China Southern gained American Airlines as a shareholder more recently, while Air China sells tickets for United Airlines flights as if they were its own under a code-sharing agreement.

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Beijing’s two airports would allow for more flights on China-US routes serving the two largest aviation markets in the world.

The main international airports in Beijing and Shanghai are the two most popular for foreign airlines but both are nearly full, which is why more partnerships are being sought with mainland Chinese airlines as travel demand grows.

“The investments ... are aimed at fostering a deeper partnership between these US carriers and the Chinese airlines to help feed more Chinese traffic into their overall network and vice versa,” said Aviation analyst Corrine Png, CEO of Crucial Perspective.

“Chinese airlines will grab the lion’s share of the fast-growing Transpacific, China-US, aviation market in the years to come.”

OAG’s Patel added: “The big three Chinese airlines are extremely attractive alliance partners for any grouping and the moves we are seeing now are only the beginning.”