China Southern Airlines

China Southern takes American Airlines on board as minority shareholder

China Southern, the sole Chinese carrier to take delivery of the A380, is the last among the country’s three biggest airlines, to take on a foreign partner

PUBLISHED : Tuesday, 28 March, 2017, 1:05pm
UPDATED : Tuesday, 28 March, 2017, 11:36pm

China Southern Airlines, the largest passenger carrier in Asia, said it has taken the biggest US airline on board as a minority shareholder, forging an alliance to help transform its operations to compete domestically and overseas.

The Guangzhou-based airline will issue 270.6 million shares valued at HK$1.55 billion (US$200 million), or HK$5.74 apiece, to American Airlines Group, giving the US carrier 8.83 per cent of the enlarged number of issued H-shares of China Southern, according to a filing to the Hong Kong stock exchange.

The two carriers “may seek to increase cooperation in code sharing, transport sharing agreement, staff and experience sharing, sales, passenger loyalty programme, and airport facilities sharing,” China Southern said in its statement.

China Southern’s Hong Kong shares closed 2.7 per cent lower at HK$5.34 after jumping as much as 2.9 per cent following the announcement release on Tuesday morning.

“The deal will benefit two carriers mainly in terms of cost reduction and passenger numbers,” said Delta Asia Securities’ chief operating officer Victor Au. “The cooperation with American Airlines signals the initial step of a reform in China’s airline industry,” where ownership will become a mix of the state with private enterprises, he said.

China Southern is the last of the country’s three dominant carriers to sign a foreign partner. Cathay Pacific Airways, based in Hong Kong, owns about 18 per cent of flag carrier Air China, while China Eastern Airlines sold a minority stake to Delta Air Lines in 2015.

Having American Airlines on board will help China Southern by adding routes to the US and other global destinations, according to Tian Feng Securities’ analyst Jiang Ming. In China last year, about 122 million people travelled abroad, a 4.3 per cent increase from 2015.

Guangzhou, the headquarters of China Southern, generated 562,000 outbound travellers to the US in the first eight months of 2016.

China Southern is the sole Chinese carrier to operate the Airbus A380. The aircraft is deployed on a domestic route serving Guangzhou and Beijing and on a non-stop service between Guangzhou and Los Angeles.

“The strategic cooperation will help China Southern to expand US-China lines and also stimulate other Chinese airlines to seek overseas partners,” said Au.

He added that the profit pressures faced by Hong Kong carriers are likely to accelerate if China further expands its international route network.