China Southern sees yields still falling; American Airlines deal boosts US flights

Passenger yields on international routes will remain in decline this year because of fierce competition in the aviation sector, according to Asia’s largest carrier, China Southern Airlines.

Luo Laijun, acting director of the airline’s commercial steering committee made the gloomy prediction on Wednesday when the carrier announced an increase in flights to the US under a code-sharing arrangement with American Airlines, its new minority shareholder.

“We will operate more non-stop flights to the US as part of our cooperation with American Airlines,” said Wang Changshun, the chairman of China Southern. He said this would start with 10 flights in a code-sharing agreement, in which the two airlines will share the same flights.

The Guangzhou-based airline announced last week that it would 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’ biggest carrier 8.83 per cent of the enlarged number of its H-shares.

“We think that a strategic cooperation with American Airlines, if realised, will help China Southern Airlines to strengthen its footprint in the American market,” said Vincent Ha, an analyst at Deutsche Bank. “But we do not expect the impact to be immediate and significant at the beginning.”

The deal came two days before China Southern reported that its net profit had surged 35 per cent last year to 5.04 billion yuan (US$731.6 million) as it repaid dollar debt ahead of schedule to mitigate the impact of the yuan’s depreciation.

However, yield per revenue passenger kilometre – the average amount that a passenger pays to fly one kilometre – dropped both for domestic and international routes, down 3.6 per cent and 11.1 per cent respectively in 2016 from the previous year.