Cathay Pacific

China Southern Airlines to quit Skyteam alliance of carriers, with potential danger for Hong Kong’s Cathay Pacific

  • Guangzhou-based carrier to leave in the new year, sparking talk it might join Oneworld
PUBLISHED : Thursday, 15 November, 2018, 9:23pm
UPDATED : Thursday, 15 November, 2018, 9:38pm

China’s biggest airline is leaving one of the world’s major aviation alliances, shaking up travellers’ options and possibly signalling a realignment that could have big implications for Hong Kong’s Cathay Pacific Airways.

Guangzhou-based China Southern Airlines, one of the world’s 10 biggest carriers, said on Thursday it would quit the Skyteam alliance on January 1, 2019.

Major airlines are in one of three global airline clubs – Skyteam, Star Alliance and Oneworld, which counts Cathay Pacific as a key member. Airlines’ frequent flier members can use the points with their companies’ partners, and can benefit from a wider range of destinations on one booking. Code-share arrangements between the allies are common.

Announcing the split, the airline said: “The company will explore the possibility of establishing new partnerships with advanced airlines around the world, promote bilateral and multilateral cooperation and provide quality services to passengers around the world.”

Skyteam CEO Kristin Colvile said it respected the airline’s decision and wished it well.

The groupings are seen as decreasingly relevant as carriers seek one-to-one partnerships with different airlines across different alliances.

Last year American Airlines – part of the Oneworld club – sealed a US$200 million (HK$1.5 billion) deal with China Southern, which included the US carrier taking a 2.76 per cent stake in the company.

Cathay obviously would not like China Southern in Oneworld, but also does not want confrontation with the alliance
Will Horton, airline analyst

The deal cast doubt on the relationship between Skyteam and the Guangzhou carrier, which appeared isolated within the club after Delta Air Lines, the powerful founding member, last year sealed its own pact with Air France, the Netherlands’ KLM and China Eastern – all fellow members.

Since then, China Southern has sealed a partnership with another Oneworld member, British Airways.

For it to formally join Oneworld would be complicated for Cathay Pacific. That would mean two carriers with very close home bases – Hong Kong and Guangzhou, respectively – in the same alliance. Both serving the same destinations, the airlines would compete for the same long-haul travellers.

Ellis Taylor, Asia finance editor for industry publication Flight Global, said: “If China Southern moved to Oneworld, it could be a real boost for its Guangzhou hub, as it could attract other Oneworld carriers to use that as their main gateway into China.

“But that would be a major threat to Cathay Pacific’s hub and its strategy of being the Oneworld carrier that serves Greater China best.”

Independent airline analyst Will Horton noted that for China Southern to make a move towards Oneworld could be awkward for the loss-making Hong Kong carrier.

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“Cathay obviously would not like China Southern in Oneworld, but also does not want confrontation with the alliance,” he said.

It was unclear whether Cathay Pacific would let China Southern join the club. As a founding member, it has a veto on significant decisions, but joining another alliance could also pose its own problems.

Cathay Pacific declined to comment. According to Reuters, a China Southern source said it would consider joining Oneworld but had not made a decision and would not do so straight away.

Ang Li, project manager of mainland Chinese aviation data firm VariFlight, agreed that China Southern’s longer-term aim could be to move closer to airlines it has a partnership with.

“As for its impact on Cathay Pacific, I think we should wait and see what exact moves China Southern will take,” he said.

A bigger shake-up to the alliances could be coming, particularly within Oneworld after Qatar Airways threatened to quit in the face of what it said were anti-competitive tactics by fellow members American Airlines and Australia’s Qantas.

China Southern has 580 aircraft and carried 126 million passengers last year, making an operating profit of US$1.1 billion on revenue of US$19.5 billion.

Reacting to the exit, a Oneworld spokesman said: “Our members will assess in due course the potential implications for Oneworld of China Southern’s announcement.”