China Southern Airlines is the largest Chinese airline corporation according to passenger travel statistics. It serves many countries worldwide, providing flights to Boston, New York, Chicago and even to Hawaii to the millions of Chinese tourists who tour America all through the year.
These are some of the reasons that American Airlines has decided to try and cooperate with the flight company. Should American Airlines end up having a stake in the China Southern Airline, it will mark its spot as the second US-based airline to own part of a Chinese flight company. The first American company to do so was Delta Airlines Incorporated, which bought 3.55 percent of the China Eastern Airline in 2015. The China Eastern Airline was evaluated at an approximated twelve billion US dollars by then. Delta is American Airlines’ competitor and owns shares in Virgin Airlines and the China Southern Company as well. “American airlines will do business with countries all over the world, and certainly with China. It is part of how they grow,” former American Airlines chairman Robert Crandall in an interview with Bloomberg.
The Conditions of the Proposed Agreement
Though negotiations talks have not yet concluded, financial analysts have given possible conditions that could come out of the agreement.
Geoffrey Cheng of BOCOM International is one such analyst. According to Cheng, cooperation between the two airline companies would see that they pool their resources to improve the quality of and increase the number of their shared flights.
Cheng also suggests that the two companies could try to find a way to link second-tier US and Chinese cities to boost flight routes. However, Cheng notes, if the companies were to follow the example of the Delta-China Eastern agreement, American Airlines would buy up 3.55 percent of the China Southern Airline but would not have voting rights within the company.
Cheng also echoed the statement that China Southern Airlines released clarifying that the company ‘may or may not have reached a binding agreement with American Airlines’ and even if the agreement is binding, it ‘may or may not go through’ pending government and stakeholder approval.
The Good that comes with Cooperation
Should the deal between the two airlines go through, then both are set to gain from the partnership. Already American Airlines saw a 6.9 percent rise in stock value on Friday following the announcement of the negotiations, while China Southern experienced a 5.3 increase in its Hong-Kong stock. The rest of China Southern’s shares were suspended after the announcement was made.
A cooperation agreement between the two airlines would mean more flights could be scheduled in various cities in both countries. The agreement would also mean stronger ties between the airlines and by extension between China and America.
American Airlines would be able to penetrate the Chinese market with a Chinese airline for a partner, putting it on the same tier as its rival Delta. The agreement would, in turn, elevate consumer awareness of the China Southern Airline. Will Horton, a senior analyst at the CAPA Center for Aviation, said regarding China Southern’s gain, “China Southern is just another airline to Americans, but only until consumers realize that the carrier American believes in it.”
