22 MARCH 2010

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Article from BTNews 22 MARCH 2010

COMMENT: Alliance Wars

Whilst airlines all around the world proffer crocodile tears at British Airways and its union troubles, offer back up services (for a fee) and happily take on (again for a fee) displaced passengers, at least the strike, hopefully, will be short term with the knock-on consequences manageable. 

In the background however two questions remain to be resolved for BA, both with long term implications.

The so-called merger with Iberia progresses.  What will the shareholders make of it?  That is point one.

Point two and vital for the future.  Where is the oneworld alliance going?

One month ago it looked to be in serious trouble with major partner Japan Air Lines in danger of a complete default, or even worse, moving to a competing airline.

Japan Air Lines stayed with oneworld.

And now an even tastier partner is making noises, or at least looking around.

China Eastern Airlines was founded in 1988 and was the first Chinese airline to be listed on a stock exchange although the Government still owns 60%. 

Various airline suitors have come in search of association over the years including Cathay Pacific and Singapore Airlines.  It has around 250 aircraft and serves 100 destinations.  It was profitable in 2009.  And it will make a vital decision regarding joining one of the three global airline alliances “within weeks”. l

Logic says oneworld should be the obvious path, as Air China is in Star and China Southern is in SkyTeam.  But as ever there are complications!  Its relatively new Chairman was previously CEO of China Southern and took the decision to take that carrier into SkyTeam and has maintained close links with SkyTeam airlines since.  China Eastern's newish CEO was previously commercial head at Air China and was leader of the team that took Air China into Star.

China Eastern has recently taken over and is absorbing Shanghai Airlines – a Star Alliance member.  There is much of rumour of further consolidation in China, which may cloud and influence the cooperation issues.  

What China Southern has to decide is whether it wants to be the smaller, "new kid on the block" Chinese partner in one of the other alliances – with Air China in Star and China Southern in SkyTeam – or to have its own full voice as the only mainland China member in oneworld.  Its largest bilateral partner is JAL.  Cathay Pacific, having once been near to a relationship, could be a useful ally.  British Airways is an important member of oneworld, and in spite of its current problems worth getting know better.

The whole thing is a intriguing conundrum worthy of the manoeuvring and conspiracy of ancient China.  It seems in the East nothing changes.

Malcolm Ginsberg

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