Companies

China Southern to join SkyTeam

By Wang Ying (China Daily)
Updated: 2010-06-03 08:51

A worker loads cargo at Fuzhou Changle International Airport in Fujian province. In spite of having the largest aircraft fleet among mainland carriers, China Southern is the least competitive in the cargo market. Zheng Shuai / for China Daily

Airline hopes alliance will help give it greater competitive edge

SHANGHAI - China Southern Airlines is set to join Sky Team Cargo next Tuesday to help strengthen its competitiveness in the industry, a company source said.

The source said that China Southern hopes that the alliance will help give it a competitive edge against Air China and China Eastern in the cargo flight business.

The carrier's latest move is being closely watched by the industry as the government launches another restructuring of the airline industry by combining the cargo handling business of the three major carriers.

It hopes that the combined company can have the capacity and capability to compete more effectively with foreign logistics companies, such as FedEx, DHL, UPS and TNT.

Nearly 80 percent of domestic air cargo is currently handled by the four major international logistics companies.

As early as May 25, the South China Morning Post (SCMP) cited an unnamed source saying that in order to gain te upperhand in the domestic cargo market from foreign carriers, Air China, China Eastern, and China Southern had been required to strengthen their cooperation in the cargo industry.

SCMP also reported that a preparatory team formed by State-owned Assets Supervision and Administration Commission (SASAC) officials and airline executives was working out the details of the consolidation, including the shareholding structure of the new cargo airline.

"The cargo restructuring was initiated in early 2009 by SASAC and the National Development and Reform Commission (NDRC), when airlines' cargo business was hit hard by the global economic crisis," said Yao Jun, an analyst with China Merchants Securities.

Given that domestic cargo airliners only occupy around 20 percent of the local market, it is necessary to build a stronger Chinese cargo operator to safeguard both national security and the domestic cargo business, said Li Lei, an analyst from Citic China Securities.

In spite of having the largest fleet among mainland airlines, China Southern is the least competitive in the cargo market. Its two major rivals China Eastern Airlines Co Ltd and Air China Ltd both have cargo airlines based in Shanghai - China Cargo Airlines and Air China Cargo Co Ltd.

In addition, Air China invited Cathay Pacific Airways to set up cargo joint venture in Shanghai in February. China Eastern has a 70 percent share of China Cargo Airlines, while its newly subsidiary Shanghai Airlines also owns a strong cargo company in Shanghai.

"China Southern will be much more competitive once its cargo business joins Sky Team Cargo," said Yao.

However, Li argued the airline's new move would lessen the chances of a cargo restructuring. "There has been no official clarification on this issue so far, and none of the top three major airlines has commented on it," Li said.

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"In addition, there are too many issues to be solved before anything real moves on. How many shares would each of the three carriers get from the cargo company, and which of the three would become the dominant party?" Li added.

Although Air China Chairman Kong Dong said last month that the cargo business consolidation was "not a rumor", top management at the other two carriers have made no comment so far.

Luo Zuping, board secretary of China Eastern, said he was not aware of the news, and said China Eastern's cargo business was currently undergoing an internal restructuring that would be completed within six months.