Lufthansa inks deal with Shanghai Airlines
By Wang Yu (China Business Weekly)
Updated: 2004-04-13 10:59

As the Sino-European aviation market gradually revives from various crises, major European air giants are gearing up their efforts to seek closer local partnerships.

Despite the fact that Shanghai Airlines Co Ltd (Shanghai Airlines) still remains tight lipped over its application for long-distance international flights, European aviation giant Deutsche Lufthansa AG (Lufthansa) revealed last week that a long-awaited bilateral co-operation agreement was formally hammered out between the German carrier and the fast-growing Chinese regional carrier, which is based in China's east.

The agreement, effective from May 1, will give both sides a better chance to further tap the growing Sino-German aviation market, sources from both Lufthansa and Shanghai Airlines revealed.

"By working with Shanghai Airlines, we believe we can provide our customers with an even more attractive product to and from China. In fact, we are very pleased that, in addition to our tried and tested partnership with Air China, we have found one more dynamic partner in China." said Wolfgang Mayrhuber, chairman and chief executive officer of Lufthansa.

As to whether Lufthansa's co-operation with Shanghai Airlines will affect its existing partnership with China's flag carrier, Mayrhuber responded positively.

"I do not think so. The Chinese market is so vast that it can surely hold a lot of competitions and has quite a lot of opportunities for further growth."

Besides, Air China and Shanghai Airlines are not rivals in the local market.

Carsten Spohr, Lufthansa's vice-president in charge of Strategy and Alliances, told China Business Weekly in the past that: "Shanghai Airlines has a close relationship with Air China. So we do not think our new collaboration will be regarded as a problem."

Echoing Mayrhuber's remark, Zhou Chi, president of Shanghai Airlines, also expressed optimism towards the prospect of the partnership.

"We are glad to join with Lufthansa -- one of the world's outstanding airlines. It is meaningful to fully take advantage of Pudong Airport as one of the most important aviation hubs in China. At the same time, the co-operation with Lufthansa will promote the business growth of both parties and satisfy our passengers better."

The German carrier and its Chinese counterparts will operate along some of their routes with code-sharing and will also closely work together in frequent flier programmes.

After the new agreement takes effect, Lufthansa's customers will be able to fly to more Chinese destinations from Shanghai under Lufthansa flight numbers.

The partnership will initially involve three domestic routes used by Shanghai Airlines, namely Shanghai-Beijing, Shanghai-Shenzhen and Shanghai-Qingdao.

Shanghai Airlines to fly out

As to whether the newly inked partnership will benefit Shanghai Airlines' planned international flight business to Germany, the regional carrier remained tight lipped, preferring not to comment at all.

"Since everything is still under revision by the authorities, we have nothing to say right now," a senior official said last week.

Shanghai Airlines has submitted an application to the Chinese aviation authority to fly to Germany, a move widely regarded by many analysts as a positive in the bid to break the monopoly of major international flights by the three top Chinese aviation groups -- Air China, China Eastern Airlines Co Ltd and China Southern Airlines Co Ltd.

Shanghai Airlines operates a fleet of 31 aircraft and reported a turnover of US$546 million and a profit of US$11.11 million in 2003.

Further co-op

Lufthansa has been co-operating with Air China since October 2000. It flies to the Chinese mainland's major hubs -- Beijing, Shanghai and Guangzhou (via Shanghai) through code sharing agreements with Air China.

Also through recently expanded code sharing, Lufthansa can reach second tier cities like Dalian, Chengdu, Hangzhou, Nanjing and Xi'an.

Lufthansa is leading other European competitors in China in terms of flights available locally. It flies to Beijing, Shanghai and Hong Kong from both Frankfurt and Munich as well as to Guangzhou from Munich via Shanghai and offers a total of 41 weekly flights.

Following suit

Besides Lufthansa, another European aviation powerhouse -- British Airways (BA) -- is also busy seeking local code sharing partners.

"We are right now negotiating with several potential business partners in China. Perhaps the result will come out in several months," Frank Yan, passenger sales manager of BAin China told China Business Weekly.

Yan revealed that BA is considering opening a new route linking Shanghai and British cities, as the recent bilateral air transportation negotiation has resulted in more flights being permitted between China and the United Kingdom.

"Maybe this year or later next year, BA will launch new flights to and from Shanghai," Yan said.

"Of course, we will seek more collaboration and co-operation with local carriers in Shanghai when our flight opens."

Compared with Star Alliance, in which Lufthansa was a founding member, the One World Alliance led by BA has had a relatively low profile in the Chinese market in recent years.

"It is true that Star Alliance is stronger and has a larger market share. But we will also try our utmost to meet the market demand by working with local partners," Yan said.

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