Fresh from its spurned liaison with China Eastern Airlines, Air China has started talks with Shanghai Airlines in a bid to acquire a stake in the carrier which has a strategic foothold in the rapidly growing Shanghai air hub.
"Shanghai Airlines can be a good partner in the city," said Sun Yu, Air China’s head of planning and development, in an interview with Bloomberg. "The joint efforts may enable us to arm wrestle China Eastern in Shanghai."
Air China aims to further tap the world’s fastest growing air- travel market by establishing a hub in Shanghai to match its presence in Beijing. Air China would more than double its market share with the combination, helping it challenge China Eastern.
"Air China’s first priority is to get Shanghai, regardless of the cost," said Andrew Au, an analyst at Cazenove Asia Ltd told Bloomberg. "Shanghai Airlines is the second-best choice, if Air China can’t get the larger China Eastern."
Shanghai Airlines has 15 per cent of Shanghai’s aviation market by number of passengers, while Air China has 12 per cent. Shanghai-based China Eastern has 40 per cent.
Meanwhile, China Southern Airlines has re-entered the debate on the future structure of China’s airline industry with chairman Liu Shaoyong advocating that the various state-owned shareholdings in Air China, China Eastern Airlines and his carrier be combinedinto one holding company.
This suggestion doesn’t fit with that being pursued by China Eastern however. China Eastern is seeking a foreign strategic partner, whose proposed tie-up with Singapore Airlines was quashed last year after Air China convinced China Eastern shareholders that SIA’s bid of HK$3.80 (US$0.49) per share for 24 per cent of China Eastern, was too low.
China Eastern and Air China, on the other hand, nearly four years ago talked of a partnership between their cargo divisions, to help fend off encroaching international cargo carriers.
In 2006, the two airlines formalised the agreement and said the two cargo operations – China Cargo Airlines and Air China Cargo would be merged by end-2006 with each carrier holding a 50 per cent stake. But before the merger could be completed the plan was scrapped after SIA entered the fray with a morelucrative offer.
