China Eastern, Japan Airlines team up
Carriers to tap Chinese tourism boom with first-of-a-kind joint venture
China Eastern Airlines Corp and Japan Airlines Co (JAL) are teaming up to capitalize on a boom in Chinese tourism. To realize this goal, the two carriers plan to form a joint venture (JV) in the first such deal between a Chinese and Japanese carrier.
On August 2, the airlines, which already have a code-sharing agreement, said the venture will allow them to coordinate flight times, offer more connecting flights, set lower ticket prices and share revenue on routes they both fly such as Tokyo to Shanghai.
They aim to begin operations in the first half of 2019 pending approval from competition regulators.
“This partnership will generate more passenger traffic between the two countries and open up commercial opportunities,” said JAL Chairman Yoshiharu Ueki.
Political risks
The tie-up comes at a time of relative calm between two countries whose relationship has been historically strained. Six years ago, a territorial dispute sparked anti-Japanese protests across China and a temporary drop in Chinese visitors to Japan.
Chinese tourism to South Korea has similarly fallen in recent years during times of diplomatic crises.
“We understand we may have political risks in China,” said a spokesperson for JAL. “We don’t have any backup plans. But we believe we share any difficulties between us – not only political but also others. We think that is joint business.”
A JV in the airline industry refers to an agreement for coordinating aspects of business such as scheduling and pricing. The JAL spokesperson also said there were no plans for the airlines to make equity investments in each other.
Corrine Png, chief executive of transport research firm Crucial Perspective, said that regulatory approval was likely based on today’s diplomatic relations, but that there was a risk of delay or cancelation if relations soured during the application process.
Travel upsurge
China has been experiencing a boom in tourism in tandem with rising household incomes. Neighboring Japan has been one of the main beneficiaries, with Chinese people comprising the largest group of visitors to the country.
In 2017, spending by foreign tourists in Japan reached a record high of 4.42 trillion yen ($39.9 billion), 1.69 trillion yen of which came from Chinese travelers, official data shows.
More than 7 million Chinese tourists visited Japan last year, up 15 percent from a year earlier, data from the Japan National Tourism Organization showed in March. Only one-third as many Japanese visited China in 2016, latest data showed. Chinese travelers spent a total of 1.69 trillion yen.
Will Horton, senior analyst at the CAPA Center for Aviation, said the China Eastern-JAL JV makes commercial sense, but is unlikely to bring as big a financial benefit as ventures involving long-haul flights where connections are more common.
“Short-haul JVs have limited impact across the network aside from when the two airlines control a notable amount of capacity on a trunk route [such as Tokyo-Shanghai]. Then they can choke the consumer and then shake the change out,” Horton said.
JAL is part of the Oneworld airline alliance whereas China Eastern is a member of its rival SkyTeam.
Cross-alliance deals have become increasingly common in recent times as airlines seek financially beneficial bilateral tie-ups.