American Airlines eyes better access to China market: analyst

American Airlines’ reportedly seeking to acquire a stake in China Southern Airlines may be sparked by the world’s largest airline wanting better access to the world’s largest passenger market and industry competitive pressures, according to an analyst.

Bloomberg reported on Wednesday that according to people familiar with the matter, Fort Worth, Texas-based American is in advanced talks to invest about $200 million in the Hong Kong shares of China Southern, China’s biggest carrier. American’s investment would buy it a non-voting seat on China Southern’s board, Bloomberg said.

A spokesman for American Airlines declined to comment. China Southern could not be reached for comment.

Daniel McKenzie, director of equity research at New York-basd Buckingham Research Group, said in an email that the “money buys (American) a spot at the table, and given that Delta has invested in China Eastern, American feels compelled to cultivate a closer relationship with a Chinese airline as well.”

In 2015, American rival Delta Air Lines Inc acquired about 3.55 percent of the shares in China Eastern Airlines for about $451.5 million.

McKenzie also said that American is looking for better access to the Chinese market, which the International Air Transport Association predicts will surpass the US to become the world’s biggest in terms of passengers by 2024.

“A bigger, more strategic presence in China for (American) to offer its US-based customers more travel options,” McKenzie said. “In relying on just the US market for sourcing its passengers, it’s tougher to fill planes and compete effectively. (By) teaming up with a powerful Chinese airline, it’s an easier endeavor as American then gains the ability to source locally in China to help fill up its planes.”

China Southern and Delta are members of the SkyTeam global airline alliance while American is in the competing Oneworld group, which doesn’t have a China-based partner yet. These alliances make it easier for passengers to fly around the world by combining schedules through one carrier and enabling travelers to accrue and use frequent-flier miles across airlines. China Eastern also is a SkyTeam member.

“(China Southern is) already a code share partner with Delta, so (American) has to convince China Southern they’re better off with not just American, but more broadly with the Oneworld alliance in order to entice it into switching its allegiance,” noted McKenzie. “In a network industry, it’s all about the network, so the alliance team at American is going to try and convince China Southern that it would be better off globally in a Oneworld alliance.”

A China Southern stake sale would also help the Chinese government’s efforts to diversify ownership of state-owned enterprises. At the country’s Central Economic Work Conference late last year, six state-owned enterprises were designated as pilot companies for diversifying ownership of SOEs in 2017, including China Eastern Airlines, China Unicom and China Southern Power Grid Company Ltd.