Wed, Sep 21, 2016 - Page 11 News List

Lufthansa, Air China ink code-sharing agreement

LOOKING EAST:The pact will allow the German national carrier to extend its reach in China, which is poised to overtake the US as the world’s biggest air-travel market

Bloomberg

Deutsche Lufthansa AG and Air China Ltd (中國國際航空) yesterday signed a cooperation agreement that will enable the Star Alliance members to take on competition from rival Skyteam partnerships on China-Europe routes and boost earnings.

The flag carriers of Germany and China plan to increase coordination on flight schedules and expand code-sharing on China-Europe flights when the venture takes off next year, Air China chairman Cai Jianjiang (蔡劍江) said at a signing ceremony in Beijing.

The venture, pending regulatory approval in Europe and China, is the closest the two carriers can get under restrictions on foreign control of Chinese airlines.

The agreement follows two years of negotiations and is aimed at giving Lufthansa and Air China a better grip on China-Europe routes to expand their market leads.

Air France-KLM Group has joint ventures with Skyteam alliance partners China Southern Airlines Co (中國南方航空) — the biggest Asian airline by passengers — and China Eastern Airlines Corp (中國東方航空) that involve timetable harmonization and cost and revenue-sharing on some routes.

“We expect our combined market share will expand as our capacity increases and thus we will see revenue increasing,” Air China board secretary Rao Xinyu (饒盺瑜) told reporters after the ceremony. “We made the decision to team up with Lufthansa given that we face the same threats.”

Air China is the No. 1 carrier on China-Europe routes with a market share of 22 percent, followed by Lufthansa with 17 percent, Rao said.

She said the market share figures and the partnership signed today exclude northern Europe and Russia.

The deal will help Air China reduce its reliance on the domestic market, which accounts for more than 60 percent of its revenue.

The partnership, whose preliminary agreement was announced in 2014, will allow Lufthansa to extend its reach in a nation poised to overtake the US as the world’s largest air-travel market.

It also adds to Lufthansa’s network of revenue-sharing agreements for major markets as it seeks to fend off threats, including from Gulf carriers such as Emirates and Qatar Airways.

The German carrier last year struck a similar revenue-sharing pact with Singapore Airlines Ltd and already has other network partners, including United Airlines, Air Canada and Japan’s ANA Holdings Inc.

Lufthansa shares fell 1.7 percent to 10.285 euros as of 10:55am in Frankfurt trading. Air China shares fell 0.9 percent to close at HK$5.47 in Hong Kong trading.

The Air China agreement would mean close to half of Lufthansa’s long-haul capacity would be covered by commercial joint ventures, according to CAPA Centre for Aviation in London.

In addition to operating passenger flights under code-share agreements, Lufthansa and Air China also jointly own Ameco Beijing (北京飛機維修工程), an aircraft maintenance company they established in 1989 that employs more than 11,000 people.

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