The carriers, both members of the Star Alliance in which airlines cooperate, could announce plans to further strengthen their partnership during German Chancellor Angela Merkel's seventh visit to China from July 5 to July 8.
"We aim to deepen and further expand our relationship in the face of rising competition from other airline alliances," said an official at the Chinese carrier who declined to be named. He noted possible areas of cooperation include an intention of setting up a commercial joint venture on routes between China and Europe, though details of the planned accord have yet concluded.
By forming a commercial joint venture the two airline group could boost their network and capacity in China-Europe market, while optimizing flight times.
Lufthansa previously has said it is interested in adding to joint venture accords beyond those it has into the Japanese and North American markets. Establishing such a pact in China has interested management for some time. Lufthansa currently has revenue-sharing joint ventures with United
Continental Holdings Inc., Air Canada and ANA Holdings Inc.
A joint venture accord, if approved by regulators, allows airlines to closely coordinate operations and ticket pricing. On certain routes, the airlines can operate virtually like a single carrier without violating antitrust rules. Such deals provide far greater financial benefits than mere alliance partnerships or code-share agreements by helping to boost sales and curb costs.
Joint venture accords are increasingly popular among airlines to boost financial returns in an industry with larger barriers to consolidation. Most countries place limits on foreign investments in their airlines, effectively blocking many cross-border mergers.
European carriers such as Lufthansa and rivals British Airways and Air France-KLM are seeking stronger ties into growth markets such as China to offset shrinking European business. Strengthening direct ties into China also is seen as a way to keep passengers from defecting to the high-growth Persian Gulf carriers, such as Emirates Airline, the world's largest by international traffic. An agreement between Lufthansa and Air China would cement ties between the two airline groups whose relationship dates back to 1989 when they established an aircraft maintenance joint venture--Ameco Beijing. The Chinese airline holds a 60% stake and Lufthansa has the remaining 40% interest.
In 2007, Air China joined the Star Alliance, –the world's biggest airline alliance with 27 members when Air India this month joins carriers such as Singapore Airlines Ltd., and Air New Zealand Ltd. The German and Chinese carriers first signed a code-sharing agreement in 2000, allowing their customers to be booked on flights on partnering airlines.
Airline alliances benefit members through marketing campaigns and various forms of cooperation to lure customers. Member airlines also pool ticketing and airport resources to save on operating costs. Air China's state-run rivals China Southern Airlines Co. and China Eastern Airlines Corp, belong to SkyTeam airline alliance. Hong Kong's Cathay Pacific Airways is part of the Oneworld alliance that includes carriers such as British Airways and its joint venture partner American Airlines Group Inc.
Source: Wall Street Journal by Joanne Chiu and Robert Wall
from China Travel & Tourism News http://ift.tt/1iB6EFm
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