Should China Southern join oneworld? Part two

The Chinese megacarrier could be a great fit for the alliance

China Southern (CZ) is one of the world’s most important airlines. By my reckoning (see article), this year they will have around 638,560 flights, 5.3 million business class seats and 115 million economy and premium economy seats. They operate from two hubs (Beijing and Guangzhou) and eight or more focus cities, depending on how you define a focus city.

China’s other two largest carriers, Air China and China Eastern, are both members of international airline alliances. Air China is in Star Alliance, the alliance with the broadest and deepest network. China Eastern is in Skyteam, the alliance with the best coverage of developing economies. Only the oneworld alliance remains. Should China Southern join it.

In last week’s article we looked at how China Southern’s impressive network is constructed. This week let’s look in detail at five questions:

1. Which oneworld airlines does CZ connect with and are these connections high quality (i.e. not too long)?

2. Which oneworld airlines does CZ not connect with?

3. Would CZ’s membership of oneworld cause any issues for other Chinese airlines?

4. Would CZ’s membership of oneworld abstract revenue away from Hong Kong-based oneworld member Cathay Pacific, or any other  oneworld members?

5. Is China Southern’s product and service aligned with oneworld brand values?

I am grateful to Zara Stellwag, a student, who helped me put together the research. Thanks Zara!

This is not the first time this blog has asked whether or not an airline should join an alliance. We concluded that Skyteam membership was probably viable but not particularly worthwhile for Etihad, the airline of Abu Dhabi (see article). For China Southern however I think the case for alliance membership is compelling.

Unfortunately there are rarely clear strategic pathways in the airline business. Airlines have many projects that they can do. The question is what they should do.

Alliance membership is probably worthwhile for most airlines, especially large carriers like China Southern. So the question becomes more one of degree – how strong is the business case for alliance membership rather than does a case exist at all.

As in the Etihad case, I have awarded a score out of ten to the five questions above in the same way that universities in the UK award degrees. Scores are as follows:

1/10 = terrible, 2/10 = bad fail, 3/10 = fail

4/10 = third class, 5/10 = lower second class, 6/10 = upper second class

7/10 = borderline first class, 8/10 = first class, 9/10 = the most amazing business case you have ever seen

10/10 = absolute perfection

To interpret the final results, I use the following scale.

1, 2 or 3 (fail) = don’t join the alliance!

4, 5 or 6 (second or third class case) = joining the alliance is not a bad move, but there are probably more valuable projects

7, 8 or 9 (first class case) = join the alliance!

Etihad scored a third – 4/10. CZ scores a solid first – 37/50 (74%). Read on to find out way.

Which oneworld airlines does CZ connect with (or not)?

The table below shows the extent to which every oneworld member flies into China or not based on the schedule currently filed for 16-Jun to 22-Jun-2024. These numbers are each way.

Japan Air Lines (JAL) has the most flights with 81 each week, not surprising given geographic proximity. From the south, Malaysia Airlines offers 44 services. Qatar Airways follows with 38 flights to six destinations and British Airways (BA) has 23. I was surprised that BA only has four-weekly to Beijing this summer, I was sure it used to be a daily service.

When it comes to number of seats though, the order is slightly different. BA and Qatar Airways both have more business class seats than Malaysia Airlines, but less than JAL. Malaysia Airlines has the most economy and premium economy seats.

CZ also already has significant codesharing in place with oneworld members, summarised in the table below.

CZ codeshare on 27.8% of all oneworld frequencies into China, covering 32.6% of business class capacity and 27.6% of premium economy and economy capacity. I was interested to note that while ba.com will sell me a CZ ticket on Heathrow to Beijing, it will not on Shanghai.

In summary, nine out of 14 oneworld airlines fly into CZ ports. Five of these have codeshares in place. Score = good first class, 8/10.

Are the oneworld connections high quality?

The table below summarises CZ’s connectivity, where a three to six hour connection is classified as ‘good’ and a connection between an airport’s minimum connection time (MCT, not to be confused with Muscat, Oman!) and three hours is ‘very good’. The MCT is 60 minutes at Hong Kong (HKG) and Beijing Daxing (PKX) and 90 minutes at other airports.

The table shows that CZ has plenty of ‘good’ and ‘very good’ connections to almost all incoming oneworld members, although the share of alliance connecting passengers will end up being quite small as a percentage of CZ’s total capacity (the right hand two columns).

This small share could be a reason why CZ has not treated alliance membership as a priority. Perhaps they get many of the benefits of alliance membership without the complexity from codesharing.

Score = first class, 7/10

Would CZ’s membership of oneworld cause any issues for other Chinese airlines?

This is a tricky question to answer definitively. I would make the case that Chinese airlines are already in every alliance. Air China is in Star Alliance, China Eastern is in Skyteam and Cathay Pacific is in oneworld.

There is not just not just one Chinese airline in each alliance either. Shenzhen Airlines is in Star Alliance and XiamenAir is in Skyteam. I cannot think of any reason why any other Chinese airlines except Cathay Pacific (see below) would object.

Score = first class, 7/10

Would CZ’s membership of  oneworld abstract revenue away from Hong Kong-based oneworld member Cathay Pacific, or any other oneworld members?

I calculated the proportion of CZ’s connections, ‘good’ connections and ‘very good’ connections that do not compete with Cathay Pacific flights because they do not serve a Cathay Pacific destination.

The table below shows that 81.6% of all oneworld connecting CZ capacity does not compete with Cathay Pacific. The same is true of 81.2% of 'good’ connections and 80.4% of ‘very good’ connections.

Cathay Pacific is unlikely to have many valid complaints about when it comes to revenue abstraction. Given codeshares already in place, I doubt that other oneworld members would complain either.

Score = good first class, 8/10

Is China Southern’s product and service aligned with oneworld brand values?

I have flown CZ on both international and domestic routes. Longhaul business class has flat beds. Shorthaul business class has tasty food and great crew, as on longhaul too. Shorthaul also has premium economy. The CZ lounge at Guangzhou was good although busy when I went through.

Score = first class, 7/10

Conclusion

So there you have it:

Connectivity = 8/10, connection quality = 7/10, ‘issues’ = 7/10, objection handling = 8/10 product = 7/10. Total = 37/50 = 74%, a very good mark. China Southern should join oneworld.

But I am sure they already know this, so why are they not a member? The answer probably lies in the fact that their vast domestic network simply does not need the international connections which alliance membership would bring in.

This view may well be perfectly correct for the short to medium term. Over longer periods, I expect that the ever growing mass-affluent segment of Chinese consumers will love to spend miles and points on longhaul business class travel just like many readers of this blog. It would be a shame for CZ to miss out on getting in at the ground floor. I reckon they should join the alliance.

oliver AT ransonpricing DOT com

[Image credit & deed]