December 16, 2013
They may be alliance partners, but they are not friends. For the third time this year, China Southern is attacking a major base of fellow SkyTeam member China Eastern, this time with an application to set up a branch company in Kunming.
The move follows China Eastern's defeat of a similar move by China Southern at Shanghai in the last two months. Before that, China Eastern's lobbying prevented China Southern from flying Airbus A380s between Kunming and Beijing.
Under the bureaucratic schematic of the Chinese airline industry, a branch company can be the basis of enlarged operations.
China Eastern has 41% of traffic at Kunming, the home of a provincial carrier it absorbed in 2003, Yunnan Airlines. China Southern and Lucky Air vie for second place—each holds about 12% of traffic—according to official statistics for July-September this year. The third major Chinese carrier, Air China, is not a major player at Kunming, which has a population of about 7.3 million, including rural districts, and is the gateway to some of China's major tourism attractions.
If China Southern succeeds in setting up the branch company, it will probably have the support of the Kunming city government, Yunnan provincial government, or both, since each will have a strong interest in promoting competition at Kunming Changshui airport. Government support can take the form of cash subsidies for new routes, low-interest finance for investments and cheap land for facilities.
China Southern has applied to the southwestern China office of the Civil Aviation Administration of China (CAAC) to set up the branch company, says an official of that airline at Kunming. China Eastern could formally object that China Southern's move would exacerbate competition. Behind-the-scenes string-pulling is likely, too, and likely to have the most influence.
An official of China Eastern expects that China Southern would use a Kunming branch company to build up connections with major domestic and Southeast Asian destinations.