China Southern wants a piece of China Eastern's Kunming action
They may be alliance partners, but they are not friends. For the third time this year, is attacking a major base of fellow member , 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 flyingbetween 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,, 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 () 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.
A Chinese airline's branch company can run international services and will generally host a considerable domestic operation. The CAAC has nominated Kunming as a secondary international gateway, for Asian regional but not intercontinental services.
As SkyTeam members, China Southern and China Eastern accept each other's frequent-flier points, share lounges and put their codes on each other's flights. There has been scant sign of them working together more deeply, however. It is unclear whether the CAAC would let them coordinate their networks, reducing competition, but the issue has not arisen; the two carriers, both majority owned by the national government, show no interest in such cooperation.
When China Southern tried to set up a base at Shanghai, the country's largest city and the home of China Eastern, lobbying by the latter carrier squelched the move. In that instance, China Eastern also limited China Southern's attempts to reduce dependence on domestic business, since Shanghai is mainland China's second-largest international destination, after Beijing.
China Southern's plan for a Shanghai branch company did not get far. China Eastern's early opposition was enough to persuade the CAAC that the move would not be acceptable, so China Southern desisted.
In July the Shanghai carrier persuaded the CAAC to stop Guangzhou-based China Southern from flying its underemployed A380s between Beijing and Kunming. The aircraft would have highlighted China Southern's presence at Kunming, while also replacing three or four narrowbodies with each flight.
China Southern also covets Beijing, the home of Air China. And so does China Eastern. The issue is most important for the Guanzhou carrier, however, because its home base generates so much less long-haul traffic than do Beijing and Shanghai, partly because it is close to Hong Kong—the international center of commercial aviation pinnacle.
Other serious problems plague China Southern. As the Chinese carrier with the largest domestic network, it is the most exposed to high-speed-rail competition. In 2010, it halved its services between Wuhan and Guangzhou when fast trains began running on that 1,200-km (750-mi.) route.
It is also struggling to find a use for the five A380s it acquired in an act of national service when Air China and China Eastern resisted buying the type. The Kunming-Beijing route was probably the longest domestic service suitable for this type.
China Southern is rife with corruption scandals, though industry officials say that wrongdoing is common in the industry. This month the airline's managers have been arrested for defrauding the carrier by buying its tickets cheaply and then selling them at a profit. No convictions have been reported.