Delta, China Eastern to Strengthen Their Global Cooperation

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Delta Air Lines Inc. and China Eastern Airlines Corp. will deepen their cooperation, officials of the two airlines said, giving Delta a stronger foothold in the world’s fastest-growing aviation market while the Chinese carrier penetrates further into the U.S.

“You’ll be able to fly from any city that China Eastern serves in China to any city Delta serves in the U.S.,” Chief Executive Officer Richard Anderson said after a news conference Tuesday in Shanghai. “In essence we’ll run a single airline, even though there are two airlines involved.”

The companies will cooperate in areas including code sharing, revenue management, scheduling, sales and frequent-flyer programs, the carriers said in a statement Tuesday afternoon. The announcement builds on Delta’s plan, unveiled in July, to invest $450 million for a 3.6 percent stake in China Eastern.

The agreement helps Delta target a country that’s projected to overtake the U.S. as the world’s biggest air-passenger market within two decades. The partnership with China Eastern comes as an industrywide glut of seats damps U.S. carriers’ ability to raise prices domestically.

Strategic Focus

Given Delta’s long-term confidence in the Chinese market, the decision to invest in China Eastern was “easy, quick,” he said at the news conference.

“This is going to be the first real alliance, the first really deep trans-Pacific alliance,” he told reporters afterward.

China Eastern Vice President Tang Bing said the “mutually beneficial” agreement offers the Chinese carrier a chance to grow its global business, while learning from a world-class airline.

Delta currently serves Beijing, Shanghai and Hong Kong with daily non-stop flights from the U.S. Delta has an Asian hub in Tokyo, but recently failed in an attempt to buy a stake in bankrupt Japanese carrier Skymark Airlines Inc.

Shanghai Hub

Anderson has said he envisions creating another Asian hub in Shanghai to build on the growing relationship with China Eastern.

“When you think about how big Asia is, more than one hub can certainly be supported commercially,” he said Tuesday. “Our real focus now for growth is Shanghai, because China has really surpassed Japan as the growth engine of Asia.”

China Eastern and its Shanghai Airlines unit operate code-share flights with Delta on 30 domestic routes in the U.S., 43 in China and seven across the Pacific, according to the July statement announcing Delta’s stake purchase.

Anderson said the airlines hope to extend service to one new city a year. Delta will add about a dozen new employees as a result of the partnership, he said.

Falling Yields

Delta began deepening ties with China Eastern, also a member of the Skyteam airline alliance, in April, moving its operations at Shanghai’s Pudong International Airport to share a terminal with the Chinese carrier.

Delta also owns minority stakes in Virgin Atlantic and Grupo Aeromexico SAB. In July, it agreed to increase its holding in Brazil’s Gol Linhas Aereas Inteligentes SA.

China Eastern is leveraging its ties with carriers in other airline alliances as well. In August, the Australian Competition & Consumer Commission approved a plan by China Eastern and Qantas Airways Ltd., part of the oneworld alliance, to coordinate operations on flights between Australia and the mainland.

China Eastern’s passenger yield, a measure of revenue per passenger for each kilometer flown, fell 7.9 percent from a year earlier in the six months ended June, the company said Aug. 14. The yield at Delta declined 3.9 percent in the second quarter after slipping 0.4 percent in the first.

— With assistance by Alexandra Ho, and Clement Tan

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