Why United Won't Lose Altitude in China
By mid-afternoon Tuesday, Chinese online anger at United Airlines was running so hot that the hashtag #UnitedForcesPassengerOffPlane was receiving 20 million views per hour on the Sina Weibo social network. Such fury is more typically reserved for geopolitical spats with the likes of Japan and South Korea. It's little wonder that the outrage earned the attention of United Continental Holdings Inc. shareholders, who drove the company's stock down 4 percent while the hashtag was still atop the rankings.
On the surface, the nosedive might seem warranted. China is the world's fastest-growing major commercial aviation market, and the preferences and prejudices of Chinese passengers will shape airline fortunes for years to come. But in the medium term, United has less to fear from those millions of irked Chinese netizens than one might think.
Remember, United is hardly the first foreign company to spur a nationalist backlash in China. In recent years, firms ranging from Toyota to Apple have suffered protests and boycotts that moved from the web to the real world. At their worst, these campaigns have received government backing. For example, in 2008, thousands of Chinese protesters targeted Carrefour, the French supermarket chain, due to rumors that the company had donated money to the Dalai Lama, as well as mistreatment of Chinese Olympic torchbearers as they ran through Paris. And in 2012, protesters boycotted Japanese carmakers in the wake of a China-Japan territorial dispute in the East China Sea.
Some Japanese carmakers required months to recover from the disruption to their businesses. But despite high-profile online and offline campaigns, the protest against Carrefour fizzled quickly as protesters put down their banners and went shopping once again.
That tends to be the fate of most Chinese consumer boycotts that aren't rooted in long-standing regional hatreds. Chinese consumers, like their counterparts elsewhere, are simply too practical and quality-focused to let political values get in the way of a good deal or a sexy product. For example, Apple has been on the receiving end of multiple protests in recent years, many related to its warranty policies. Yet the brand remains wildly popular in China.
United's situation is only slight more complicated than Apple's. Much of the outrage at the airline was sparked by the widespread belief that David Dao, the passenger forcibly removed from his United flight, was Chinese. But the fact that Dao is Vietnamese-American took much of the edge off that argument. Equally important, Dao's mistreatment wasn't particularly extreme by the standards of Chinese airlines. Violence on Chinese flights to and from Hong Kong has become so common that cabin crew members for Hong Kong Airlines are now given compulsory instruction in martial arts to protect themselves and other passengers. As bad as United may seem, Chinese airlines are often presumed to be worse.
And United enjoys one other key advantage in China: As in the U.S., it faces little competition. Thanks to a series of bilateral agreements between the U.S. and China, U.S. airlines are allowed to make only 140 round-trip flights between China and the U.S. per week (Chinese airlines get 180). Routes to the most popular cities (Beijing and Shanghai, most prominently) are also tightly limited, giving consumers far less choice than they would have if the trans-Pacific market were completely open. That works to the advantage of United and other established airlines; not surprisingly, efforts to open up the market further have been stalled for years.
For now, that means that the impact on United's bottom line in China -- and its incentive to improve its image -- is likely to be limited. But the airline shouldn't take its position for granted. Chinese consumer tastes are evolving and growing more sophisticated. Within the next decade or two, Chinese passengers will form the world's largest traveling public, and their influence on airlines -- both foreign and domestic -- will be decisive. What might seem like brief turbulence today could then become the kind of scandal that grounds a company.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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