Questions Over Cathay Pacific's oneworld Future As Air China Looks To Raise Stake

[doraemon 1,144]

Spoiler

SUMMARY

- Air China is allegedly considering increasing its stake in Cathay Pacific.

- The potential deal remains in early stages with uncertain outcomes, though it could boost Air China's profitability.

- If Air China acquires a controlling stake, Cathay's membership in the one world Alliance might be at risk due to Air China being part of the Star Alliance.

Air China is reportedly exploring the possibility of increasing its stake in Cathay Pacific to assume control of the Hong Kong-based carrier. This development has raised questions regarding Cathay Pacific's future within the oneworld Alliance, given that Air China is part of the Star Alliance. Simple Flying has asked Cathay Pacific for a comment.

Is Air China taking control of Cathay Pacific?

According to a report by Bloomberg, China's flag carrier currently holds nearly a 30% stake in Cathay Pacific but is seeking to increase it as Cathay rebounds from setbacks caused by the COVID-19 pandemic. The considerations are still in a very preliminary stage, and it is unclear whether this would lead to any deal. Nonetheless, the news reflects China's deeper involvement in Hong Kong, a crucial financial hub and a gateway to mainland China.

It is worth noting that this is not the first time Air China is considering increasing its stake in Cathay Pacific. However, now, this would represent a significant move for Air China as it seeks growth following challenging years. According to the Bloomberg report, gaining control of Cathay Pacific would boost Air China's profitability, which suffered during the COVID-19 pandemic, resulting in the near-complete halt of air travel for three years.

Over the past couple of years, Cathay Pacific has struggled as an airline. The carrier was initially impacted by unrest in Hong Kong. More recently, Hong Kong's COVID-19 travel rules have meant a need for more passengers for the carrier. Nevertheless, the carrier is currently on the path of financial and operational recovery.

In February 2024, Cathay carried a total of 1.7 million passengers, an increase of 66% compared to the same period last year. In 2023, the flag carrier of Hong Kong also announced its expectation of achieving its first profit in four years.

Air China is a state-controlled airline, whereas Cathay Pacific is owned by several companies, including Air China (30%), Swire Pacific (45%), and the Qatar Airways Group (10%).

Questions over Cathay's alliance change

As media outlets cover this potential transaction, questions about the alliance change are gaining traction.

According to View From the Wing, if Air China were to acquire a controlling stake in Cathay Pacific, the airline's future in oneworld would be uncertain, considering Air China's affiliation with the Star Alliance.

The oneworld stands as one of the world's most esteemed airline alliances. Unveiled in the United Kingdom in 1998 by its founding members—American Airlines, British Airways, Canadian Airlines International, Cathay Pacific, and Qantas—it has maintained its prestige in the aviation industry. In 2023, oneworld was named the best airline alliance for the 11th consecutive year by the 2023 Business Traveller Awards.

View From the Wing's report suggests that there have been speculations that Cathay Pacific might join the Star Alliance, while China Southern, partly owned by both American Airlines and Qatar Airways, could take its place.

Star Alliance was founded in 1997 by five founding airlines, including United Airlines, SAS, Thai Airways, Air Canada, and Lufthansa.

Source: https://simpleflying.com/cathay-pacific-oneworld-future-air-china-raises-stake/

[doraemon 1,144]

My take: 

Two year before Covid, China Southern creates a ripple before the biggest alliance shift wave happened.

The alliance shift is not a new phenomenon. Some older aviation fans have even seen the shift in the early 2010s:

• Continental Airlines is previously part of SkyTeam but shifted to Star Alliance following Continental’s ‘fallout’ with Delta Airlines and closer relationship with United Airlines which led to a merger.

• Mexicana and US Airways slides away from Star Alliance to Oneworld following both airlines’ allegiance shift from United Airlines to American Airlines. While the old Mexicana tragically demised afterwards in 2010, with the new 2023 Mexicana is not aligned with anybody, US Airways officiate their marriage with American Airlines in 2014, eventually erasing the US Airways brand in 2015.

After the merger between US-American and Garuda Indonesia (my country’s airline, the flag carrier) entering the SkyTeam alliance in 2014, things seem cool, calm and collected.

However, the ripple started in 2018, when China Southern Airlines, a SkyTeam alliance member since 2007, decided to quit SkyTeam following the allegiance shift from Delta Airlines to American Airlines and China Eastern’s deeper relationship with Delta Airlines, as well as Franco-Dutch carrier and Delta’s threesome partner Air France-KLM, creating a huge foursome between the four carriers.

By the time China Southern finally severed its SkyTeam membership, Covid came and dominated the world, leading a huge shift in the airline industry and eventually, your and/or your parents’ credit card points.

It was around this time that some airlines started to rethink about their relationships within the alliance. Especially Scandinavian Airlines, one/fifth founder of Star Alliance. 

By the time Covid dominance started to wobble, the first alliance shift wave happened with Korean Air, co-founder of the SkyTeam alliance and flag carrier of South Korea, announced that it will save Asiana Airlines, a struggling fellow South Korean airline and a Star Alliance member, by acquiring it in 2020.

It was one of the most talked and the largest merger in a decade, yet it was inevitable. Asiana Airlines is struggling in 2019 due to Kumho Asiana (their parent) financial crisis, which led them to be sold that year, and COVID 2020 hit them hard. Right now, DOJ is the only hurdle this merger is facing.

The second wave came with the announcement of British Airways and Iberia’s parent IAG wanted to buy Air Europa. They tried to do so in 2019, but cancelled in 2021 due to the pandemic. Their biggest revival wave happened in 2022, when IAG gave Air Europa an undisclosed loan, which eventually converting it into a 20% ownership share. At the beginning of 2023, IAG finally announced that it will buy the rest of Air Europa for €400 million. The purchase is opposed by Spanish government at first before relents eventually (the Spanish government is the one that brokered the new deal between IAG and Air Europa) but is currently investigated by European Commission.

The third wave comes from Alitalia’s ashes of ITA Airways. 

Miss Racist Georgia Meloni decided to ditch Delta’s ‘marriage’ proposal and accept Lufthansa’s, a German flag carrier that is well known for being greedy and dominating, courtesy of eating Brussels Airlines, Austrian Airlines, and Swiss International Airlines (and leisure subsidiary Edelweiss) in early 2010s, as well as creating their own such as leisure Discover Airlines, low cost airline Eurowings, and, Lufthansa’s version of Italian airline, Air Dolomiti. European Commission is still investigating the impending marriage but some customers and avigeeks called the marriage ‘one-sided’, although some believed that it would work, as the airlines Lufthansa acquired in the past are failing airlines.

Finally, the fourth and the biggest wave comes from SAS, a.k.a. Scandinavian Airlines. Not everyone knows this, but Lufthansa treats SAS rather poorly. This relationship is evident by Lufthansa not including SAS into their ‘circle of friendship’ that includes United Airlines, Air Canada, All Nippon Airways, Singapore Airlines, and Air China in it.

SAS entered US Chapter 11 for the sake of restructuring in 2022, and it is unknown whether Lufthansa placed their bidding (probably not, but as Travis Kelce said regarding how he shifted Scott Swift’s allegiance from Philly Eagles to Kansas City Chiefs, “Who knows?”), but eventually, Air France-KLM, the third largest European airline group (literally behind Lufthansa and IAG), as well as several partners including an American investment firm, and the Danish state, proposed a marriage proposal worthy of US$ 1,2 billion.

With Air France-KLM’s plans to use SAS’s hubs (Copenhagen, Stockholm, and Oslo) to it’s full potential as the hubs are underutilized by Lufthansa and their cronies (thanks to Amsterdam Schipol Airport’s overcapacity and everyone’s hatred over Charles de Gaulle Airport’s layout), and the inclusion of SAS into Air France-KLM’s ‘circle of friendship’ that includes Delta, China Eastern Airlines, Virgin Atlantic, Korean Air, and Aeromexico, SAS happily said yes to the proposal.

I mean, come on guys. Finnair, SAS's rival, is happy and cozy with American Airlines, British Airways, Iberia, Aer Lingus (non-Oneworld member per 2007, but in the future it will be back), and Qatar Airways under the JV which its part of. Of course SAS wants to have the same experience. But, as I said before, Lufthansa's 'mistreatment' towards SAS prohibits it to experience as such.

If all goes well in both US and Swedish court, as well as in the European Commission, Air France-KLM and SAS will be happily married and become partners together in SkyTeam matrimony. Many avigeeks welcomed the decision, but it became a huge news, as both SAS and Air France are both founders of rivaling airline alliances (SkyTeam for Air France and Star Alliance for SAS).

Such alliance shift movement never happened since 2001 when Canadian Airlines, co-founder of Oneworld alliance, married to Air Canada, a Star Alliance co-founder, which led to Canadian Airlines eventually demised.

The demise of SAS as an airline brand is 100% not gonna happen, which is evident in three large European airline groups (Lufthansa Group, IAG, and Air France-KLM) post-merger, although in the end, their frequent flyer system will be compromised. The concept itself is interesting yet proven to be effective, making Alaska Airlines tried to do so with Virgin America, but failed thanks to Virgin brand’s license fee. This year, Alaska Airlines tried again to create such concept by acquiring Hawaiian Airlines.

[doraemon 1,144]

Now, regarding the possibility of Air China, a Star Alliance member, buying larger ownership stake in Oneworld co-founder and Hong Kong carrier Cathay Pacific…

Right now, the purchase is still under consideration. But it became huge talk of the town not because of the fluctuations in the industry, which is the major reason why so many airlines shifting their allegiance and alliances, but because of the political motivation behind the purchase.

After all, China, the country that censored our Mother Monster Lady Gaga due to her meeting with Dalai Lama, wanted a deeper involvement in Hong Kong SAR and ruled it with iron grip like it had done with Macau SAR. Air China, evidently, is a state-controlled airline. However, Cathay Pacific is not state-owned, but a private airline where Air China holds a 30% ownership stake, alongside majority shareowner Swire Pacific and Hong Kong Government.

Not to mention, China Southern Airlines was supposed to enter Oneworld following their allegiance with American Airlines and SkyTeam exit. However, Cathay Pacific, as a founding member, has a veto privilege, which allows the airline to prohibit China Southern to enter Oneworld despite support from American Airlines, British Airways, and Qatar Airways (the only Middle East airline that became a member of an airline alliance).

If talks somehow gets through and Swire Pacific, the majority owner of Cathay Pacific, was allowed to sell its stake in Cathay to Air China, it became evident towards Hong Kong citizens that China has become more unstoppable in their involvement of Hong Kong matters. The only hurdle they have from full ownership is of course: Qatar Airways, the flag carrier of Qatar.

It is became an unspoken tea, that by the time LATAM Airlines leaves Oneworld alliance over its alliance and stake ownership with Delta Airlines, that LATAM will enter SkyTeam alliance, creating a huge synergy between LATAM and fellow Latin American SkyTeam members Aeromexico and Aerolineas Argentinas in South American region. However, Qatar’s 10% stake prevented that to happen for unknown reasons. The same thing could happen to Cathay Pacific, that Qatar’s 10% stake not only prevented Air China/CCP to fully control the airline, but also stopped them from leaving Oneworld to Star Alliance.

That being said, Air China’s solution to allow Cathay to quit Oneworld and enter Star Alliance, should they decided to buy Swire Pacific and other’s ownership stake (except HK Government, which is obviously under CCP influence), is to buy Qatar Airways’s stake in Cathay Pacific.

That way, not only it will absorb Cathay Pacific into Air China Group and making it easy for Cathay to enter the Star Alliance (and pledged their allegiance to United and Lufthansa), but it also allows China Southern Airlines to expectedly joining the Oneworld alliance with a red carpet rolled out for them.

It will also create a new balance between airline alliances, as each large airlines on certain regions belonged to an alliance. A phenomenon that is often talked between airline customers, avigeeks, and enthusiasts.

The clear example of this phenomenon is in the United States, where each of the nation’s large airline companies are affiliated with an alliance: United on Star Alliance, Delta on SkyTeam, and American on Oneworld.

Currently, other than USA, most alliances in certain regions are having an imbalance.

An example of slight imbalance is in Southeast Asia, where five of six large flag carriers are affiliated with an alliance: Singapore Airlines and Thai Airways with Star Alliance, Garuda Indonesia and Vietnam Airlines with SkyTeam, and Malaysia Airlines with Oneworld. The last large flag carrier in Southeast Asia that is unaffiliated with an airline alliance is Philippines Airlines. However, following the brewing relationship with American Airlines in 2023, their Oneworld allegiance is being considered, making the Pinoy flag carrier possibly became an alliance member.

Another slight imbalance in the alliance is in Taiwan, where each of their full service airlines are part of an alliance: EVA Air with Star Alliance and China Airlines (possibly to be renamed as Taiwan Airlines following a 2020 resolution to rename the airline and redesign its liveries due to frequent confusion with Air China.) with SkyTeam. The final full service carrier in Taiwan is Starlux Airlines, who is currently only four years old. As we can see, it is quite evident that the only alliance where Starlux can join is the Oneworld alliance.

That being said, with Cathay Pacific consolidates under Air China Group (if possible), making it running like a European airline group and became a full member of Star Alliance, China Eastern Airlines is still on SkyTeam, and China Southern Airlines finally entering Oneworld, a balance between alliances is officially created and stored in China.

Please take this rant as a grain of salt. 

[Killa 18,817]

Omg ditch la meloni ahhhhhhhhhhh i lived

Great reading, still reading tho thanks for the input as well

[doraemon 1,144]

Calling all GagaDaily members who are also SAS EuroBonus members: it’s official!! SAS will join SkyTeam officially on September 1

They have signed the Alliance adherence agreement, which marked an important step for SAS to join SkyTeam, as the airline is used to be a Star Alliance member since it was established in May 1997.

With that said, SAS will quit the alliance they cofounded on August 31.

https://simpleflying.com/sas-joins-sky-team-september-1/