[BEIJING] Deutsche Lufthansa AG and Air China Ltd signed a cooperation agreement that will enable the Star Alliance members to take on competition from the rival Skyteam partnership on China-Europe routes and boost earnings.
The flag carriers of Germany and China plan to increase coordination on flight schedules and expand code-sharing on China-Europe flights when the venture takes off next year, Air China Chairman Cai Jianjiang said at a signing ceremony in Beijing Tuesday. The venture, pending regulatory approval in Europe and China, is the closest the two carriers can get under restrictions on foreign control of Chinese airlines.
The agreement follows two years of negotiations and is aimed at giving Lufthansa and Air China a better grip on China- Europe routes to expand their market leads on these destinations. Air France-KLM Group has joint ventures with rival Skyteam alliance partners China Southern Airlines Co - the biggest Asian airline by passengers - and China Eastern Airlines Corp that involve timetable harmonization and cost- and revenue-sharing on some routes.
"We expect our combined market share will expand as our capacity increases and thus we will see revenue increasing," Air China Board Secretary Rao Xinyu told reporters after the ceremony. "We made the decision to team up with Lufthansa given that we face the same threats."
Air China is the no 1 carrier on China-Europe routes with a market share 22 per cent, followed by Lufthansa with 17 per cent, according to Ms Rao. She said the market share figures and the partnership signed on Tuesday exclude northern Europe and Russia.
The deal will help Air China reduce its reliance on the domestic market, which accounts for more than 60 per cent of revenue. The partnership, whose preliminary agreement was announced in 2014, will allow Lufthansa to extend its reach in a country poised to overtake the US as the world's largest air- travel market.
It also adds to Lufthansa's network of revenue-sharing agreements for major markets as it seeks to fend off threats including from Gulf carriers such as Emirates and Qatar Airways. The German carrier last year struck a similar revenue-sharing pact with Singapore Airlines Ltd and already has other network partners including United Airlines, Air Canada and Japan's ANA Holdings Inc.
Lufthansa fell 1.7 per cent to 10.285 euros as of 10:55 am in Frankfurt trading. Shares of Air China traded in Hong Kong fell 0.9 per cent to close at HK$5.47.
The Air China agreement would mean close to half of Lufthansa's long-haul capacity would be covered by commercial joint ventures, according to CAPA Centre for Aviation in London.
In addition to operating passenger flights under code-share agreements, Lufthansa and Air China also jointly own Ameco Beijing, an aircraft maintenance company they established in 1989 that employs more than 11,000 people.