source from：ft
https://www.ft.com/content/227e1074-0f7e-11e7-b030-768954394623
China Southern/AA: stakes on a plane Premium

A tie-up would displease some domestic rivals more than others

3 HOURS AGO
Love is in the air. American Airlines is reportedly looking at taking a stake in China Southern Airlines. On Thursday, trading in the Hong Kong and Shanghai-listed shares of the Chinese carrier were suspended, pending an announcement. The US company, which is valued at $20bn, may spend $200m, equating to 2 per cent of China Southern’s current $10bn market capitalisation. There would be logic to a deal in which the airlines created a common network.

Competition for Chinese travellers has been intensifying. Carriers, including privately owned Chinese airlines such as HNA subsidiary Hainan, are expanding. Direct international flights from populous “second tier” cities offer options to the fleet of foot. Hainan flies direct from Xian to Tokyo, for example, while KLM goes from Chengdu to Amsterdam.

It is not only the Chinese hinterland that is opening up. This week, Hainan increased direct flights between Beijing and Manchester, a route that eliminates stopovers historically required by international carriers to reach the northern UK city.

Both China Southern and AA make about 70 per cent of revenues from domestic flights. The international sales of the US group have fallen for the past two years. By contrast, foreign revenues at China Southern grew 32 per cent in 2015, racking up two-fifths of top-line growth. An alliance could allow the partners to carry passengers from smaller cities on both sides of the Pacific, increasing competitive advantage versus domestic rivals.

A tie-up would displease some of these more than others. Through the SkyTeam Alliance, which offers code-sharing and frequent flyer reciprocity, China Southern is already linked to US carrier Delta. American Airlines, meanwhile, is a member of the Oneworld group, which includes British Airways, Qantas and Middle Eastern airline Qatar. This has no Chinese airline member. AA’s flirtation, if realised, could spread the love beyond Pacific shores via Oneworld.