August 2, 2018 / 7:34 AM / 4 months ago

China Eastern, Japan Airlines team up to tap Chinese tourism boom

SHANGHAI/SINGAPORE (Reuters) - China Eastern Airlines Corp Ltd (600115.SS) and Japan Airlines Co Ltd (JAL) (9201.T) on Thursday said they would form a joint venture (JV) to capitalize on a boom in Chinese tourism, in the first such deal between a Chinese and Japanese carrier.

FILE PHOTO: A China Eastern Airlines Airbus A320-200 plane takes off from Dalian airport in Dalian, Liaoning province, China December 3, 2017. Picture taken December 3, 2017. REUTERS/Stringer /File Photo

The pair, which already have a codesharing agreement, said the venture will allow them to coordinate flight times, offer more connecting flights, lower ticket prices and share revenue on routes they both fly such as Tokyo-Shanghai.

They aim to begin operations in the first half of 2019 pending approval from competition regulators.

“This partnership will generate more passenger traffic between the two countries and open up commercial opportunities,” said JAL Chairman Yoshiharu Ueki.

The tie-up comes at a time of relative calm between two countries whose relationship has been historically strained. Six years ago, a territorial dispute sparked anti-Japanese protests across China and a temporary drop in Chinese visitors to Japan.

Chinese tourism to South Korea and Taiwan has similarly fallen in recent years during times of diplomatic crises.

“We understand we may have political risks in China,” said a spokeswoman for JAL. “We don’t have any backup plans. But we believe we share any difficulties between us - not only political but also others. We think that is joint business.”

A joint venture in the airline industry refers to an agreement to coordinate aspects of business such as scheduling and pricing. The JAL spokeswoman also said there were no plans for the airlines to make equity investments in each other.

Corrine Png, chief executive of transport research firm Crucial Perspective, said regulatory approval was likely based on today’s diplomatic relations but there was a risk of delay or cancellation if relations soured during the application process.

CHINESE TOURISM BOOM

China has been experiencing a boom in tourism in tandem with rising household income. Neighboring Japan has been one of the main beneficiaries, with the Chinese comprising the largest group of visitors to the country.

Last year, the number of Chinese visitors to Japan jumped 15 percent from a year earlier, Japanese data showed. Only a third as many Japanese visited China in 2016, latest data showed.

Will Horton, senior analyst at CAPA Center for Aviation, said the China Eastern-JAL joint venture made commercial sense but would not bring as big a financial benefit as ventures involving long-haul flights where connections were more common.

“Short-haul JVs have limited impact across the network aside from when the two airlines control a notable amount of capacity on a trunk route (such as Tokyo-Shanghai). Then they can choke the consumer and then shake the change out,” Horton said.

JAL is part of the oneworld airline alliance whereas China Eastern is a member of the rival SkyTeam group. Cross-alliance deals have become increasingly common as airlines seek financially beneficial bilateral tie-ups.

Reporting by Brenda Goh and SHANGHAI Newsroom; Additional Reporting by Jamie Freed in SINGAPORE;Editing by Christopher Cushing

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