Deutsche Lufthansa and Air China have signed a cooperation agreement that will enable the two members of the Star Alliance group to take on competition from the rival Skyteam partnership and boost earnings.
The flag carriers of Germany and China plan to share revenue on China-Europe routes when the venture takes off next year, the two airlines said in Beijing Tuesday. The joint venture is the closest the two carriers can get under restrictions on foreign control of Chinese airlines.
The agreement, after two years of negotiations, gives Lufthansa and Air China a better grip to operate China-Europe routes together, after rival Skyteam members formed a partnership earlier. Air France-KLM already has joint ventures with Skyteam alliance partners China Southern Airlines – the biggest Asian airline by passengers – and China Eastern Airlines that involve timetable harmonisation and cost and revenue-sharing on some routes.
The deal will help Air China to reduce its reliance on the domestic market, which accounts for more than 60 per cent of revenue. Lufthansa and Air China plan to coordinate flight schedules under the venture whose preliminary agreement was announced in 2014. The partnership will allow Lufthansa to extend its reach in a country poised to overtake the United States 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 Arabian Gulf carriers such as Emirates, Etihad and Qatar Airways. The German carrier last year struck a similar revenue-sharing pact with Singapore Airlines and already has other network partners including United Airlines, Air Canada and Japan’s ANA.
“It complements the group of joint ventures Lufthansa has around the world, and it was always our strategic goal to have a joint venture partner in the top five intercontinental markets, and today’s joint venture completes that set,” said the Lufthansa chief executive Carsten Spohr.
The deal, which will also include Lufthansa’s units Austrian Airlines and Swiss Air, will initially cover routes from China to cities including Frankfurt, Vienna and Zurich and be eventually expanded to all routes between China and Europe operated by the two carriers.
It will start in the summer of 2017 and no cash investment was committed to the deal.
“There is infrastructure restrictions in China, especially when it comes to slots at the big, important airports in Shanghai and in Beijing and also when it comes to entry points on the Chinese border,” Mr Sphor said.
“Joining forces between Air China and Lufthansa will help us to optimise our schedules and, therefore, reduce those infrastructure restrictions which exist without disadvantaging the passengers.”
The Air China agreement would mean close to half of Lufthansa’s long-haulcapacity 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.
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