China Eastern and Japan Airlines plan first China-Japan aviation joint venture

August 4, 2018
Move to take advantage of increasing Chinese visitors to Japan, whose numbers rose 15 per cent to 7.4 million people last year

China Eastern Airlines and Japan Airlines (JAL) on Thursday said they would form a joint venture to capitalise on a Chinese tourism boom, in the first such deal between a Chinese and Japanese carrier.

China Eastern said the pair aimed to offer more connecting flights and lower ticket prices through the venture, which will require the approval of both Chinese and Japanese governments.

During a press conference, airline executives said the venture would allow them to coordinate flight times and share revenue on routes they both fly such as Tokyo-Shanghai, and that they hope operations can begin in the first half of 2019.

'We believe this partnership will generate more passenger traffic between the two countries and open up commercial opportunities,' said JAL chairman Yoshiharu Ueki.

In the airline industry, a joint venture refers to an agreement to coordinate aspects of business such as scheduling and pricing which requires approval from competition regulators.

The number of Chinese travelling internationally has surged as household income rises. Chinese are the largest group among visitors to Japan, with the number rising 15 per cent to 7.4 million people last year, Japanese data showed. Only around a third as many Japanese visited China in 2016, showed the latest available data.

The two countries have a strained relationship historically, however, and anti-Japanese protests in China in 2012 sparked by a territorial dispute saw a temporary drop in the number of Chinese visiting Japan.

Corrine Png, chief executive of transport research firm Crucial Perspective, said the China Eastern-JAL deal was likely to be approved based on today's diplomatic relationship, but there was a risk the venture could be delayed or cancelled if relations soured during the application process.

Will Horton, senior analyst at Capa Centre for Aviation, said the venture - a step up from the pair's current codeshare relationship - made commercial sense but would not have as big a financial impact 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 (Tokyo-Shanghai). Then they can choke the consumer and then shake the change out,' Horton said.

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

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