Tuesday, February 3, 2009

Jetset: Changes in the Air

A time for marriages and mega-carriers?

The Year of the Ox has arrived with the usual bang of firecrackers, but air travelers may not feel so bullish about flying in 2009. Although holding no crystal ball, I venture to predict one important change in the air: fewer airlines flying – both domestically and internationally. With demand for air travel plummeting faster than oil prices, the world’s air carriers are desperate to cut excess capacity and many see consolidation as the only solution to the industry’s conundrum.

Closer to home, all eyes are on China Eastern Airlines (MU), considered by many analysts to be insolvent and the prime target for acquisition. The Shanghai-based carrier has been plagued by incessant bad news in recent years – from a fatal crash and an illegal pilot strike, to a failed attempt to cooperate with Singapore Airlines (SQ), and huge losses (RMB 6.2 billion) from badly timed fuel-hedging. A last-minute capital injection of RMB 7 billion from the government and a voluntary 30-percent pay cut by its management may be too little, too late to save the struggling carrier.

Trouble is, nobody seems to have the money or interest to buy MU. Its domestic competitors are not faring much better financially, while the few potential foreign suitors are likely to think twice after the SQ deal debacle last year. Speculation is rife, though, about an arranged marriage between MU and its smaller hometown rival, Shanghai Airlines (FM) – a scenario apparently favored by the local government eager to create a dominant carrier based in China’s biggest city.

FM is currently aligned with flag carrier Air China (CA) and both are Star Alliance members. If MU mergers with FM, whither FM’s alliance status? Like other loyal Star fliers, I hate to see it lose the Shanghai hub. But the bottom line is that the government still owns all the major Chinese airlines and can order any kind of mix-and-match that it sees fit. Which does beg the question – why not just combine all the Chinese airlines under one banner like in the good old times? Talk about a true Chinese mega-carrier!

Farther afield in the US, Delta Air Lines (DL) officially tied the knot with Northwest Airlines (NW) in late October, forming the world’s largest airline, as well as its biggest frequent flier club. Given NW’s long history of serving Asia, many China-based members of its WorldPerks program understandably feel a sense of unease. Although full integration is not expected until 2010, you will see the NW brand slowly disappear and the two carriers’ loyalty schemes merge by the end of this year.

The good news is no one will lose any hard-earned miles. You will soon be able to transfer miles between the DL and NW programs, and eventually have a single DL SkyMiles account. DL will borrow a page from NW and start letting travelers gain elite status based on segments flown, in addition to miles. It will also continue awarding a minimum of 500 miles per flight, bucking the industry trend in the US. But – you knew there would be a “but” – DL will adopt its three-tiered award chart (instead of NW’s two-tier) for the combined program, effectively adding another layer of obstacles for members looking to redeem free tickets. Steven Jiang

This article was originally published on page 98 of the February 2009 issue of The Beijinger magazine.

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