Airlines agree deal as rivals swoop in

Lufthansa-Air China partnership, plus Urumqi airport upgrade, to open routes to Europe

Deutsche Lufthansa AG and Air China Ltd 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 a statement Beijing on Sept 20.

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 Group already has joint ventures with Skyteam alliance partners China Southern Airlines Co - the biggest Asian airline by passengers -and China Eastern Airlines Corp that involve timetable harmonization and cost- and revenue-sharing on some routes.

The deal will help Air China reduce its reliance on the domestic market, which accounts for more than 60 percent 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 US 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 those from Gulf carriers such as Emirates and Qatar Airways.

The German carrier last year struck a similar revenue-sharing pact with Singapore Airlines.

Meanwhile, more international air routes between Urumqi and major cities in Western Europe, Egypt and India will be launched in the next decade, officials announced on Sept 20. The expanded service is expected to strengthen connections between the Xinjiang Uygur autonomous region and destinations along the Belt and Road Initiative.

Urumqi International Airport operates 24 direct and connecting international passenger routes to destinations in Central Asia, Turkey, Iran, Russia, South Korea and Azerbaijan.

But it doesn't provide a direct service to Western Europe.

Demand is rising from China's central and western regions for better services to Western and Central Europe for tourism and business travel, says Tang Zhanyou, deputy secretary-general of Urumqi's government.

"The routes to Western Europe are expected to save a significant amount of travel time for passengers wishing to travel from Xinjiang to Paris or Frankfurt. Chinese passengers won't need to transfer in other European cities such as Vienna or Helsinki before reaching their final destinations in Western and Central Europe," Tang says.

Air China will launch a Chengdu-Urumqi-Rome route by year-end after receiving approval from the Civil Aviation Administration this month.

The city government will complete the construction of a fourth terminal at Urumqi International by 2020, which will expand the airport's capacity by 40 million passengers a year, Tang says.

It will be one of the largest airport terminals in western China and will have three runways, including one that can handle the Airbus A380 super jumbo jet.

Urumqi International serves as an important civil aviation and air traffic hub in western China. It has expanded three times since it came into service in 1973. It is also one of the regional hubs for China Southern Airlines Co.

Feng Hao, an air transportation researcher at the National Development and Reform Commission, says both the new terminal and air routes in Urumqi will contribute to growth in air cargo, tourism, trade and investment business as linked to the Belt and Road Initiative, as well as creating momentum to improve regional connectivity and people-to-people exchanges.

Contact the writer atzhongnan@chinadaily.com.cn

Bloomberg contributed to this story.

(China Daily European Weekly 09/23/2016 page28)