By Joanne Chiu
HONG KONG--Citing unresolved issues, China Southern Airlines Co.
(1055.HK, K3TD.SG) has shelved talks with flag carrier Air China
Ltd. (0753.HK, 601111.SH) on jointly operating Airbus A380 jets on
long-haul flights out of Beijing, in a sign of increasing rivalry
between the nation's top state-owned carriers.
China Southern, based in the city of Guangzhou, took delivery of
five A380 Superjumbos from October 2011 with expectations to expand
its foothold at the Beijing airport, the nation's main
international gateway and home base of Air China. No other Chinese
airline has the wide-body plane on order.
Yet its hopes to expand long-haul flights from the nation's
capital was met with strong regulatory resistance, and has been
unable to secure the necessary rights. The Beijing government wants
to prevent direct international competition between the three main
state carriers, which are each based in one of China's three
biggest cities, though they do compete on many domestic flights.
The third carrier, China Eastern Airlines Corp. (600115.SH,
0670.HK), is based in Shanghai.
China Southern, the nation's biggest airline by fleet size,
instead entered into discussions in recent months with rival Air
China over the possibility for the two airlines jointly operating
the A380s on key international routes, such as Beijing-Paris and
Beijing-Frankfurt. However, Air China wanted only to wet lease the
planes, meaning that the flag carrier would lease the A380s and
flight crew from China Southern, while it would market and sell the
flights only as Air China services.
"The discussions were suspended as many issues arising during
the negotiations couldn't be resolved," China Southern Chief
Financial Officer Xu Jiebo said Thursday. He cited one of the
difficulties in jointly running the A380s is that the airlines
operate from different terminals at Beijing airport, making it hard
to provide seamless connections for customers.
China Southern has resorted to operating its A380s on short
domestic routes, and last year began flying the jets on its
Guangzhou-Los Angeles service. With the Air China talks stalled,
the airline will begin a trial A380 service on the Guangzhou-Sydney
run in the second half of the year, the executive said.
"We don't want to go head-to-head with Air China on European
routes, and therefore we've decided to give the Sydney market a
trial with the A380," Mr. Xu said. The airline already flies to
Sydney on smaller aircraft.
"If demand for flights on the Guangzhou-Sydney route turns out
to be weaker than expected, we could probably try to restart talks
with Air China," he said. China Southern, which also flies to
London from Guangzhou, wants to become a major player on the
so-called "Kangaroo route," shuttling passengers between Australia
and the U.K. Air China said it didn't have an immediate
comment.
Separately, Mr. Xu said he expects China Southern to take
delivery of the nation's first Boeing 787 Dreamliners as early as
late May after the aircraft gets approval from Chinese aviation
regulators.
"We could take delivery of as many as eight Boeing 787s this
year, with the remaining two on order joining the fleet next year,"
he said.
The carrier plans to first operate the Dreamliners on key
domestic routes such as Guangzhou-Beijing and Guangzhou-Shanghai,
before moving them on to international services such as
Guangzhou-London and Guangzhou-Vancouver.
Write to Joanne Chiu at Joanne.Chiu@wsj.com
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