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March 29, 2017

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AA to buy US$200m shares in Southern

AMERICAN Airlines has agreed to pay US$200 million for a stake in China Southern Airlines, the country’s biggest carrier by passenger volume, in a bid for a bigger share of China’s growing travel market.

China Southern and AA will expand commercial cooperation, possibly in sales, airport facilities and code-sharing, the Chinese airline said in an announcement yesterday through the Hong Kong stock exchange. It said the deal represents 2.76 percent of China Southern’s shares and requires regulatory approval.

Foreign carriers are forging steadily closer ties with Chinese airlines to gain a bigger share of China’s air travel market, which is growing strongly while travel in Europe and North America is leveling off. In exchange, Chinese carriers get access to experience and management skills.

China is forecast to pass North America over the next two decades as the biggest air travel market. China’s economic growth is slowing but tourism spending is rising as the government encourages growth of service businesses in an effort to cut reliance on heavy industry.

Chinese spending on air travel rose 10.6 percent in 2015, compared with 1.7 percent in the United States, according to the International Air Travel Association.

Two years ago, Delta Air Lines paid US$450 million for 3.55 percent of China Eastern Airlines.

The third major US carrier, United Airlines, has a partnership with Air China, the third major Chinese state-owned airline. Hong Kong-based Cathay Pacific Airlines owns 18 percent of Air China.

Regulators in both China and the US are reluctant to allow large foreign ownership stakes or management control of their airlines.

Guangzhou-based China Southern says it operates more than 2,000 flights a day to 224 destinations in 40 countries and regions in Asia, Europe, North America and Africa. It says it carried 115 million passengers in 2016.

The partnership with AA “is expected to provide continuous impetus for the company’s long-term growth,” said China Southern’s statement.

AA, based in Fort Worth, Texas, says it operates 6,700 flights a day to nearly 350 destinations in over 50 countries.


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