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China Southern's A380 problems may not be solved by possible Air China partnership

Analysis

The Chinese Government may soon need to intervene in the negotiations between Air China and China Southern Airlines for proposed cooperation on China Southern's A380 aircraft, which have not been allocated necessary long-haul routes and are consequently churning up losses, reportedly around USD32 million in 2012. Beijing will not permit China Southern to fly key routes from there unless Air China is involved.

Air China and China Southern have already agreed - after a previous government intervention - to cooperate on using the aircraft internationally, but Air China prefers to wet-lease two A380s while China Southern wants to jointly operate the aircraft from Beijing to Paris and possibly later New York and other destinations. China Southern's hub at Guangzhou does not offer sufficiently high-yielding propositions and competitors have already secured prime routes from other cities, forcing China Southern to consider cooperation with Air China on long-haul flights from Beijing.

Even if the Beijing-Paris route proceeds, complementing A380 service between Guangzhou and Los Angeles, China Southern will need to find one or two medium/long-haul routes for its remaining A380s.

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