American Airlines Group Inc (NASDAQ:AAL) Taking Stakes In China Southern Airline Raises Talks And Opportunities

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According to reports, China Southern Airlines is in talks following its tie-up American Airlines Group Inc (NASDAQ:AAL) that could lead to the U.S. Airline getting stakes in the China-owned airline, which will enhance the transportation system between two of the largest travel markets in the world.

However the deal, following reports may potentially make “American Airlines the second airline to own part of a Chinese airline after Delta Air Lines Inc purchased 3.55% of China Eastern Airlines Corp for $450 million in 2015.”

China Southern airline, is said to be the country’s largest carrier, in regards to passenger numbers. Hence the tie-up will certainly bring about issues in share quotas and positively, other forms of cooperation, though it depends on the approval of the shareholders and government.

The airline’s Hong Kong-shares, were said to have skyrocketed by 5.3% in trading, while the mainland- shares were still suspended.

The tie-up is reported to have come when “Beijing vowed to shake up its airlines by implementing mixed-ownership reforms and introducing private capital and strategic investment into its state-owned enterprises to improve efficiency and competitiveness.”

The International analyst Geoffrey Cheng also said ‘the tie-up was the best way for the two companies to offer consumers more flights overseas, given the lack of new flight slots available.”

He further expressed that “any equity stake – expected to be similar in size to the Delta deal – would help cement ties between the airlines.” Actually in reality, Cheng expressed it’s more of a “glorified code-sharing arrangement by which airlines pool resources and share flights.”

The idea of this potential tie-up, can compared to that of Delta Airline and China Eastern, as they can now link with “more second-tier cities in China and the United States.”

Moreover, Chinese airlines are reported to aggressively expand their fleet and increase their number of international routes as they intend to capitalize on “the strong growth in outbound Chinese travel that has far outpaced tourism at home.”

Also, as an advantage for the American Airline, the deal could broaden their access to China, “one of the biggest sources of tourists to the United States,” and help the airline compete with rival Delta airline, which is reported to have recently invested in other foreign airline in Mexico, Brazil and Britain.

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