Delta Air Lines
Delta Air Lines (DL) Chief Executive Officer Richard Anderson said he sees the Atlanta based airline to build an international hub at Shanghai Pudong International Airport (PVG) and expand its budding relationship with China Eastern Airlines Corp. (MU).
“When you think about what our strategy is long-term, we need to have a hub in Shanghai like the one we have in Amsterdam,” Anderson told employees in a recorded message.
What does it take for Delta build a hub in the 19th busiest airport in the world (refer to our coverage of the 2014 busiest airports here)? Part 1 of the series will explore the airport and Delta’s move to Terminal 1.
China has a population of more than one billion people. Air travel has been experiencing greater than 5% growth for the past five years. It is not surprising that US based airlines are exploring different opportunities to expand their presence in this country. Thus far, the strategy employed by the US majors (United Airlines (UA), American Airlines (AA) and Delta Air Lines (DL) has been to start direct flights from US Mainland to key Chinese cities such as Hong Kong (HKG), Shanghai (PVG) and Beijing (PEK). United Airlines (UA) is also the first of the three to serve secondary cities like Guangzhou (CAN) and Chengdu (CTU).
While UA and AA are gaining feeder traffic from working directly with their airline alliance partners (UA with Shenzhen Airlines (ZX) and Air China (AC) / AA with Cathay Pacific Airways (CX)), Delta noticed a gap in its Chinese operations and decided to make improvements.
The first step was to move from Terminal 2 to 1 at PVG (refer to this news release for more details) to be closer to its SkyTeam alliance partners China Eastern Airlines (MU) and Shanghai Airlines (FM) (which is a wholly owned subsidiary of MU). The relocation will significantly reduce transfer times between the airlines and provide a seamless passenger experience. A new 4,000 sq ft (372 sq meter) SkyTeam Lounge will be opened in late 2015 to facilitate the passenger growth.
“China Eastern Airlines and Delta, being important SkyTeam member airlines, have continued to deepen cooperation in various fields in recent years,” said Mr. Dong Bo, chief marketing officer at China Eastern. “The two airlines are committed to becoming the leading partnership on trans-Pacific routes through more extensive and deeper cooperation. The codeshare between Delta and Shanghai Airlines will further enrich bilateral cooperation, products and expand the network.”
Delta’s Network to Shanghai
At the present time, Delta operates two direct flights to Shanghai Pudong International Airport from the following US hubs in:
- Detroit Metropolitan Fort Wayne County International Airport (DTW)
- Seattle-Tacoma International Airport (SEA)
It also operates a direct flight from Narita International Airport (NRT) in Tokyo and has plans to commence operations from Los Angeles Airport (LAX).
Additionally, it is codesharing with China Eastern Airlines on flights to New York JFK International Airport (JFK), San Francisco International Airport (SFO) and LAX.
By July 2015, PVG would be the third most popular Asian destination served or codeshared by Delta just behind Incheon International Airport (ICN) (8 routes) and its Tokyo hub at NRT (18 routes).
Shanghai Pudong International Airport
Pudong is the second hub airport built in the mega business center with a population of 24 million people. It is located 19 miles (30 kilometers) east of downtown and can be accessed the following public transportation methods: Maglev train, subway and airport buses.
In 2014, it carried over 51.6 million passengers to land in the 19th spot of the busiest airport list. Its 9.5% growth rate is 2nd only to Istanbul Atatürk Airport (IST) in Turkey in the top 30.
For the first three months of 2015, the airport recorded a 19%+ increase in passengers (refer to news bulletin). If the rapid expansion continues, this could move the airport up the list to 11th.
To maintain the growth, the airport authority just opened its fourth runway (March 2015) with the fifth scheduled to be completed later on the year. This development will push capacity beyond 80 million passengers by 2020 (refer to press release).
Delta Air Lines Investment into China Eastern
Delta announced today (refer to news release) that it has invested $US450 million for 3.55% stake of China Eastern Airlines (H-shares – listed in the Hong Kong Stock Exchange). This investment will make Delta one of the biggest shareholders of the Shanghai based airline and results with an observer seat on its Board of Directors.
China Eastern Airlines CEO’s statement
“The execution of the Subscription Agreement and the launching of commercial cooperation plan by China Eastern and Delta indicate significant strategic moves of China Eastern to comprehensively reform further, actively explore and develop mixed ownership economy, and actively promote globalized development,” said Shaoyong Liu, China Eastern CEO. “The cooperation of the parties is based on a global vision and joint strategic blueprint. The parties will take advantage of their respective route networks, flight services, relevant businesses and advantageous resources to fully connect the world’s two top economies as well as two top air transportation markets. The parties wish, through excellent operation and international cooperation, to optimize customer experience, enhance the parties’ global competitiveness and promotes the development and revenue growth of both parties.”
Delta CEO’s Statement
“Delta’s relationship with China Eastern is long-standing. We share a vision that will create the most profitable, enduring franchise between the U.S. and China, with world-class customer service,” said Richard Anderson, Delta CEO. “For the past three years, Delta has welcomed members of the China Eastern team at our headquarters for sharing best practices and work study opportunities. We have learned much from one another already and look forward to deepening our already effective partnership.”
Delta’s investment into the Chinese airline is a bold step into executing its strategy into the market. The observer seat on the board provides Delta with insights on future strategy.
There will be further synergies employed on flights operating between the airlines in destinations and frequencies to create further competition for other airlines in the China/US space. For example, similar to the joint venture between Virgin Atlantic and Delta, it is likely that 2x or 3x daily service between cities will appear to provide passengers with more non-stop options.
China Eastern is currently listed as a group 3 partner on Delta’s SkyMiles (R) Program (refer to link for list as at July 27, 2015). This new investment may upgrade the airline to group 2 or 1 as Delta’s CEO compared the investment similar to the the partnership between itself and Air France/KLM.
Delta Air Lines is expanding its global reach by operating hubs in Tokyo and now in Shanghai. Its investment into China Eastern Airlines is key in gaining insights into the market.
In the next part of the series, we will look further into the route networks between the two airlines and how they can build significantly more synergy.