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Cablegate: China Southern Gets Called Up to the Majors with Membership

VZCZCXRO2626
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #1211 3130845
ZNR UUUUU ZZH
R 090845Z NOV 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6651
INFO RUEHOO/CHINA POSTS COLLECTIVE
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS GUANGZHOU 001211

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/CM SECOR AND YAMAMOTO
STATE FOR EEB/AN ROBL AND LIMAYE-DAVIS
STATE FOR EEB/CBA MERMOUD AND THOMPSON
STATE PASS DOT A/S ANDREW STEINBERG
STATE PASS DOT DAS SUSAN MCDERMOTT AND GLATZ

E.O. 12958: N/A
TAGS: EAIR CH
SUBJECT: China Southern Gets Called Up to the Majors with Membership
in Sky Team


1. (U) Summary: China Southern has made it to the Big Leagues: it
will soon become China's first carrier to join an international
airline alliance as a full member of Sky Team. After considerable
investment upgrading its operations and services, China Southern
sees membership in the alliance as the perfect complement to its
extensive network of domestic routes. Membership in Sky Team is
indicative of the rising standards and increasing international
competitiveness of China's airlines. End summary.

China Southern Suits Up
-----------------------

2. (U) China Southern will become China's first airline to join an
international airline alliance when it becomes a member of Sky Team
on November 15. Sky Team has ten member airlines, including
Northwest, Delta, and Continental, as well as three associate
airlines. China Southern, which is based in Guangzhou, will be the
second Asian airline to join the alliance after Korean Air.

Getting in Shape for the Team
-----------------------------

3. (SBU) China Southern has made substantial improvements in its
operations and services in order to qualify for Sky Team. It
adjusted its budget and financial management procedures and upgraded
its information technology systems. China Southern executives told
us that the upgrades cost the firm approximately RMB 300 million
(US$40 million), and it would take time to see return from the
investment. One manager speculated that the benefits of joining Sky
Team might not be apparent in the carrier's bottom line for
three-to-five years.

Playing to Its Strengths
------------------------

4. (U) She also said that joining the alliance fit perfectly into
China Southern's growth strategy. China Southern is China's largest
airline by fleet size and number of passengers carried, but its
strength lies in its domestic routes. Air China, by contrast, earns
more revenue than China Southern in part due to its more extensive
international network. As part of Sky Team, China Southern will be
able to attract more international travelers to its domestic routes
and offer its Chinese customers more options for international
travel.

A Big Win for China's Airline Industry
--------------------------------------

5. (U) China Southern's membership in Sky Team is an important
milestone in the development of China's airline industry. Chinese
aviation officials have pointed out that it shows China's airlines
are becoming more competitive with international carriers in
management and quality of service. China Southern sees the move as
a key step in developing its international brand. China's other
airlines will likely follow soon into other alliances.

GOLDBERG

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