United Airlines wants more Shanghai, hindering American’s China plans

United Airlines wants to grow in China again. The carrier applied to the US Department of Transportation for access to add a second daily flight from its hub at Newark Airport to Shanghai. The move comes on the heels of Delta Air Lines announcing an application for daily Minneapolis-Shanghai service and American Airlines‘ decision to drop a pair of Chicago-China routes this winter.

Access for US carriers to Tier 1 cities in China (Beijing, Shanghai and Guangzhou) are limited by bilateral treaty. Prior to this pair of applications a total of seven frequencies remained available, enough for one daily flight to be added. With requests for two daily flights American Airlines finds itself in a bind. The carrier hoped its route authorities could be declared dormant rather than forfeited. With both Delta and United seeking new service that plan almost certainly falls apart.

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Delta’s application makes no reference to American’s dormancy request, though it did file a conditional objection should the dormancy impact Delta’s application. United, knowing that its application would trigger such an impact, dedicated a decent portion of its application to address American’s request:

Given its recent comments, United doubts that American will return to the market in November 2019, and submits that it should not be allowed to warehouse 14 weekly China frequencies when other parties are indicating interest in the frequencies. …

United does not object to Delta’s application so long as it does not come at the expense of United’s future China plans, and, as detailed below, United does not believe that has to be the case.

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United went so far as to include the full transcript of American’s Q3 ’18 earnings call in its application so as to make the Department of Transportation aware of American’s position on service from Chicago to China. While American claims it will restart the flights under more compelling conditions. United points out American’s admission that the route never made money for the carrier and probably never will.

Growing Competition

As for United’s desires, the NYC-Shanghai route currently sees thrice-daily service. China Eastern operates twice daily to JFK Airport, balancing United’s once daily to Newark. United likely can fill the second plane with the strong combination of local feed and connections at a second bank of flights. But that optimism also ignores a change in Chinese aviation policy.

For the past decade Chinese regulators limited operations among China-flagged carriers to one airline per long-haul (2,800+ miles) route. As of October 2018 that rule disappears in many markets, including to the USA. Airlines still need the scarce route authorities for service from the Tier 1 cities but no longer will the government enforce a competition strategy on its airlines. This would potentially allow other Chinese carriers to also enter the NYC-Shanghai market. With a number of smaller carriers currently ply secondary markets to establish a foothold in long haul operations. A shift to the higher prestige (and presumably profit) routes could make for interesting competition in the future.

United’s Mixed China Growth History

United’s renewed growth desires in China come against a history of mixed behavior on that front. The carrier recently dropped Guam-Shanghai service, for example. It also pulled back on service from San Francisco to tertiary destinations in China over the past couple years. The newly proposed Shanghai-Newark frequency is a very different beast, of course. In addition to the stronger market demand the route lets United stand in American’s way. And that’s a big part of the competitive spirit.