Air China has become the majority shareholder in Shandong Airlines' parent company following an equity purchase and capital injection for the airline. The move will allow the flag carrier to grow its domestic market share and increase profitability, especially as it emerges from the pandemic. Let's find out more.

Majority owner

According to FlightGlobal, the Chinese flag carrier has upped its stake in Shandong Aviation Group (SAG), the parent company of the eponymous airline. Air China now owns 66% of the company, up from 49.4%, in addition to a 23% stake in the airline itself. The airline itself is owned by SAG (66%), Air China (23%), and 35% remains publicly traded, giving the flag carrier majority ownership.

The stake increase came after Air China agreed to buy shares of two investors in SAG, Shansteel Financial Holdings (1.4%) and Qingdao Qifa (0.9%), in a deal worth CNY32.9 million ($4.77mn). Now, the airline has partnered with two more owners to invest CNY10 billion ($1.45bn) into Shandong Aviation Group to grow its airline operations.

Air China Boeing 747-89L B-2486
Photo: Vincenzo Pace | Simple Flying.

Shandong Airlines is an all-Boeing 737 carrier, operating three 737-700, seven currently grounded 737 MAX 8s, and 122 737-800s. With 122 aircraft flying today, the acquisition is a sizeable one.

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In a statement to the stock exchange explaining its equity stake, Air China said,

"After the company takes control of Shandong Aviation…and Shandong Airlines, the company will be able to enhance its overall profitability by further strengthening market layout and deepening its cooperation with Shandong Aviation.”

Consolidating the domestic market

When it comes to the domestic market, China's big three are almost neck-and-neck. Data from Statista shows that last year, China Eastern Airlines Group (which includes arms like Shanghai Airlines, OTT Airlines, and more) led the pack with a market share of 23.2%. They were closely followed by China National Aviation Holding Group (Air China's parent company), with a 21.6% share of domestic operations. China Southern Air Holding came in third with 17.86%, while the Hainan Airlines Group was fourth with 15.32%.

With COVID restrictions now scrapped across China, airlines will be looking for a leg up during the rebound. Shandong offers eight international countries (pre-pandemic) and two dozen domestic connections, allowing it to integrate well into Air China's much larger schedule. The bump in market share may just be enough for China National Aviation to become the biggest group in the country as well.

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China Eastern Airlines Shutterstock
Photo: Markus Mainka/Shutterstock

Indeed, any schedule integration should be no problem, given the extensive codesharing both airlines have had for years now. For now, keep an eye out as the pair slowly begin capitalizing on their strengths and increase access to key markets in the coming months.

China reopening

After three years of tough zero-COVID policies, China is set to reopen its international border on January 8th. Travelers will now be able to enter and apply for visas for nearly all categories except tourism, while outbound trips are finally allowed as well. However, the decision has been met with some skepticism as countries add testing requirements due to a surge of cases in the country recently. With flight restrictions gone, the whole world is once again open for travel.

What do you think about Air China's acquisition? Let us know in the comments.

Source: FlightGlobal, Statista