It has been like a running serial with sub-plots galore. Now it is pretty official that China Eastern Airlines will take over Shanghai Airlines through a share swap in a deal valued at $1.3 billion.
Dow Jones reports that it will swap 1.3 of its Shanghai-listed A shares for each Shanghai Airlines share.
China Eastern also said it will raise around $1 billion through a sale of shares to improve its financial position (much needed) and enhance its long-term competitiveness.
Analysts said the merger will help to reduce cost competition on routes shared by the carriers, but otherwise the benefits appear limited. Indeed, it is difficult to find an airline merger where the results have approached the promised benefits.
Both airlines have the same weaknesses. A poor brand reputation outside of China, weak competitiveness and network coverage on international routes, overstaffing and a total lack of staff training to give passengers a pleasing experience. Along with the take-over there has to be a total revolution in the attitudes of flight staff to passengers. In flight crew are there to serve passengers. This message does not, as yet, seem to have got across with with either airline.
HSBC said that retaining the Shanghai Airlines brand after the merger may also confuse customers unless the two brands are clearly distinguished or focused on different market segments.
CargoNews Asia reported that both government-controlled carriers have said they don’t plan to reduce staffing.
Daiwa Securities analyst Kelvin Lau said, furthermore, the restructured company will still face competition from Air China, China Southern Airlines and Cathay Pacific Airways on key routes to Beijing, Guangzhou and Hong Kong. So the merger will happen but that is when the real work will start.