China Southern joins Air France-KLM in a Cargo Joint Venture

The new airline will be called AE (Asia Europe) and will be based on the Chinese Mainland.

China Southern has that country’s largest air fleet. It will join with Air Bleu Ltd., an airline controlled by the Air France-KLM (AF-KLM) Group. It will hold 75% of AE and 25% of Air Bleu. The business plan of the new company calls for a term of 30 years for the venture. China Southern says that the new airline will “engage in domestic and international air cargo transportation and storage activities, including cargo and mail airline services, ground handling services, operation of warehouses and other storage services, agent services, representatives of other airline companies, customs clearance agency, and import and export services.”

In its most recent financial reporting, China Southern enjoyed an increase in operating revenues of 17.9% for all of 2007 compared to 2006. Even with what the airline characterized as fierce competition in the industry and skyrocketing fuel prices it, “Dealt with the pressures resulting from high fuel prices by optimizing the structure of flight routes and the composition of the fleet, increasing overall revenue by taking a series of fuel-saving measures and utilizing financial derivatives.” Total cargo and mail freight grew 6.5% for the year, to a total of 8.72 million tons. Revenue from the segment grew 4.5%, to RMB 3.687 billion.

As with other airlines, AF-KLM has felt the effects of sharp rises in oil prices and a challenged global economy. For its full fiscal year that ended on March 31, the combined airline had overall revenue growth of 4.5% with € 24,114 million for 2008 over 2007’s € 23.073 million.

AF-KLM cargo business was strained in the first two quarters of its fiscal year, but has recovered somewhat since the middle of the year. It moved 363,000 tonnes of freight. With a negative impact of currency at 3.8%, freight revenues climbed 8.0%. Operating income saw a decline of € 22 million in 2006-2007 and recovered in the new fiscal year to almost break even, with a loss of € 1 million.