American Airlines Eyes China Southern to Expand in Asia

In a bid to strengthen its Asian footprint, Fort Worth, TX-based American Airlines GroupAAL is looking to buy a stake in Asia's biggest carrier (in terms of passenger numbers) China Southern Airlines ZNH . While rumors regarding the buyout were doing the rounds for quite some time, the fact that talks are in progress was confirmed by the Chinese carrier according to a Bloomberg report.

According to people familiar with the matter, the U.S. based carrier was looking to invest approximately $200 million in the Hong Kong-listed shares of China Southern. American Airlines' latest move to expand its Chinese presence comes at a time when it is embroiled in a struggle with Chinese aviation authorities for slots to operate flights connecting Los Angeles and Beijing.

American Airlines, which carries a Zacks Rank #3 (Hold), had announced its intention to operate flights on the above route last year. But a denial by the Chinese authorities to grant slots, presented fresh obstacles in its path to expand in the fast-growing Chinese aviation market. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

In this scenario, we believe a code sharing agreement with China Southern may be the best way forward for American Airlines to fulfill its objective of expanding its presence.

A codeshare deal allows sharing of flights, which implies that a passenger has the free will to avail any flight operated by either of the companies under the agreement, irrespective of the flight number.

American Airlines Following Delta?

In the event of the talks materializing and American Airlines buying a stake in the Chinese carrier, it would follow rival Delta Air Lines, Inc. DAL efforts to expand in the lucrative market. To that end, Delta purchased a 3.55% stake in China Eastern Airlines CEA last year.

Notably, the focus of U.S. carriers like American Airlines on the Chinese market is fully understandable, given the projection that China will be the largest aviation market by 2024, overtaking the U.S.

Stock Struggling

The American Airlines stock has struggled of late due to multiple headwinds like Winter Storm Stella, among others. The stock has declined 12.44% in the last three months, against the Transportation-Airline industry's gain of 1.65%.

In this gloomy backdrop, shares are expected to get a boost in the event of the US carrier's deal with China Southern materializing. Consequently, we expect investors to remain focused on updates pertaining to the American Airlines - China Southern story.

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Delta Air Lines, Inc. (DAL): Free Stock Analysis Report

China Southern Airlines Company Limited (ZNH): Free Stock Analysis Report

China Eastern Airlines Corporation Ltd. (CEA): Free Stock Analysis Report

American Airlines Group, Inc. (AAL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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