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UPS wins China flights
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November 21, 2000: 2:48 p.m. ET
Parcel carrier beats out American, Delta for rights to fly six flights a week
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - United Parcel Service Inc. has won the right to fly to China, triumphing over American Airlines and Delta Air Lines to win the designation from the U.S. Department of Transportation.
But other airlines will have a chance to get to the country through a back-door, via a new agreement that could let them fly routes between the two countries now awarded to Chinese airlines.
 The decision on which carrier would win the designation has been before the DOT since May and was hotly contested, with each carrier calling on public officials to lobby the department on their behalf. UPS will be the fourth carrier with the rights to fly from the United States to China, joining United Airlines, Northwest Airlines and FedEx Corp.
UPS' 747 freighter flights from Ontario, Calif., and Newark, N.J., could begin next April.
Polar Air Cargo, a smaller cargo carrier owned by General Electric Co. (GE: Research, Estimates), also was seeking the right to fly to China.
Under the Transportation Department's preliminary decision announced Tuesday UPS will get six flights a week between the two countries, with two additional flights a week going to United and one additional flight each going to Northwest and FedEx.
Door open for new passenger service
Other carriers' opportunity to get access to China would come through a new Chinese-U.S. agreement reached in October but announced Tuesday.
The agreement allows the U.S. carriers the right to fly flights between the two countries now granted Chinese airlines. The carriers already have the right to book their passengers on Chinese airlines' flights to or from the United States, a common procedure known as a "code share."
DOT's statement said that Chinese and U.S. negotiators agreed to have U.S. carriers fly some flights that have been awarded to a code-share partner. That process is known in the industry as "zombie code shares."
American has a code share agreement with China Eastern Airlines, while DOT said that Delta has a code share with China Southern.
Al Becker, a spokesman for American, said it would start negotiations with China Eastern to open the way for American flights to China, and that if such a pact is reached it would almost be as good for the airline as winning the DOT designation itself.
"This new agreement opens up meaningful and substantial opportunities," Becker said. "There is a lot of flexibility with it."
Delta did not detail its plans for serving China though its code share partner, but a statement from Leo Mullin, its chairman and chief executive, that, "serving China nonstop from the U.S. remains a very high priority for the airline."
Significant win for UPS
The move is a significant win for UPS, which did not have any code share agreements with other carriers, and thus would have remained at a competitive disadvantage to FedEx if it had not won the designation. FedEx has used its exclusive position among freight carriers as part of its advertising campaign.
"This will be very positive for UPS over the long term," said Ed Wolfe, analyst with Bear Stearns, who said company officials have told analysts it could add $100 million-to-$300 million in annual revenue in the next two years. "This is not material to earnings per share during the next few years, but over time it will be an important growth engine. It is also important to UPS because of the validation of the political time and effort they spent in winning support on Capital Hill for these slots."
Tad Segal, a UPS spokesman, said the $300 million revenue gain was an estimate for having 10 flights a week, that the number may be scaled back with only six flights a week. But he said the win is an important win for the company's long-term strategy.
"We've said all along it was a small short-term impact, but a real benefit to our competitive aspects down the road," Segal said.
But while the decision is a setback for American and Delta, it is not a significant problem for the two airlines or their stocks according to Glenn Engel, analyst with Goldman Sachs.
"If you're a major airline you want to serve the most important destinations, but this is probably more a matter of when, not if, they'll serve China," he said. "Apparently, it's not happening quickly. The Chinese government is being very protective of its carriers. But in the immediate scheme of things, getting two more flights a week for United rather than for American and Delta doesn't change the balance that much. I don't see it being that big of a deal."
Shares of UPS (UPS: Research, Estimates) closed up $1 to $60.31 in Tuesday trading, while shares of AMR Corp. (AMR: Research, Estimates), parent of American Airlines, gained $1.44 to $36, and shares of Delta (DAL: Research, Estimates) rose $1.56 cents to $49.75. 
Click here to send mail to Chris Isidore
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United Parcel Service
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