China Eastern Airlines and Juneyao Airlines have announced plans to deepen cooperation and take large shares in each other’s equity.

A key effect of the move will be to reduce competition at Shanghai, since both airlines are based there. Together they will have more than 50% of the Shanghai market, China Eastern said.

The carriers remain affiliated to different alliances, however. China Eastern is a SkyTeam member, while Juneyao is a Star Alliance connecting partner.

Their cooperation, which predates Juneyao’s accession to Star in 2017, will deepen from a commercial to a strategic level, China Eastern said.

Juneyao Airlines is privately owned. China Eastern is majority owned by the central government.

The companies will work together on operating flights, marketing, maintenance, finance and training, they said in separate statements. They will thereby cut costs and increase competitiveness, according to China Eastern.

Following issues of new shares on each side, China Eastern’s parent, China Eastern Air Group Ltd., will acquire 15% of Juneyao for CNY2.11 billion ($296 million); Juneyao Airlines and parent Juneyao Group will buy 10% of China Eastern Airlines for CNY7.46 billion.

Discussions on the reciprocal investments began in 2018.

Together the two airlines will operate a combination of full-service and low-cost businesses, the China Eastern said. Each has been operating low-cost operations separately; however, China Eastern subsidiary China United Airlines and Juneyao subsidiary 9 Air are both no-frills carriers.

Bradley Perrett,

Research by Ryan Wang