China Eastern, China Telecom Scour the Skies for New Income With Internet Tie-Up

China Telecom and China Eastern Airlines have formed a new joint venture focused on in-air internet technology, in one of the world’s first such tie-ups between two mature sectors looking for new revenue sources in onboard wireless services.

The venture was formed last month in China Eastern’s hometown of Shanghai with registered capital of 200 million yuan ($30.6 million), Caixin Data showed. China Telecom and China Eastern each hold 42.5% of the venture, while Shanghai-based Juneyao Air — which owns a stake in China Eastern — is also a partner with the remaining 15%.

The joint venture is being headed by Lü Junli, who currently heads China Telecom’s satellite unit. Beneath him is China Eastern e-commerce senior executive Zhang Chi.

The two companies history of working together dates back to at least 2014 when China Eastern started testing in-flight internet service in partnership with the carrier, one of China’s three main wireless services providers. That same year in April, a flight operated by China Eastern rival Air China logged a first for the country when it trialed commercial in-air internet service for the first time on a flight using 4G technology.

China Eastern and Juneyao currently operate more than 100 planes with internet capability, representing 54% of the total for China, according to data provided by China Eastern. The pair’s customers account for 80% of total usage of in-flight internet service among domestic players. The two airlines are connected through an equity tie-up from 2018, when Juneyao’s parent paid 9.8 billion yuan for about 10% of China Eastern.

China is still a relative laggard in plane-based internet service when compared with major Western markets. Only around 300 of China’s 3,615 commercial planes in operation offered in-air internet services at the end of 2018, representing less than 10% of the total fleet. By comparison, 80% of planes in the U.S. provide such service, while the figure stood at 50% in Europe.

A previous plan from the nation’s aviation regulator proposed targeting service in 60% of the nation’s commercial air fleet by the end of this year, and 100% by 2022.

The latest tie-up comes as airlines and wireless carriers, which both represent relatively mature sectors, look to in-flight internet as a major potential new revenue source.

The in-air broadband market was worth about $1 billion in 2017 and is expected to grow to $30 billion by 2035, by which time most of the world should be covered, according to a report from the London School of Economics. The market is also expected to provide a big boost to suppliers of products and services such as hotels, retail goods and content providers, with the potential for $130 billion in sales for such entities by 2035.

Contact reporter Yang Ge (geyang@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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