Mexico’s Downgrade

August 10, 2010 on 1:00 am | In Air Traffic Control, Airline News, Airlines Alliances, Airports, security | No Comments

When the Federal Aviation Administration downgraded Mexico’s aviation safety from Category 1 to Category 2, people took notice and, no doubt, so did Mexico’s airlines.  Does this reflect on Mexico’s airlines?  Yes, I think so. 

Mexico has joined the ranks of countries such as Haiti, Congo and Serbia & Montenegro.  In fact, the only nation listed as Category 2 that surprises me is Israel and I suspect that has to do more with execution and very specific circumstances than it does with technical quality.  Nonetheless, when you join those ranks, it speaks poorly of your country *and* your airlines.

Is a nation’s aviation infrastructure always indicative of the airlines?  No, of course not.  There are plenty of Category 1 nations who have had airlines that had unsafe operations over the years including the United States.  However, I can’t think of a particularly outstanding airline coming from a Category 2 nation except El Al.   You don’t really hear of the operational excellence of airlines from Honduras, Paraguay or the Phillipines, do you? 

This is bad for both Mexico and Mexico’s airlines.  And with Mexicana trying desperately to leap off a cliff and kill itself, it looks even worse. 

Suddenly, Mexican airlines can no longer codeshare with US airlines because of this.  That means participation in alliances is going to mean very little in terms of revenue. That is going to hurt.  And, let’s face it, Mexico doesn’t have a great reputation for fixing its problems quickly.  The Mexican Way is to bicker about it for as much as a decade before doing something.

It would be in the best interest of airlines in Mexico to start safety audits with IATA immediately and to put political pressure on the government to fix this asap.  Sadly, I think this is going to get much worse before it gets much better. 

I am a huge fan of Mexico.  I genuinely enjoy its people and much of its culture and I want them to succeed every day.  That said, success isn’t going to happen until its current government and, more importantly, its businesses and citizens come together to insist on excellence.  They have, quite literally, a major conflict going on in their drug war and a crumbling financial infrastructure and waning exports to countries like the US and Canada.  This development in aviation puts them at a further disadvantage with its partner trading countries and it needs to get fixed fast.

Mexico needs to ask for help from the US and other countries fast.  Or they can contact Swaziland or the Ukraine and ask for advice on how to dig one’s grave even deeper.

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Virgin Atlantic: Time for an alliance?

July 31, 2010 on 1:00 am | In Airlines Alliances | No Comments

Virgin Atlantic has remained steadfastly independent over the past 20 years despite emerging airline alliances forming around them left and right.  Richard Branson has been an outspoken critic of these alliances and managed to be a big player in keeping British Airways and American Airlines from partnering up for over 15 years.

That said, they’re starting to look awfully lonely on the playing field and even a bit anemic.  This strategy of going it alone has worked in the past but I’m not so sure it works for them in the future.  They need more “feed” for their flights and, frankly, they could stand to make it a bit more attractive to potential customers by offering more choices too.

Sir Richard, it’s time you start looking for some strategic alliances. 

Virgin Atlantic has even kind of failed at making strategic alliances with its own brands around the world.  They do not cooperate closely with Virgin Blue, V Australia or Virgin America (in the last case it was a condition upon granting permission for Virgin America to start up so we’ll give them that one.) 

But it’s time.  It’s time for more strategic alliances and there are opportunities out there.  SkyTeam might actually be an excellent fit for Virgin Atlantic since they have no real UK market penetration.  It might work even better if the airline group controlling Virgin Blue and V Australia brands were to join it as well.   Such an alliance would be well served in the US-UK market as well as throughout Europe and it would establish better competition in the US-Australia-New Zealand markets too. 

I’ll stand with Sir Richard on the fundamental wrongness of these alliances still.  However, it’s time to acknowledge that these alliances are here to stay and start finding a way to compete within their structures instead of hoping for another 2 column inches of press by objecting to them.

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Oneworld Anti-Trust Immunity and You

July 30, 2010 on 1:00 am | In Airline News, Airline Service, Airlines Alliances | No Comments

It’s been a bit over a week since American Airlines, British Airways and Iberia (along with Finnair and Royal Jordanian) received anti-trust immunity approvals from both the EU and the DoT.  What it means is that each of those airlines will be able to cooperate closely with each other on a variety flights between the United States and Europe. 

What closely cooperate means is that these airlines will start marketing their respective flights between cities under the various brands but each airline will be responsible for certain flights.  For example, British Airways may begin operating more of the capacity between DFW and London while American Airlines retasks the aircraft they were using for some of those flights to other flights.  Iberia Airlines may begin operating the flight(s) between Miami and Spain.  BA, AA and IB will be selling seats on all of those flights as their own just as you already see done as codeshares.

The difference is that now these airlines will also begin cooperating on scheduling.  In other words, American Airlines might start scheduling its “feed” for a British Airways flight from DFW to London.  American Airlines might do the same for an Iberia flight from Miami to Spain.  On the other side of the ocean, British Airways might schedule its “feed” for London to Chicago to mate up with an AA flight.   These airlines will start acting almost as if they are one company so to speak.

Is that good or bad?  If you ask the airlines, the customer will get to see more choices to more destinations on Oneworld flights and that choice is good.  In most cases, it is good and air fares are likely to be unaffected on many routes because of competition from other alliances such as SkyTeam and Star Alliance. 

However, in some cases, I think this is bad.  For instance, American Airlines already effectively “owned” the DFW to London market and really the DFW to Europe market.  So much so that previously they weren’t allowed to code share with British Airways on such routes at all.  There is very little competition in the DFW market to Europe.  Some exists, yes, in the form of flights by KLM and Lufthansa to Amsterdam and Frankford respectively.  One flight each a day.  Now, with even closer cooperation allowed, I do fear that KLM and Lufthansa may find such flights simply uneconomical.  There is no real Star Alliance and/or SkyTeam presence at DFW anymore. 

In the short term, I do think there are markets that are going to see much higher air fares for non-stop flights to Europe.  As with all things, those higher air fares may one day drawn in more competition, though.  It is conceivable that if the fares rise considerably, another alliance may target such a market for competition.  For instance, the Star Alliance may decide that Dallas needs some competition and suddenly we may find ContiUnited or US Airways providing some feed to that destination in order for a European carrier such as Lufthansa to justify a route between Dallas and Germany. 

I think such developments are a good 5 years away at least.  Fundamentally, I think these alliances are bad for consumers and bad for the industry but they were instituted a long time ago and that genie is out of the bottle now.  Since it would be nearly impossible to break up those alliances, it is fair that Oneworld be permited to establish their own now.  SkyTeam pioneered such things and Star Alliance is also far ahead of the curve. 

Regrettably, now we have to manage competition between alliances rather than companies.  I think that is bad because those alliances potentially let airlines that would otherwise go out of business remain in the game longer.  We need to see this industry periodically purge itself of the weaker players.  If you think that didn’t happen under regulation, you’re wrong.  It did.  Airlines did file bankruptcy and if they didn’t, they were forced into mergers of convenience by the CAB.  In any case, the weaker players still went away.  All too often, we don’t allow that to happen anymore and that hurts us more than helps.

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Air Berling and Oneworld?

July 28, 2010 on 1:00 pm | In Airline News, Airlines Alliances | No Comments

Air Berlin will be joining Oneworld sponsored by British Airways it has been announced.  I would like to announce something myself:

Huh?  Air Berlin?

Air Berlin is European continent based LCC carrier and while they get generally good marks as an LCC carrier, I’ve a hard time figuring out how their service product harmonizes with the rest of Oneworld.  Particularly with British Airways, American Airlines, QANTAS, Finnair and Cathay Pacific.  Is Oneworld just that eager to have more feed on the European continent?

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AA / US Airways: Analysts decide they like it.

June 9, 2010 on 1:00 am | In Airline Fleets, Airline News, Airlines Alliances | 2 Comments

The Dallas Morning News Aviation Blog has this post HERE about analysts beginning to like the idea of a merger between American  Airlines and US Airways.   This marriage occurred to me back in April and you can read my post HERE.  Eric Torbensen at the Dallas Morning News thinks it is a terrible idea and I disagree.

The real reason to perhaps not do a merger between these two airlines is that American Airlines is terrible at mergers.  Their employees don’t embrace them and their executive corps approaches them like predators.  As a result, mergers at AA tend to be plain “consumption” rather than growth or partnership.

Now, if they could embrace a merger, I believe one such as this could be good for them.  First, a merger like this wouldn’t definitely not be sexy.  The sexy merger partners are now fully occupied and, frankly, there was perhaps just one that really would have qualified as sexy and doable for AA and that was Northwest Airlines.  They’re gone. But just because an AA / US Airways marriage isn’t the sexiest thing on the planet and just because it doesn’t necessarily bring the gains that another partner would have provided doesn’t mean that it doesn’t make financial sense. 

This one could.  Look at the route maps first.  US Airways offers a hub presence in two areas of the United States where AA is actually a bit weak.  Phoenix is a nice hub in the web and while it isn’t the strongest hub in the country, it does pretty well.  Yes, Southwest is there but guess what?  AA knows how to compete with Southwest. 

Charlotte is a nice Southeastern US hub that pvovides coverage in area that AA hasn’t gotten much traction.  AA tried having a hub in Raleigh (didn’t work) and has, from time to time, tried to expand Nashville.  It has Miami but that really is more of an international gateway city than it is a domestic hub.   So AA has presence in some weak(ish) focus cities for the SE that the Charlotte hub could change for them. 

So, in terms of a domestic network, it works.  It really is quite complementary to AA’s existing system.

There is some compatibility between the executive leadership of the two companies.  Doug Parker is a former AA manager, for example (and his wife still is an AA flight attendant) and some of the other executive staff has roots in AA as well.  Some that don’t are from Northwest and the cultures between Northwest and American Airlines aren’t dissimilar either. 

But let’s talk about the romantic international part of this.  No, US Airways doesn’t offer much to AA that it doesn’t already have.  It’s US Airways weakest area.  But it isn’t a money loser and there are some hidden benefits.  American can probably either A) redirect feed for those flights to one of their existing gateway cities or B) bolster the US Airways international product and make the US Airways international flights a bit more of a competitor.    The smart team would do both.

There is another benefit:  A more diversified fleet.  There is some overlap between the two companies (737, 757 and 767 equipment but the US Airways mainstay aircraft are Airbus aircraft now.  The A320 series aircraft could be useful to redeploy onto AA routes currently being served by the MD-80 fleet.  The Airbus A330 equipment could be redeployed to AA routes requiring a little more capacity than a 767 but which aren’t in need of a 777′s size or range.

Finally, such a merger would offer Oneworld domestic coverage in areas of the US where it is definitely weak.  The Oneworld alliance leans on AA only in the US and the other two alliances were bolstered by at least 2 airlines domestically.  This is a great opportunity to improve the Oneworld alliance. 

There is value in such a marriage.  The problem is, the people who know how to do this kind of marriage and make it work are at US Airways, not AA.  Doug Parker and Company understand the value of a union like this and know that you embrace the partners strength and use it.  Gerard Arpey and Company come from a school that is more about being a predator and consuming your competition without really embracing them as partners.  Since AA is so much larger than US Airways, it’s Arpey who would lead such a merger and I don’t think he’s the right one. 

Actually, I think Doug Parker could do fantastic things for AA.  If he can succeed with US Airway’s assets and weaknesses, he very likely could do wonders for an airline like AA with its resources.  But the AA board would have to want him and despite the recent flare ups against Arpey from analysts, Gerard Arpey still holds the full confidence of AA’s board of directos.  He isn’t going anywhere anytime soon.

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Oneworld and its future

May 13, 2010 on 1:00 am | In Airlines Alliances | No Comments

One very noticeable development with the announced United Airlines / Continental Airlines merger is that 2 of the 3 major airline alliances (SkyTeam, Star Alliance and Oneworld) now have Super-Legacy airlines participating in it.  SkyTeam has Air France/KLM and Delta (Delta/Northwest).  Star Alliance will have United/Continental and, so far, will continue to have US Airways in the US market. 

 

Oneworld has American Airlines.  A lone airline ever increasingly burdened with debt and who shows little sign of recovering in a market that several airlines have shown improvement in.  Oneworld has the fewest airline partners although it arguably maintains global coverage.  I see some opportunity for a few of its partners, too. 

 

QANTAS has long had ties to both British Airways and American Airlines but I wonder if they aren’t looking around and realizing that there may be better opportunities with Star or SkyTeam.  They compete with British Airways on many international routes so I wonder how much love they feel on that side.  It’s true that AA provides them with lots of feed in the US but several other partners could do the same in the same cities.  In fact, I suspect SkyTeam would love to have them on board.  United (Star) already flies US/Australia routes.   In addition, Air New Zealand is a Star member and doing nicely on trans-pacific routes too. 

 

Oneworld doesn’t directly access Canada and has mediocre ties to Africa (via European partners) and Latin America is perhaps a bit underserved in that LAN is the only partner there and their concentration is on the west coast of South America.   The Far East remains well served by Cathay and JAL but India is conspicuously missing.  That’s a country of 1 billion (with a “B”) people.  You would think that having a regional partner in India would be a priority.   Southeast Asia is weak as it is basically served with flights to and from that region but not within.  There is another 1 billion people located in that region. 

 

There are several European partners but I do notice that there are two primary hubs:  London and Madrid.  Not the hubs most people want to fly in and out of.  London is congested and prone to delays and Madrid is served by Iberia, not an airline with a great reputation.  It also doesn’t “feel” like a convenient hub. 

 

What is more noticeable is that the founding partners of Oneworld were mainstay legacy airlines.  Airlines that have not seen any revolution to date and who often are burdened with some of the highest costs to operate in their regions. 

 

With the ever growing size of both Star and SkyTeam, I do wonder if there will be any room for Oneworld.  Could the Oneworld alliance be absorbed by the other two?

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WestJet misses Southwest

April 30, 2010 on 11:00 am | In Airline News, Airlines Alliances | No Comments

One story coming out this week is about comments from WestJet executive John McCleod stating that WestJet would still like to get a deal done with Southwest on codesharing.  Southwest terminated their original agreement a few weeks ago after WestJet supposedly asked for modifications that were untenable to Southwest and after WestJet’s new CEO, Greg Saretsky, indicated his preference for doing a codeshare with Delta.   What muddied the waters even more was a comment last week from Richard Andersen of Delta during a financial analyst call about how they had executed a codeshare agreement with WestJet which was then “clarified” by Delta PR people.  Delta PR people said they did not, in fact, have an agreement in place.

 

This sounds like a romance drama my 15 year old daughter would get caught up in.

 

I never thought WestJet’s moves over the past month made sense.  It felt like WestJet considered itself bigger than it was and more of a player than it was.  Let’s remember that WestJet is a Canadian airline operating in the Southwest LCC model.  And even though it is Canada’s second largest airline, that ain’t saying much when you consider the population of Canada and the size of Air Canada as compared to airlines in the US.   Canada is a country of 34 million people or roughly 1/10th of the population of the United States. 

 

Southwest’s home state of Texas has a population of 24 million people. 

 

Southwest, on the other hand, would be considered a major player on any continent.  They carry a lot of people every day and they do it with high marks for service, reliability and value.  And they’ve done it for nearly 40 years.  They are also not complete strangers to codeshares and we have already seen what a life-giving experience it is for Southwest to participate in a codeshare with an airline.  As an airline, they are definitely not participating in their first rodeo.  They make their mistakes but they are definitely a world class competitor too.

 

I can only imagine that Delta (and the rest of SkyTeam) look at WestJet and wonder when it will grow up enough to have the training wheels removed from its bicycle.  They play Texas Hold ‘Em poker for high stakes in the airline world and it’s kind of hard to believe that WestJet really thought they would be taken seriously by the likes of Delta, the world’s largest airline by any metric.

 

Could Southwest do a deal with them still?  Yes, I think so.  Southwest is friendly, a great place to work and it treats its staff well.  It doesn’t like to be taken advantage of but the people running Southwest are businessmen and businesswomen at the end of the day.  A deal still provides both partners with something good.  But WestJet is going to have to decide who it wants to be a bride to and stick with it.  I’d say the signal was sent but it wasn’t exactly loud enough or specific enough.  I expect another overture by WestJet before Southwest turns its attention back to WestJet.

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Who does AA marry?

April 28, 2010 on 12:30 pm | In Airline News, Airlines Alliances | No Comments

American Airlines is a pretty conservative organization.  It doesn’t hire from outside the airline very often and it manages itself pretty closely.  It is, in many ways, the IBM of the US Airline industry.   Well, the IBM of the 1970′s anyway. 

 

Mergers and acquisitions haven’t been a very successful pathway for American.  One look at the TWA “merger” which was really a purchase and you’ll understand why.  They tend to focus on their core strengths and it is particularly difficult for them to adopt new staff and destinations.  Purchases, for them, seem to be more about keeping dominance in a particular area rather than growing their business. 

 

When Delta and Northwest started off on their merger, it was easy to understand why AA was unruffled by the development.  There was no assurance of success on any level be it financial or operational.  Being the biggest isn’t AA’s game nearly as much as being the strongest and I’m sure their management corps looked at that merger and decided it wasn’t something to worry too much about. 

 

But Delta has had better financial success than AA and it seems to be “right sizing” aircraft to routes and enjoying better yield and that has got to be attention getting on some level.  It got Continental’s attention apparently.  If the Continental / United deal does go through, I have to wonder who AA starts to look at.   It’s one thing to have an aberration in Delta but it is a whole other bag of bananas to have Delta/Northwest and United/Continental next door to you.

 

So, is it US Airways?  They aren’t just the logical choice because they’re the only legacy airline left.  There is a certain sensibility to the idea.  AA has no hubs out west (just a large presence at LA) and, in fact, has no dominance in any of the areas where US Airways does operate.  Well, Philadelphia is close to Washington DC and NYC but it isn’t the DC or NYC market either.    AA has no southeastern presence either.  Miami is a hub but it isn’t an regional hub like Atlanta or Charlotte. 

 

There isn’t much fleet compatibility there and I’m not sure there needs to be.  Delta has shown that as long as you have an economy of scale in the aircraft type, you can have it in the fleet and use it to your advantage by rightsizing your aircraft to the route. 

 

Labor problems?  Well, AA is kind of used to labor problems and their labor unions are so strong that I kind of wonder if they wouldn’t smack all those US Airways EAST/WEST conflicts into shape.  If nothing else, it would give the EAST/WEST unions something to unify over. 

 

Say, did you know that US Airways CEO Doug Parker used to work for AA?  His wife still does.  Guess who US Airways’ President Scott Kirby used to work for?  Sabre when it was a division of AMR, the holding company for AA.   Two more of the executive team come from Northwest Airlines from an era when they really weren’t that different from AA culturally speaking. 

 

Both airlines have a lot of debt.  The US Airways team has actually proven itself to be pretty scrappy in many areas.  They cleaned up the Philly problem from US Airways EAST, managed their finances carefully and have continued to be a player despite unresolved challenges.   Neither has really made money though. 

 

However, a real merger, not just a purchase and dissolution but a merger, has some potential even if AA’s team retains most of the control.  It has some of the same potential that Delta / Northwest had and fewer of the risks that a United/Continental merger has.  It helps the Oneworld alliance as well. 

 

While I think AA could do it, I also think the chances for them to screw up a real merger are far higher than I would give many other airlines.   I think they would approach it as a takeover and attempt to dominante everything.  And as a result, I think we would see the hubs in Phoenix, Philadelphia and Charlotte slowly fade away over time with nothing much to show for its effort after 10 years.

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Growth

March 2, 2010 on 9:00 am | In Airlines Alliances | No Comments

Instead of mergers galore, I think what this industry really needs is growth. 

 

To most people, that sounds crazy in light of the present economic situation in the industry.  It depends on who I think should be growing, doesn’t it?  We need to see more growth and expansion from airlines like SWA, Airtran and jetBlue.  Heck, let’s throw Virgin America into that mix too.  Those are the airlines that are going to drive service and price in this business for the foreseeable future. 

 

Now, how they should grow is up for debate.  Each of those airlines is pretty good at what it does and how it does it so trying to merge with an equal really isn’t a great idea.  They shouldn’t dilute their corporate culture in favor of growth at any cost.  However, that doesn’t mean you can’t pick up a deal here and there.  Frontier was a perfect example of an airline that would have been a good buy for any one of those airlines.  In hindsight, there should have been a bit more of a bidding war for Frontier.

 

There aren’t a whole lot of smaller airlines in this country.  Frankly, I think Virgin America is more of a candidate to be taken over than to consume someone else.   Sun Country Airlines still looks good to me, particularly for someone who wants an good entry into the Minneapolis / St. Paul Market.  There was a time when it would be very unwise for most airlines to attempt to compete with Northwest Airlines in that market.  Now that they are Delta, have 48 hubs and are headquartered in Atlanta, I suspect an airline could get an edge into that market.

 

But there are other growth opportunities out there.  DFW has space to be a focus city for an airline.  So does Houston.  Las Vegas is no longer to be a hub for US Airways.   St. Louis is an old city but it is still a city of industry with an airport that has nothing but crickets chirping in it.  There are plenty of regions lacking in good competition still.

 

I don’t think a merger of legacy airlines will do anyone any good.  Oh, it would take come capacity out of the system which would probably raise prices on *some* routes.  I’m not sure if that is “good” for the consumer.  It might create further dominance of a region or hub and I don’t see the benefit in that.  The Delta/Northwest merger was one that worked because it labor issues were settled, there wasn’t a whole lot of overlap between the two companies routes and each company was accepting of the idea.   Those circumstances don’t occur very often.

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Mergers

March 1, 2010 on 4:00 pm | In Airlines Alliances | No Comments

There has been quite a lot of talk in the media about mergers recently.  Financial analysts are high on the idea and two airlines in particular have batted their eyes at potential suitors again. 

 

The CFOs of both United Airlines and US Airways have made recently comments stating they see more consolidation needed in the US airline industry and both said their airlines remain open to the idea of merging with someone.  No big surprise because both of those airlines are arguably the poorest performing legacy airlines in the US.   It’s also no big surprise that financial analysts now want to see another merger because they’ve seen the financial response to the Delta/Northwest merger. 

 

I don’t see it happening myself.  Neither US Airways nor United Airlines happen to be particularly attractive properties for another airline for one.  Neither American nor Continental really have anything to gain by mating up with those two for example.  Well, Continental could benefit from UA’s Chicago hub and its international business.  American already has a nicely balanced business and, more importantly, it needs to focus on its labor problems and get those solved first. 

 

Continental has done better by managing itself and its employees carefully and really isn’t inclined to pick up one of the two airlines with some of the worst labor relations around.  They’re kind of smart over at Continental.  Now that they’re in the Star Alliance, they have the best of both worlds going for them.

 

So why don’t UA and US join together?  Well, their hubs would fit together kind of nice and there would be some nice synergies to be realized in consoldating operations.  Even their fleets kind of work together.  However, UA is headed by Glenn Tilton who isn’t interested in giving up his position to someone else unless they, too, are an airline titan.  He’d benefit from a merger personally but his ego doesn’t seem to want to let him have UA be the “consumed” airline.  He wants to buy and consume someone else. 

 

US Airways is being managed by Doug Parker who has plenty on his hands already with a pilot group that is so dysfunctional that it would make wife-beating appear respectable and his airline is short cash anyway.  He’s got no money to buy anything with and his somewhat anemic route structure isn’t all that attractive to any other airline.  No one wants his labor problems at all. 

 

Besides, I”m not sure consolidation is what this industry needs.  A liquidation could actually be the better answer.  More on that tomorrow.

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Kingfisher joins Oneworld

February 23, 2010 on 12:30 pm | In Airline News, Airlines Alliances | No Comments

It’s been announced that India’s airline, Kingfisher Airlines will be joining the Oneworld alliance, probably in about 18 to 24 months.  While Oneworld and Kingfisher are playing this up big in today’s news, it puzzles me and, frankly, I have some doubt as to whether or not it will actually come about. 

 

First, Kingfisher hasn’t exactly been the most financially solvent airline in a market with 2 other major competitors (Jet Airways and Air India) nor has it exhibited a very rational strategy on choosing its destinations.  It has a couple of trunk routes from India to London and Singapore, a couple of route to leisure destinations in Asia and a domestic network that is reasonably extensive but not overwhelmingly competitive.

 

While I’m sure that Kingfisher offers Oneworld partners AA, BA and QANTAS some feed, it doesn’t appear that Kingfisher itself has the resources to make use of the partners in their home countries.  Their fleet is comprised of A330 aircraft and while they’re scheduled for A380s and A350s, not a person around thinks they’ll actually take up the A380 and the A350 is scheduled for deliveries to start in 2014 but it’s unlikely that those will be on time either. 

 

What also surprises me is that Jet Airways, Kingfisher Airlines major competitor, already had a good codeshare relationship with American Airlines and QANTAS.  Their equipment and services better aligned with Oneworld so I’m puzzled why we are not hearing about Jet Airways joining Oneworld. 

 

There certainly is a need for a Oneworld partner in India and with Air India joining Star Alliance, that left Jet Airways and Kingfisher.  My guess is that they couldn’t make a good enough business case for Jet Airways who enjoys good relationships with SkyTeam members too.  However, if I had to pick between the two, Kingfisher wouldn’t be my choice. 

 

I suppose Kingfisher may work if it wants to be the domestic provider for Oneworld in India.  They do have the domestic network to make that work.  But they will likely become jealous of feeding all that high dollar traffic to AA, BA and QANTAS just to get the domestic traffic in India.  It doesn’t feel equitable.   One thing I’ll say for Oneworld, their partnerships do seem quite equitable for the most part with each partner airline appearing to bring a good strength to the table both domestically and internationally.

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AA, BA and IB win anti-trust approval

February 13, 2010 on 3:18 pm | In Airlines Alliances | No Comments

American Airlines and British Airways won tentative US government anti-trust approval  to cooperate closely with each other on routes and pricing.  Iberia Airlines, Finnair and Royal Jordanian are also a part of this package.  The one caveat from the Department of Transportation is that the “partnership” yield 4 slot pairs at London Heathrow airport to other airline(s) that might provide service between Heathrow and the United States.

 

This partnership is still contingent upon EU approval but I suspect the EU will grant it as well. 

 

Is this good for the consumer?  Well, in the long run I suspect so.  There is plenty of competition between the US and Europe in general and frankly I suspect travel to London Heathrow hasn’t been this competitive ever already.   In this case, I think we’ll see some capacity reduction between AA and BA on those US-London flights and that might well be justified.  There may be a few non-stop routes that see fares rise some but overall the general population of the US and the UK will likely find fares pretty reasonable or even unchanged in most respects. 

 

This will be a huge plus for OneWorld members in that they’ll be able to find better coordinated schedules for a variety of destinations throughout Europe and the US.  And it should put OneWorld on much more equal footing with both the StarAlliance and Sky Team. 

 

Of course, Richard Branson finds it all outrageous but, then, if you follow Richard Branson and Virgin Atlantic, you knew that he would already, didn’t you.  (I do think Richard Branson has finally cried wolf one too many times and no longer gets the credibility he might once have had.  One thing is sure, it’s time for VA to start looking for a partnership.)

 

Both BA and AA might moan and grown over giving up 4 slot pairs at Heathrow but both know that 1) those pairs will yield a tidy sum in a sale and 2) they’ll still have plenty of maneuvering room to make lots of money. 

 

I doubt very much either airlines’ unions will be happy about this though.  AA pilots will worry about a reduction of flying on their part which, in my opinion, is only a worry if they continue to fight new ultra-long haul services that AA could use their aircraft on.  This is a real concern given this agreement’s potential to free up 777 aircraft to fly to new destinations. 

 

The real win for OneWorld will be gaining anti-trust immunity with JAL for trans-Pacific services.  With that agreement and this one, OneWorld gets the opportunity to compete with the other two alliances on pretty good footing and they haven’t had that in quite a while.  Both agreements would also make it more attractive for other airlines to join OneWorld now. 

 

I would not be surprised if this development doesn’t suddenly make it a bit more attractive for OneWorld to approach US Airways about joining.  US Airways would make for a very complimentary addition to OneWorld and it would allow them to leave an alliance where they are quite literally relegated to secondary status on all fronts.  In OneWorld, US Airways could offer good domestic service to the other partners and cooperate well on both trans-Pacific as well as trans-Atlantic services.

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Oneworld Wins

February 9, 2010 on 8:55 am | In Airline News, Airlines Alliances | No Comments

It’s official, JAL is staying inside Oneworld and the folks at American Airlines can relax on that front.

 

The only thing that surprises me about this announcement is that it was done this quickly. I thought it would take a month or more for the airline to come around. That said, it was a smart move for two reasons.

 

First, the last thing JAL needs to be doing right now is agonizing over an alliance. Their problems were not going to be solved by being in the right alliance. They were going to get solved when the executive leadership started focusing on cutting jobs, slashing costs and rationalizing the routes. The new JAL Chairman and new president apparently decided to move that issue of their plates and get on with the real work.

 

Second, it’s a smart move because there were big anti-trust issues involved with a lashup with SkyTeam and Delta. The US government signaled as much a couple of weeks ago when it told Japanese negotiators for the new open skies treaty that approval for anti-trust agreements already applied for was not a “done deal”. By staying with Oneworld, JAL gets to preserve its alliance infrastructure, benefits from revenue guarantees for the next few years and has the time to focus on restructuring itself rather than wasting their time on fighting an anti-trust battle in the US.

 

One thing that has become clear from this fight. American Airlines has emerged as the leader of Oneworld. The other major partners, Cathay, QANTAS and British Airways, didn’t really step up in the way you would expect of such a partnership. Yes, this was a fight based in the US but those 3 airlines stood to benefit but didn’t really work terribly hard to win the fight on behalf of AA. Look for AA to become the Oneworld leader and the airline that starts setting the direction for Oneworld for the future.

 

That could be good or bad. Good because Oneworld really hasn’t had much leadership from any airline to date. However, American Airlines has to set a direction that other airlines want to follow and one that benefits everyone in the alliance. If they don’t take up the leadership reigns, look for Oneworld to melt away in 5 years or less.

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SkyTeam, OneWorld and Star Alliance

January 23, 2010 on 1:04 pm | In Airline News, Airline Service, Airlines Alliances | 2 Comments

These three alliances have been forming, growing and shifting for some time now and it is almost fair to say that they’ve reached a certain maturity that lets us take a look at what the future might hold.

 

There will always be shifts between alliances as time goes by but the major structures are now in place and let’s be honest in that airlines are not equal partners in these alliances.  There are bedrock airlines and there are airlines who are really more associate partners. 

 

In the Star Alliance, US Airways has definitely been more of an associate member than, say, United, Lufthansa or Singapore Airlines and with the recent addition of Continental and the close partnership its formed with United, US Airways is even more the redheaded step-child in this organization. 

 

SkyTeam really has the strongest core though.  Formed, in part, from the original Northwest / KLM alliance that began in the 90′s, it now has an extremely strong network that spans both the Pacific and Atlantic oceans.  If it has a weakness, it is in South America among South American carriers and I’m not sure if that is really a weakness right now.  

 

The Star Alliance and SkyTeam have both managed to work among themselves in pretty close partnership and develop strong networks playing on each others’ strengths.  Schedules between those partnership airlines are pretty rational and they do tend to treat affiliate partners as having value in the organizations.

 

Then there is Oneworld.  Oneworld isn’t so much a partnership alliance as it is a looser affiliation of airlines.  To be sure, at one time Oneworld’s members represented a very strong core of airlines who were profitable and very strong on a global level.  To a degree, they still are but this has definitely become the weak alliance over time and with the fight over JAL taking place, its now fighting for its life.

 

Oneworld doesn’t know how to work well with each other.  Partners American Airlines and British Airways have dominated that relationship and because of their obstinance over trans-Atlantic routes and slots at Heathrow, they haven’t been able to work closely together over time and develop those relationships that have been grown in other alliances.  Because of their dominance, other potential strengths in their network, QANTAS, JAL and Cathay Pacific for instance, haven’t really been exploited fully either. 

 

Oneworld is, for most intents and purposes, an old style Anglo-American relationship with AA, BA, QANTAS and Cathay Pacific dominating that alliance.  (If you don’t think Cathay Pacific is Anglo, look up its history and its executive team.)

 

If Oneworld loses JAL, I’m not sure this alliance survives in the long run.  It cannot afford to be an alliance with two dominant partners (AA and BA) and it cannot afford to lose even one trans-Pacific partner.  If JAL moves over to SkyTeam, then I suspect over the next few years we’ll see one or more “majors” in that relationship find homes elsewhere. 

 

No matter what Oneworld does, they lose a major network in Japan if JAL leaves the alliance and they have no hope of luring ANA over to their alliance either.   The best they can hope to do is build their routes systems into Japan with more direct flights from outside Japan.  That isn’t very satisfactory. 

 

They already lack a major partner in China itself (Cathay Pacific isn’t quite that kind of partner) and lack a major partner centered in Korea and Southeast Asia/India. 

 

I suspect we’ll see one or more core partners in Oneworld slip away to one of the other alliances.  It wouldn’t be too hard to attract LAN away from Oneworld, for instance.  Nor would it be difficult to perhaps walk Cathay Pacific away from Oneworld.   That would leave three basic Anglo American core partners who have no harmonized strategy and not much to offer smaller affiliate partners either. 

 

What’s more, JAL doesn’t need their money now that they’ve gone into bankruptcy.  The Japanese government is financing them and will provide all the capital they need at this point since they have little choice to do anything else.  That means JAL is free to consider a long term strategy and if it can get some real signal that anti-trust immunity would be granted to a partnership between Delta and JAL and the rest of SkyTeam, that’s their best deal.

 

It has occurred to me that the reason there hasn’t been more worry about the dominance such an anti-trust immunity would grant is that, maybe, Delta has signaled its willingness to draw down its legacy network to and inside of Japan that it gained in its Northwest Airlines purchase.  Northwest Airlines not only had a strong system to Japan, it also had a strong network system of flights originating from Japan to regional Asian destinations.

 

If Delta is willing to let JAL fly that system on its behalf, that may well satisfy regulators in the United States.

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