Alliances and mergers

April 6, 2013 on 1:00 am | In Airlines Alliances | No Comments

Global airline consolidation has a way to go on some continents but it would appear that the era of big deals is over for a while now.  Alliances have been greatly affected by mergers lately and I’ve begun to wonder at their value.

You often hear of airline CEOs talking of the synergies that exist from alliance partners.  In one example, American Airlines has consistently offered very positive feedback on its alliances within Oneworld over both the Atlantic and Pacific Oceans.

But there are others, particularly in the Middle East, who eschew these alliances in favor of direct “one off” agreements with airlines.  The Etihad, Emirates and Qatar airlines all tend to move towards striking regional deals with other airlines that offer direct benefit on specific routes.  (Yes, I realize that Qatar is now in Oneworld and if you think that means Qatar is going to change its approach, you aren’t paying close attention to who runs Qatar.)

I question the value of the global alliances a lot these days.  For example, I question the value QANTAS brings to the table in the Oneworld alliance at this point.  I don’t question what value they bring to the table with Emirates or even what value Emirates brings to QANTAS.  It’s significant and that’s very clear to me.  But how does QANTAS truly benefit Oneworld members at this point?

I’m not sure it does.

I see the power of the joint ventures between airlines such as Delta and Air France/KLM but do those two airlines need SkyTeam to make such a deal?  No, they don’t.  It’s possible to argue that the alliances allowed airlines to get comfortable with each other and even helped standardize IT systems to a degree.  But the value received within those alliances is really between 2 airlines.

I think that mergers are going to muddy the waters even more for alliances.  People often suggest that alliances drive mergers but I’ve noticed that that pretty much isn’t true.  Sometimes the alliance in a merger is a convenience, sometimes it is a nuisance.  There is no strong correlation.

At this point, why does one of the largest airlines in the world need 10 or more alliance partners to succeed?  Why isn’t it more beneficial to arrange independent deals with partners and benefit only from those who add value to your business model?  The answer is that it *is* more beneficial.  And look for more airlines to do it.

Notice that Delta is no longer strongly focused on SkyTeam but very focused on building relationships with a variety of smaller airlines who do add value.  Airlines such as WestJet and Alaska Airlines are good examples.

People argue that alliances need partners in India.  I would argue that airlines need  partners in India.

And it will go that way through the rest of the world too.

 

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Oneworld grabs LATAM

March 8, 2013 on 1:00 am | In Airlines Alliances | No Comments

When Lan of Chile and TAM of Brazil decided to merge and form the LATAM group of airlines, they were told to pick one alliance to be a member of by regulators.  Those reading tea leaves gave the nod to Oneworld and mostly because Lan is really the “leader” of that merger.

I thought so too but I couldn’t prevent that nagging feeling that the Star Alliance might choose to pull a rabbit out of the hat with incentives.  These days, you never know.  Think back to when JAL was considering defection from Oneworld.  Delta Airlines made an offer that seemed almost certain to pull off the unthinkable and bring that airline into Skyteam.

But American Airlines and Gerard Arpey and Oneworld sweetened their deal with JAL and everyone breathed a sigh of relief.

I’m fairly sure that American Airlines went to work with LATAM too.  It’s an essential component to the current success that AA enjoys in South America.  With this decision completed, it’s time for someone to get busy on finding a better China partner and it wouldn’t hurt to figure out how to bring QANTAS back into alignment with the interests of Oneworld either.

Maybe Tom Horton can work that for Doug Parker over the next year.

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US Airways and AA: Foreign Routes

February 4, 2013 on 1:00 am | In Airline Service, Mergers and Bankruptcy | No Comments

There are a couple of very striking things I notice about the world’s powerhouse airlines and particularly those who are not only surviving but thriving:  They are heavily engaged in building global networks and constantly tweaking their domestic and/or regional networks to support these global networks.

Witness these airlines:  Delta Airlines (who is arguably doing it better than anyone else at present), Emirates, British Airways, Air France | KLM, Lufthansa.

These airlines in one form or another have acknowledged that change in their regional networks is a constant process and that reaching around the globe is necessary.

What the US Airways / AA merger won’t have is a truly global network.

American Airlines has relied upon its Oneworld partners to provide this to them and that has reflected poorly on American Airlines.  Domestically, it makes them appear to *need* these partners rather than being the case of providing a seemless service product around the globe.  The only routes in which AA works on itself are to Europe and those routes involving the UK have been half maintained by British Airways still.

Consider that British Airways supplies almost half the seats between DFW and London Heathrow and this is on a route to and from AA’s most valuable hub.   Chicago to London sees British Airways supply more than half the seats.  In the New York to London market, British Airways supplies 7 of the 12 flights and even a greater proportion of the seats.

On the Pacific routes that AA does have, the partnerships of flights and capacity with Oneworld partners is a bit more equitable.  Partners do about half of the capacity from my look into things.   But it is notable that it took QANTAS to put a 747-400ER on a route between Dallas and Australia and that it is QANTAS who is enjoying that revenue far more than American Airlines is.

AA has some good core strength to Europe and South America.  US Airways has the same strengths.  There will be consolidation in this area.  Expect New York, Philadelphia and Miami to be the gateway cities in this merger.

Expect Charlotte, NC to be downgraded to a domestic hub.  Charlotte’s few European routes will transfer to Philadelphia and/or New York and/or Miami.  Charlotte’s Caribbean and South American flights will transfer to Miami (and rightly so) and a some to DFW.

Expect Los Angeles to be the West Coast gateway city and Phoenix will be downgraded to a domestic hub with passengers route to Dallas for flights over the Atlantic and to Los Angeles for Pacific flights.

But that is what I expect them to do with the resources they have today.  What they will also need to do is build core strength to new destinations with aircraft freed up from consolidation.  USAmerican Airlines will need to deploy more strength to Asia and it should strongly consider operating flights to the Middle East and Africa.  They will even have an opportunity to perhaps explore South Africa as an opportunity through its South American flights.

And whoever gets the 787 first, QANTAS or USAmerican, direct routes to Sydney and Melbourne need to be established from DFW.  There should be multiple frequencies here.

Make no mistake, I do think Parker & Company is the right management team but they need to find a risk taker on the AA side to do strong business development in the above named areas.  This is a weakness on both sides but much more so among the US Airways team.   If the entrepreneurial spirit for this business development does not exist on either team, they need to hire it as soon as possible.  I would hire a senior level executive from a multi-national airline as fast as possible and give him or her a budget of resources and money significant enough to build a strong revenue stream from these weak spots.

And I wouldn’t wait to do it.  The longer USAmerican waits to address these core foreign route weaknesses, the more Delta will capitalize on them and the more chance there is that United will regain momentum.

Consolidate these foreign strengths quickly and immediately go to work on route development to destinations outside my core strengths.  I would also stop relying upon Oneworld partners to give me circuitous and service unequal routes to these places.

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Qatar Airways to join Oneworld

October 9, 2012 on 1:00 am | In Airline News | No Comments

Despite vehement and even angry protests by Akbar Al Baker, Qatar Airways will be joining Oneworld sponsored by British Airways.   The expectation is that Qatar should be a fully integrated member in 12 to 18 months.

This brings a few questions out into the open.  First and foremost, why did QANTAS partner with Emirates in light of the knowledge it had to have had about Qatar Airways joining the alliance?  Does this spell the end of QANTAS in Oneworld?

I think QANTAS will remain in Oneworld for the time being but this does leave Oneworld a bit weak with a founding member not fully aligned with its alliance partnerships.

One wonders if the CEOs of Oneworld fully considered just who they were inviting into their parlor when it comes to Akbar Al Baker.  He is outspoken, a critic of the status quo and known for his angry outbursts and changes of opinion.

And you have to wonder what Al Baker saw in Oneworld.  Oneworld is made up of several airlines that, so far, have struggled more than most in changing with the world.  British Airways / Iberia (IAG) hasn’t exactly taken over Europe.  American Airlines is in bankruptcy.  QANTAS walked away from British Airways and into the arms of Emirates.  Cathay Pacific is . . . Cathay Pacific.  Nothing special.

And Qatar offers a PR coup, for sure, and an airline with an impeccable service product but it isn’t Etihad or Emirates and its Doha hub is less ideal than Emirates’ Dubai hub as a destination.  The airline has a widely varying fleet and I wouldn’t expect much harmony in the fleet for the future as Qatar has orders for wildly differing aircraft.

I think the PR is good for Oneworld, I think Qatar joining isn’t all that much added value in the grand scheme of things.  Qatar doesn’t bring a scale that would help as much as other airlines would.

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WestJet lands another

September 25, 2012 on 1:00 am | In Airline News | No Comments

Calgary based WestJet has done another code share deal with a major legacy airline.  This time, it’s with British Airways, a Oneworld alliance member.  British Airways passengers on BA flights to Toronto, Calgary and Vancouver will be able to connect on WestJet flights to final destinations.

WestJet’s code share partners are now:

  • American Airlines (Oneworld)
  • British Airways  (Oneworld)
  • Cathay Pacific (Oneworld)
  • China Eastern (SkyTeam)
  • Delta Air Lines (SkyTeam)
  • Japan Airlines (Oneworld)
  • KLM (SkyTeam)
  • Korean Air (SkyTeam)

WestJet appears to be very agnostic to alliances but hasn’t yet established any codeshare relationships with Star Alliance members to date.  Why?  Air Canada is in the Star Alliance.   They do, however, have interline agreements with a variety of Star Alliance members.

Curiously, WestJet has aggressively sought relationships with large, multi-national legacy airlines and it appears to be paying off for them and their partners.   This is a model that has worked well for Alaska Airlines and it’s notable that WestJet’s CEO, Gregg Saretsky, worked as a senior executive at Alaska Airlines prior to joining WestJet.

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QANTAS – Emirates

September 11, 2012 on 1:00 am | In Airline Service | No Comments

QANTAS and Emirates have done a deal to work closely together on codeshares and flying between Australia and Europe.  This sees QANTAS backing away from a very long standing relationship with British Airways and a shift in using Singapore for QANTAS’ mid-point hub to Dubai.

This is a smart choice for QANTAS.  The tie-up doesn’t impact their operations at all and it allows QANTAS to use Emirates to distribute customers to Europe more efficiently while also providing the same service to London and the UK as well.

Emirates has eschewed the alliance game mostly but this is a very good move for Emirates as well.  Emirates will now have feed from a long established brand and it brings a greater legitimacy to Emirates.

But this hurts British Airways.  The partnership it has had with QANTAS has allowed the two airlines to survive on that long Kangaroo route between Australia and the United Kingdom.  Now BA must go it alone and that will be a tougher thing to achieve success on.

Oneworld will be impacted by this as well.  Part of me once thought that some sort of union between British Airways (IAG), QANTAS and American Airlines would have made for a very, very strong network.  Now, QANTAS is walking away from established behaviors and tradition towards doing business in a new way.  Quite rightly, too.

QANTAS will likely remain in Oneworld and you won’t see the cooperation between QANTAS and other partners fade away either.  But you won’t see any love between QANTAS and British Airways anymore either.

Frankly, I do wonder why QANTAS doesn’t just fly Australia to Dubai and let Emirates do all the work from Dubai onwards.  It’s a good fit that would actually allow QANTAS to get more use from its aircraft than flying ultra-long haul routes.

I do foresee one change for my own local area:  I think we’ll see an A380 flying the Dallas / Fort Worth to Australia route in the near future.  Say in one year or less.  I think this new Emirates union will free up aircraft and given the high demand that the DFW-Australia route has seen, QANTAS could use an A380 to fly SYD-DFW and DFW-SYD non-stop which would only help grow that route more by eliminating that nasty stop in Brisbane on the return portion.

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Sri Lankan Airlines and Onworld

June 12, 2012 on 1:00 am | In Airline News | 1 Comment

The Oneworld alliance has designated SriLankan Airlines to become a member of the Oneworld alliance. The statement talks about this happening in 18 months but it is safe to say that that is likely to take a bit longer as integration into the alliance typically takes considerable effort on the candidate members’ part.

SriLankan Airlines is a good fit with Oneworld despite its small size. It currently serves a great majority of Oneworld hubs and focus cities. SriLankan has flights to hubs such as London, Singapore, Tokyo, Frankfurt, Dubai, Delhi, Hong Kong, Rome, Moscow, Dublin, Athens, Paris and Brussels. All of which are served more than adequately by Oneworld partners and most have dominant Oneworld airlines operating from them.

What’s in it for Oneworld? For one, it adds Sri Lanka to the map and that’s an area experiencing exceptional growth since peace settled on the country. It also provides connecting service to destinations in the region such as the Maldives and southern India. Colombo, Sri Lanka is potentially an excellent connecting point for partners airlines to use as a stopping point for flights from Australia to the Middle East and/or Europe.

It’s good for Oneworld but I’m waiting for American Airlines to start blowing its horn about this being a fundamental part of their revenue strategy with codeshare partners. If that happens, I’m laughing.

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The marriage of US Airways and American Airlines

April 14, 2012 on 1:00 am | In Airline News | No Comments

Respected airline consultant and research engineer Bill Swelbar has recently taken a swipe at the idea of a merger between US Airways and American Airlines in a blog post.  Swelbar suggests there may be more benefits to a full integration between AA and JetBlue and Alaska Airlines who just as adequately (if not more adequately) cover areas where American is weak (the West and East Coasts).

Swelbar is factual and correct about AA’s weaknesses in these areas with respect to its network and market shares.  He’s also correct in that those two smaller airlines do operate in the weakest portions of American’s network.

I see significant problems for that kind of approach.  First, Alaska Airlines is increasingly under the influence of Delta Airlines these days and enough so that I do not think it can afford to ignore Delta’s desires entirely and Delta would like competition to go away.  Second, JetBlue already has some agreements in place with American Airlines that do bring a benefit but it also has little incentive to cooperate with American Airlines as AA doesn’t bring much to the table for JetBlue.

Both Alaska and JetBlue are working hard to be all things to all carriers in the form of interlining, codeshares and alliance agreements and that works for both airlines very, very well.  Alaska works at this from a domestic perspective and JetBlue plays more on the international side of things but they’re both pursuing the same strategy and it’s a strategy that works well for both.  Why give up success for the risk of fully integrating with AA and under AA’s management?  If I’m a shareholder for either airline, I don’t like the idea.

Furthermore, at this point, this isn’t about what AA leadership wants.  It is already rapidly becoming much more about what AA’s creditors want and what their shareholders want.  And what they want is performance.

A marriage with US Airways can be disrespected over and over but there are two exceptionally important things to be mindful of.  US Airways knows how to run an airline well and earn money despite labor issues.  They also know American’s business pretty well and they’ve got an established track record that didn’t exist in the same form back when they made a bid for Delta.  Creditors will listen to them carefully today.

US Airways also has the strengths that are complimentary to AA’s network.  They aren’t the most optimal strengths but they are one hell of a lot better than American Airlines standing alone.  Philadelphia, Phoenix and Charlotte are very complimentary to AA’s strengths.  No, there isn’t much overlap that would result in “synergies”.  I would argue that the so called “synergies” of reducing capacity via a merger are harder to obtain than generally appreciated, overvalued and largely non-existent today as a result of consolidation and capacity restraint that has gone on for the past 4 years.

New mergers will benefit from scale and operational expertise.  They’ll benefit from having a more diverse fleet that permits “right size” flying on routes.  They’ll benefit from international alliances.

There is a great example for that last part.  US Airways is now the awkward partner in the Star Alliance with United filling that role on a far greater scale within the United States than US Airways does.  US Airways could benefit a great deal more from Oneworld than it does Star at this point and a merger with American makes Oneworld very competitive in the United States again.  A great reason for Oneworld partners to stand aside and look at these issues with less emotion and more reason.

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Welcome to the New Year – Part 2

January 3, 2012 on 1:00 am | In Airline News | 2 Comments

World Alliances

I’m not sure we’ll see much in this territory for SkyTeam or Star Alliance.  They’ll continue to succeed and be smart in their attempts to gain more dominance in more parts of the world.  I think Oneworld is going to be smarting through this next year as a function of health problems at founding members American Airlines and QANTAS.  I also think that gaining the LATAM membership is not nearly as “sure” as they think it is. 

The Middle East

After ordering an insane amount of widebodies in 2011, Emirates will order another insane amount of widebody aircraft and beat up on Boeing about its 747-8i.  This has begun to feel like an addiction problem.

India

The airline industry in India has imploded and we’re just watching the mushroom cloud of debris settle.  For 2012, more explosions and more governmental heads will push even deeper into the sand.   Air India has already become the new Alitalia.

The Far East

Chinese airlines will order more aircraft and I expect we’ll see orders from them for 777s and A380s and possibly some A350s.  Not unlike 2011.  I don’t think we’ll hear about any stunning orders from that part of the world, however. 

China will tout its COMAC C919 even harder and most of us will try desperately to keep from laughing even harder.  Ryanair will back away from this aircraft quietly, I think. 

Japan will find ANA deploying more and more 787s on more and more routes with more and more success with that aircraft.  JAL will take delivery of its 787s and find that they not only work well for JALs needs but actually exceed expectations.  I think we’ll see an order for some more Boeing aircraft from JAL this year and I think it will be the 737MAX and 777-300ER.  No huge numbers but large enough to make a splash.

South America

LATAM got its approval from Brazilian and Chilean authorities (barely) and LATAM will begin consolidating its operations to make more money.  I think we’ll see a largish order from LATAM and it will be for an airliner to replace aircraft on both the Brazilian and Chilean side of the airline.   The aircraft of choice will be, I think, the Airbus A320NEO and I think they’ll bump up orders for the 787 and 777 as well.   TAM has 27 A350-900s ordered and I think that order *might* be at risk.  The strategy of using Airbus for narrow bodies and Boeing for wide bodies seems to be a smart one for airlines in that region.

I don’t think we’ll see more consolidation in South America but I do see South America becoming a bit of a battle ground between airline alliances.  Most see LATAM going with Oneworld and while I can’t disagree with the arguments, I think that SkyTeam and/or Star Alliance might just swoop in with one hell of a package that may be too hard to resist.  If this happens, Oneworld and American Airlines gets kicked in the groin in South America.

Aerolineas Argentinas?  The Alitalia of South America in 2011 and the same in 2012.  Enough said.

Europe:

British Airways managed to get through 2011 without any huge problems and saw Willie Walsh move up to the CEO position of International Airlines Group which means Willie’s still in charge.  Iberia, British Airways’ sister airline, saw Willie stirring things up with plans for a LCC subsidiary.  Iberia pilots decided to strike because shooting onself in the foot can’t be just an Indian thing.   IAG also managed to get a tentative deal to buy BMI from Lufthansa and become the Emperor of slots at London Heathrow . . . maybe.

Virgin Atlantic didn’t die, didn’t find new partners and didn’t extricate itself from the chokehold that Singapore Airlines has on it.  Richard Branson actually didn’t make the news very often except to shout, stamp his feet and act insulted that Virgin Atlantic wasn’t able to do a deal to win BMI.  Expect Virgin Atlantic aircraft to start carrying some message against the IAG deal for BMI.  I actually think that Virgin Atlantic will have to find an airline alliance to join and if I’m right, I would lay very heavy odds on it being the Star Alliance. 

Lufthansa did itself a favor and got rid of BMI and I expect they’ll continue their very conservative mangement of the airline and the subsidiary airlines.  I do wonder how much longer Lufthansa can rely upon its A340 aircraft and somewhat expect Lufthansa to bite the bullet and buy the 777.

KLM/Air France:  I see nothing here at all.  Not in 2012.  I don’t expect a large widebody order nor a narrowbody order. 

I do expect Ryanair to make an order and I do think it will be the 737MAX.  In fact, I think it may well end up being the 737MAX-9 instead of the 737MAX-8.  Instead of repudiating the C919, Michael O’Leary will just quit talking about it.  Instead, he’ll suggest stripper poles could be installed on Ryanair aircraft. 

All in all, I think it will be a tough year for European airlines.  The financial crisis on that continent will make it very hard to earn an honest profit and Middle Eastern airlines will continue to erode the long haul traffic that European airlines have enjoyed for decades.

Tomorrow, a summary of what I see for 2012 and the world airline industry.

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Alliances

December 17, 2011 on 1:00 am | In Airlines Alliances | No Comments

In light of American Airlines bankruptcy filing and its status as a founding member of Oneworld, I thought about alliances in general and wondered if Oneworld isn’t in real trouble at this point. 

American Airlines won’t be engaging in any serious growth or aggressive strategies for some time to come now.  Every real move they make will be under the scrutiny of bankruptcy stakeholders and their attention will be focused on re-scaling the airline to fit the new realities for success. 

To me, that means that AA won’t have much to offer its partners in Oneworld.  It doesn’t mean they won’t benefit from AA but it does mean that working in concert with these partners to achieve a more aggressive growth for the alliance is probably off the table for now.

Furthermore, QANTAS isn’t exactly shining with success these days either.  They cannot use their A380s as they want and they have as serious labor problems as American Airlines does.   More and more, QANTAS seems at real risk to serious competition from both within Australia as well in the South Pacific/South Asia markets.  I’ll point out that QANTAS is also a founding member of Oneworld.

So, two of the Big 3 in Oneworld are currently hampered by their problems.  That’s kind of serious, I would think.  How does one make a strong business case to LANTAM for their alliance when that situation exists today?

In the meantime, SkyTeam and Star Alliance are racking up new partners and, more importantly, they are planning strong growth with a strategy that continues to seem far more coherent than Oneworld.  They question I ask is this:  Is there some scenario under which existing Oneworld partners start scattering to other alliances?  If one bolts, will others follow?

I don’t see British Airways / Iberia leaving anytime soon but what about the lesser partners such as Cathay Pacific or JAL or LAN says “Buh Bye”?  I think we would see several others looking for new relationships.  (It’s notable that Oneworld is so clueless as to still have Mexicana’s name on their website.)

The other scenario is that both Oneworld and other alliance partners separate and form a new alliance that displaces Oneworld.  More possible than one might think since Star and SkyTeam are clear dominated by just a handful of airlines.   Some partners in those alliances may be chafing to play a bigger role in an alliance and with enough world partners, creating a new alliance may well be not only possible but smart.

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Pick one but only one

October 6, 2011 on 1:00 am | In Airline News | No Comments

Chilean regulators have tentatively approved the LAN / TAM merger (which is really LAN buying TAM) with the usual provisions and conditions that frequently come with these deals.  The big one is that LANTAM must pick one airline alliance to go forward with. 

Right now, that means choosing between Oneworld or Star Alliance.  LAN is associated with Oneworld and TAM is associated with Star Alliance.  The choice means that one or the other kind of gets shut out of South America so the stakes are big.

Expect both alliances to make captivating pitches for being the winner and both will likely promise exorbitant revenues (via guarantees) to the airline group but who is the best choice?

For LANTAM, either could be good but I think Star Alliance might look just a little bit more promising in terms of synergies.  Oneworld won’t be shut out with a fight but you have to evaluate that alliance on performance and its “majors”.  American Airlines, British Airway, QANTAS and Cathay Pacific run that group and none of those airlines is the picture of health or innovation.

Star Alliance might offer more synergies, more partners and, more importantly, more money going forward.  It’s an alliance that works well and which is more egalitarian in its treatment of smaller partners than Oneworld.

On the other hand, Oneworld fits the Chilean portion of the airline very well already and several partners service Brazil with high frequency too.  If LANTAM is smart, they’ll extract promises to cooperate and a seat at the big boys’ table.  That would give them the leverage they need going forward.  If Oneworld appears unwilling to acknowledge them as a player, you can bet that Star Alliance will be happy to make room for them.

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AussieLand

June 11, 2011 on 12:44 pm | In Airline News | No Comments

Delta Airlines and Virgin Australia have gotten their approvals for an anti-trust immunity agreement to cooperate across the Pacific between the United States and Australia.  They did so, in part, by promising to keep up frequencies between the two countries.

This doesn’t mean that routes won’t be rationalized.  The frequencies will stay the same, the routes won’t.   These two airlines will deploy their 777 aircraft on routes that are complimentary rather than competitive.  Expect V Australia 777s to start arriving in San Francisco to replace QANTAS’ recently withdrawn flights.

Delta’s 777-200LR aircraft can potentially make the flight between Atlanta and Sydney (although with a touch of payload restriction) and provide competition to QANTAS’ new 747-400ER flights to Dallas/Fort Worth.

And for the first time, there is real competition for the QANTAS/British Airway/American Airlines Oneworld consortium.  Virgin Australia can provide domestic connections to Delta in Australia and Delta can provide domestic connections to Virgin Australia in the United States.

John Borghetti, CEO of Virgin Australia (and formerly an executive with QANTAS) has made it clear that he intends that Virgin Australia be a strong competitor with QANTAS rather than an constant underdog and he has experience with building networks as a result of working for QANTAS for many years.

Look for quite a bit of new competition on routes between the United States and Australia and I think United is going to be the airline to take the hit.  United has pretty old aircraft with a pretty old service product and no partners in Australia to assist with feed.  They also have no new large widebody aircraft to carry passengers with either although they will have the 787-8 with which they can start direct flights to New Zealand and Australia from cities in the United States that have never traditionally seen direct flights.

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Japan

April 7, 2011 on 1:00 am | In Airline News | No Comments

American Airlines and Japan Air Lines can now start cooperating over the Pacific and that can’t come too soon.  JAL is emerging from bankruptcy and while it has new financing, it still has a lot of work to do.  Combine the exit from bankruptcy with the recent earthquake/tsunami disaster and you’ve got an airline that has a lot of struggles ahead of it. 

American Airlines also is suffering.  Projected by some to have as much as $1billion in losses for 2011, AA needs to get some things right.  It’s now starting to benefit from its trans-Atlantic cooperation with British Airways, Iberia and other smaller Oneworld partners but only time will tell if that is truly successful.

Oneworld partner, International Consolidated Airlines Group (British Airways / Iberia Airlines) has also just expressed an interest in taking a stake in JAL when it is re-listed for stock exchanges.  This is Oneworld bringing the network closer together among partners.

AA and JAL can now cooperate similarly and both would be wise to consolidate some service between the US and Japan for the near future.  Rather than see a splashy introduction, I think we’ll see both of these airlines act as quickly and as seriously as they can to preserve their revenues on flights between the two countries.  This partnership is defensive rather than offensive in the manner of the trans-Atlantic pact.

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V Australia and Delta

February 3, 2011 on 1:00 am | In Airline News | No Comments

V Australia and Delta Airlines have been fighting to enjoy anti-trust immunity with a mutual capacity agreement on routes between the United States and Australia.  So far, regulators are unconvinced that this would be a good thing for consumers and see it as an opportunity to gain market share only. 

To a degree, that’s true.  V Australia and Delta Airlines are the new boys on the block when it comes to US/Australia routes.   Their direct competitors are QANTAS and United Airlines who enjoyed near monopolies on those routes for years.  In addition, the lion’s share of the market belong to both of those airlines today as a result of their strong alliances (Oneworld and Star Alliance). 

I was glad that new competitors entered that market and I think we need more competition than just two airlines who want to behave as flag carriers.  On the other hand, I never thought that those routes could stand 4 competitors either.  Allowing an agreement between V Australia and Delta will help preserve the competition, I think, more than harm it. 

Both airlines promise not to reduce flights between the two countries and I believe that is true.  Instead, I think we would see the aircraft redeployed on other routes between the two countries to provide more coverage to both nations.  This would be a good thing.

In light of QANTAS’ move to switch its route to Dallas / Fort Worth from San Francisco to link up better with its Oneworld partner, it’s time for the regulators to calm down and get their assurances and allow Delta to make this partnership happen. 

If anything, a link up between these two airlines could result in better service for consumers.  V Australia can feed passengers over to its Virgin Blue domestic market whereas United Airlines has no such partner in Australia.  Since many of the objections come from Australian regulators, one must assume that there is some unequal treatment towards QANTAS going on here. 

I think reality will set in and we’ll see this agreement approved some time soon but not without certain guarantees and I think the two parties will have to make a move to show that they don’t want to harm QANTAS too much at the end of the day.

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International Consolidated Airlines Group SA

January 25, 2011 on 1:00 am | In Airline News | No Comments

Sounds like a really dull airline, no?

That’s British Airways and Iberia Airlines under their merged company name.  British Airways and Iberia will continue to operate under separate brands while enjoying the synergies of a merged company in the background.

Willie Walsh becomes CEO of the combined company while Antonio Vázquez Romero sits as non-executive Chairman of the group.  Why isn’t Willie the top guy?  Because in this case, the CEO is who gets to run things.  Chairman just gets to run the board of directors.

The new company hit the stock exchanges yesterday with a new fleet of just in excess of 400 aircraft and anticipated annual revenues exceeding $19 Billion.  They’ll sit as the 3rd largest airline in Europe but let’s put things in perspective:  American Airlines has 620+ aircraft and $22 Billion.  However, IAG should earn a profit and AA has yet to show a profit despite most airlines of its size already doing so for 2010.

Look for the new company to start targeting other purchases.  Willie Walsh has already stated their intent to go on a shopping spree for other airlines.  Who is anybody’s guess but an international airline purchase is always difficult given ownership rules that generally exist from one country to another.

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Texas and Australia

January 17, 2011 on 1:00 am | In Airline News, Airlines Alliances, Airports | No Comments

I think just about everyone was at least a little surprised at the announcement of the QANTAS flight between DFW and Brisbane, Australia.   It was a subject that would pop up on the radar now and then but generally dismissed with skepticism of it ever happening.  Particularly with the equipment that QANTAS had for making the flight, namely the 747-400ER.

Flights between the United States and Australia have been the domain of west coast cities such as Los Angeles and San Francisco and the primary equipment has been the 747-400.  The aircraft available to make such a flight has already changed and is due to change a bit more in the future.  The 747 got used more because of its range and ability to haul a passenger load with a strong load of cargo.  Generally, long flights like that work best if there is enough demand for a 747 because seat costs go down.

Now the 777-300 is plying trans-Atlantic routes between the US and Australia and soon will be on routes between the US and New Zealand.  It’s a good aircraft for the trip because of the 777′s ability to fly it non-stop, carry a load of cargo and a fairly large complement of passengers.  We’ll see these West Coast to Down Under flights fracture a bit more in the future when the 787-8/9 come online with airlines.

So why the 747 and DFW?  Well, it’s notable that SFO is losing its flight with QANTAS but that makes sense now.  San Francisco is the domain of United, not American Airlines and QANTAS is partners with AA via Oneworld.  Los Angeles remains and it should remain as a Western US departure point between for Oneworld. 

Until now, Oneworld has had to feed all its traffic from all over the United States to either Los Angeles or San Francisco and while LA is a Oneworld focus city, all other Oneworld focus cities are east of the Rocky Mountains.  They are Dallas/Fort Worth, Chicago, New York and Miami.   In that group, there was only one city that made sense with the aircraft available today:  DFW.

The other thing that has changed is the new anti-trust immune cooperative agreements that are forming in Oneworld.  First there is the trans-Atlantic Oneworld partnerships and second is the trans-Pacific(Japan) Oneworld partnership.  Next is logically AA/QANTAS. 

With DFW and Los Angeles as that “hub”, Oneworld can feed traffic to DFW from points east of the Rocky Mountains and from points in Mexico, Central America and South America all to DFW.  Yes, AA can feed that 747 nicely.  And if they do it well enough, you can bet on seeing an Airbus A380 being switched into that route. 

DFW gets a nice boost from all of this as well.  It’s already started to transition back into a more “international” airport than it has bee in some time.  British Airways is now using a 747 on one of its flights to DFW and AA is using more 777s for its flights to Europe.  It will continue to grow as a Oneworld “hub” both because of its good location (not nearly as affected by weather as other potential hubs) as well as the availability of room to grow. 

I would be completely unsurprised at the addition of another direct route to Tokyo and a direct flight to China in the near future.   Currently AA has 2 flights to Japan via 777s and I think we may see one more or, alternatively, we may see JAL start flying one of those flights with its own 777.  AA has wanted to fly direct to China from DFW (and it should) but has so far been blocked by its pilots over duty time rules that AA wanted a variance for from the union.  The flight they wanted to do ultimately went to Chicago instead.  Expect AA to make another run at such a route.

One thing I don’t think we’ll see is a lot of additional routes from Los Angeles to Oneworld destinations.  It’s a crowded airport with limited room to grow.  Delta/Sky Team has a strong base in Seattle and United/Star Alliance has got strength in San Francisco.   Dallas / Fort Worth offers the growth opportunities now with the ability to fly longer range flights using the 787 and 777 and I think we’ll see more and more long haul flights from DFW.

I have to say that I’m very pleased for DFW and I see this as a very good development for American Airlines as well.  It’s nice to see opportunities created like this within Oneworld and on AA’s part, too.

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SAS and its future

January 11, 2011 on 1:00 am | In Airline News | No Comments

SAS is a difficult airline.  Actually, it’s a good airline with a lot of difficult problems in its future.  Formed as a consortium of the flag carriers of Denmark, Sweden and Norway, it continues to be 50% owned by the governments of those three countries.  All three countries have a strong social policy for employment as well.  But despite the relative wealth of its citizens and their desire to travel, it has been losing money regularly.  In part because its clientele also enjoy a good deal and have chosen low fare discounters such as Ryanair and Norwegian Air Shuttle.

The governments have made noise about about selling off their stakes but that’s a tricky business.  Each government needs to agree to that in order for that to work well at all and in order for it to be an attractive sale to potential purchasers.  The airline deals with a huge number of unions and unions with quite a bit of political power. 

This airline needs what many European state owned airlines have needed:  privatization and a merger. 

It’s fleet is rather broad for an airline of this size and that could use some rationalization.  It should be an attractive property for an airline like Lufthansa if a purchase is desired because it could benefit from Lufthansa’s purchasing power and the ability to give it a rational fleet as well as flexibility.  And it’s already a member of the Star Alliance.

If a merger is what’s called for, I think this could be a very attractive deal for British Airways / Iberia Airlines.   While this is a Oneworld group, it is a group that could allow SAS to maintain its identity much easier and offer it some long haul route rationalization but, at the same time, offer SAS the opportunity to continue some long haul flying as well. 

This would be a group that, in Europe, would have Northern Europe, the British Isles/Ireland and Southern Europe covered very well.  The problem is, you would have to pick just one Nordic city for a hub and who gets that?  Stockholm?  Oslo?  Copenhagen?  Each country wants to maintain its links to the world.  Stockholm is the most rational choice for a hub in that area since it offers a large O&D market, strong business ties and quick hops to all of northern Europe.  Oslo could remain a focus city and so could Copenhagen.

But the trick is the unions and the strong socialist social policy in that country.  I don’t see things changing for this airline because of that.  Sadly, those countries political power is based on such ties to labor unions and disrupting those unions or even causing them to lose out on what are exceptionally well paid positions is political suicide. 

It happens over and over again.  Does the airline want to survive?  Or do the owners want to avoid political problems today at the cost of even having an airline tomorrow?

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Welcome to the New Year – Part 2

January 7, 2011 on 1:00 am | In Airline News, Airlines Alliances | No Comments

Next up:  World Alliances

There is never that much revolutionary change in alliances.  Last year, there was a fight over JAL between Oneworld and SkyTeam and Oneworld won but they really were destined to.  It made sense for JAL.  The alliances worked a bit to get better access to areas they were deficient in and to a large degree, they were successful.  I don’t expect much change, if any at all, this year.

The Middle East:

Emirates did what Emirates does:  it ordered more aircraft.  I did what I do:  failed to see how they’ll use all those A380s and 777s.  The financial scene in the Middle East and, in particular, the UAE continues to be weakish and while I suspect it will recover somewhat this year, I think the area no longer carries that gleam it once did.  I don’t see any failures in the near future but I don’t see any airlines really blooming either.  Success there is, as is true for most businesses there, fairly dependent upon oil prices.

India:

Nothing astonishing happened there but it was already pretty mucked up.  It remains mucked up and will likely stay mucked up this year.

The Far East:

China did kind of force their airlines into agreeing to buy Chinese aircraft as I predicted.  In fact, Chinese aviation is suddenly acting very Chinese in that it is being required to toe a more obedient line.  Face is everything there and I don’t like it when airline businesses are operating on the basis of “face” rather than good decisions.  It’s notable that in the launch orders for the COMAC C919 aircraft, each airline took up just 5 aircraft orders each.  They don’t want that airliner any more than anyone else.

JAL has done OK for the year.  They’ve made progress with their finances and they did make some hard choices.   They did have to file for bankruptcy protection and no one should have been surprised about that.  The new CEO, Kazuo Inamori, and President, Masaru Onishi, are succeeding and making hard choices.  Frankly, more so than is characteristic of a Japanese company and they deserve credit and support.  This airline isn’t fixed yet but it is on its way.

Oceania:

QANTAS got hit pretty bad by the Rolls Royce failure on its A380.  United Airlines is still on the US-Australia routes but badly needs to upgrade its product and it doesn’t appear positioned very well to do so.  Perhaps Jeff Smisek & Company will address that better this year.  Delta and V Australia didn’t get to form an alliance and they’re trying again.  Someone has to give in this area and it will be either in the form of a codeshare alliance between Delta and V Australia or in the form of an airline withdrawing from the market (United or V Australia).

South America:

LAN, in fact, did continue to succeed in South America.  So much so, they bought TAM to create LATAM and then bought AIRES (a Colombian airline)covering both the east and west coasts of South America.  LAN is, in my opinion, now a SuperLegacy of South America and that’s a bit dangerous for them.  South American governments are more protective of their countries airlines that is the custom in other parts of the world.  

Curiously, LATAM is now operating airlines in two different alliances:  Oneworld and Star Alliance.  While there is speculation that they’ll continue this with LAN brands in Oneworld and TAM brands in Star, I think they’ll have to pick one and this may well mean a big battle among all three alliances.   This is an area where SkyTeam could do well for itself by gearing up for battle now.

Aerolineas Argentinas:  Well, what can I say?   Well, I’ll say exactly the same I did last year. 

This disaster is much like the country itself.  It won’t go away but it won’t perform either.  No outside airline will consider taking it over after what happened with Grupo Marsans’ ownership.   They lack an appropriate fleet for their flying, a strategic plan for stabilizing their revenues and no clear plan for future growth.  But the Argentinian government also won’t let them go away.  It is a matter of national pride.

LAN Argentina is growing in Argentina but somehow I remain skeptical that it will be allowed to succeed too well.  Why?  For one reason, the government of Argentina owns Aerolineas Argentinas and it has a vested interest in that airline earning money.  For another reason, LAN Argentina is owned by the LAN Group of Chile.  Look up how Chileans and Argentinians feel about each other.

Colombia / Central America: 

Avianca TACA is doing fine and I look forward to seeing how they’ll compete against LAN. 

Venezuela:  Bah!

Europe:

British Airways accomplished a few things.  They got into a royal battle with their flight crew that remains unresolved today in part by being petty.  Their flight crew union, Unite, furthered that argument by being petty.  BA did get their merger with Iberia accomplished and after many, many years they have their anti-trust agreement for trans-Atlantic flights between its European Oneworld partners.

Look for the BA/IB union to do OK in its first year and they may even start looking for another partner as soon as possible.  The anti-trust agreement between Oneworld partners should also add to the bottom line.  However, it’s time to settle this fight with Unite and it’s time for Unite to get real.

Lufthansa is moving along and did do something with their BMI purchase.  I don’t think it did them any good when its CEO, Wolfgang Mayrhuber, started complaining about its ability to compete with the likes of Emirates.  Whether or not he had a real point (and he probably did), it also did signal just how hard a job they’re having with the task of competing with the Middle Eastern airlines.

They also still have their A340s and their plans to add the 747-8i.  They got their first A380 and all I see is fat, fuel consuming airplanes.  This is going to be a problem for them if oil prices rise much more and when you consider that much of their competition is flying fuel efficient A330s and 777s, it makes you wonder about their long term strategy.

KLM/Air France:  More of the same.  I think this airline will need to make an order for new widebody aircraft soon.  Because it remains, essentially, a French airline, I see a large order for A350s and a small order for 777s.  I do not see the 787 in Air France’s future.

Airlines will earn profits and even earn great profits throughout the world.  Many will be “record breaking” but as much from inflation as a recovery.  Those profits will soon start to burn a hole in someone pocket and that is when I think we see capacity growth.  I think that capacity growth will start with the Middle East airlines pursuing more revenue lucrative traffic from Europe and North America.  But we’ll see it happen in the United States, too. 

I would dearly like to see the 787 enter into service with someone and I think we will see it do so.  But Boeing has got to get a rein on itself.  The failures in the 787 program are as much about poor management as they are about stretching technology.  There is too much accountancy going on there and not enough visionary leading.  It’s time for them to start winning and they could do so by winning the KC-X tanker program once and for all.  But it is also time to start talking about what’s next. 

The demands of the 787 program *will* decrease as will the demands from the 747-8 program.  Will it be talk of a 737 replacement or an improvement to the 777?  I think the airlines would like to talk about the 737 replacement and that seems sensible.  Rather than play cautiously, reach again, I say.  Push engine manufacturers to come up with something to raise the game and push technologies again.   It’s also time to talk about the 787-10 and I think there are more than a few airlines who would like to be a part of those discussions.

Airbus is going to muddle along denying any real problems with the A350 until the end of this year.  Then we’ll hear about something delaying the entry into service date by a considerable amount.  John Leahy will insult Boeing and claim the A350 will put the 787 to death but it won’t.   Airbus might well buy the KC-X tanker program but I question the wisdom of this in light of their ongoing A380/A400/A350 problems as well as their announcement development of a new engine option for the A320 series.  When do they earn money the proper business way?

It would be nice to see Embraer make a move into the 130 seat market and I think those guys could do it very well.  Bombardier gets bashed by everyone but I still think they have something with their CS series and I think it will be taken up by another airline soon.

I think we’re going to see another round of fees.  Just as soon as airlines can identify what other parts of their service they can de-couple from the basic flight.  I think we’re going to see airlines put a price on early boarding and we’ll probably see fuel surcharges amounting to tens of dollars.

But let’s hope we see an interesting and prosperous year in the airline industry.

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Virgin Atlantic hires merchant bank

November 7, 2010 on 1:00 am | In Airline News | No Comments

Virgin Atlantic and Sir Richard Branson has hired Deutsch Bank to look at all strategic options available to Virgin Atlantic and that includes what the company is potentially worth.  Virgin Atlantic is already 49% owned by Singapore Airlines and 51% by Sir Richard.  Singapore Airlines has reportedly indicated its dissatisfaction with its investment’s performance in the past.  Branson indicated last May that in light of the industry consolidation taking place, it may no longer be possible for Virgin Atlantic to remain an independent entity.

Some of the questions to be answered is whether or not Virgin is an attractive property to another airline and whether or not there are other airlines out there that might be attractive to Virgin.  Virgin had been intensely interested in purchasing the airline BMI which was ultimately bought by Lufthansa who are heavily engaged in restructuring it back to profitability.

Virgin’s problem is that of no network.  It continues to be a great value to those who wish to fly its long haul flights but it has no “feed” from destinations within Europe (and in particular the UK) to provide passengers for its long haul flights.  In addition, it does not closely cooperate with its cousins at Virgin Blue and Virgin America so that it is not accused of violating laws governing ownership and competitiveness in Australia and the US. 

One has to wonder at this point why Virgin was so against joining an alliance.  They did, at one time, have quite a bit to offer various alliances but they are a property that has already lost quite a bit of shine.  Since only one alliance has substantial penetration in the UK (Oneworld), it’s possible that Star Alliance or Sky Team could still be interested on some level.  The Star Alliance actually feels a bit more like a fit and would potentially put BMI in place to offer that necessary feed to Virgin Atlantic. 

However, this is a case where Virgin really needs to pursue this rather than the alliances.  European partners in those alliances already have the opportunity to operate in the UK as a function of being part of the European Union.  In other words, Virgin needs to sell itself if it goes this route and it can.

Virgin Atlantic is an airline that really may be running out of runway very soon.  This isn’t a move out of desperation but it is a smart move to make on their part as they could benefit from a point of view that isn’t so closely tied to the Virgin hype.

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American Airlines and its recovery

October 26, 2010 on 1:00 am | In Airline News | No Comments

American Airlines remains the concern of every analyst when it comes to asking the question about its long term viability.  It isn’t that this airline is about to die, it’s that there remain so many things going against it still.

They have some of the highest if not the highest labor costs among the airlines and they have labor groups who are out to get what they had before the givebacks earlier in the decade.  What’s more, they don’t seem to have a coherent plan for dealing with that problem.

They have an aging fleet that puts them behind other airlines including the SuperLegacy airlines who did renew their fleet some over the last 7 years while American remained largely entrenched in the MD-80s until 2 years ago.  Even now, they’re a bit behind in keeping pace with the need for greater fuel efficiency.  It’s arguable that without the huge spike in oil prices a few years ago, American would still be sitting on their fuel hog MD-80s. 

They’ve been stymied on growth with other airlines “poaching” on their territories and others reducing their costs via bankruptcy and have only now started to, perhaps, grow their network organically. 

American did finally get their trans-Atlantic alliance with British Airways and Iberia Airlines.  Only time will show us if that alliance is worth it and while it may be worth something, American missed out on being able to take advantage of such a thing for more than decade by stubbornly clinging to the idea of mating up with BA. 

They also won their Japanese battle by keeping JAL in the OneWorld system and they’re on track to win immunity in a trans-Pacific alliance with them as well.  But JAL has a long way to go before it is a profitable and viable airline.  Delta and United, however, have good systems to Asia and a good network inside the Far East. 

I do like their interline agreements with jetBlue and WestJet and it would appear that someone at American is thinking “innovative” for once.  But will AA be patient enough for those to work and will they be entreprenurial enough to expand upon such concepts?  History says no but I say the decision on that can’t be made for at least a year.

This isn’t an airline that will go bankrupt in the next few years.  It is an airline that appears destined to remain very lackluster in comparison with basically all the other airlines in the United States.  And why would you invest in lackluster when you can have rock star in so many others?

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