In my current USA Today.com column on the Continental-United merger I talk about the likely impact of the merger on business travelers and a number of cities.  I then lay out some possibilities for additional consolidation that could occur following the Continental-United and Delta-Northwest mergers.

While everyone talks about the likely downsizing that will occur at Continental’s smallest hub in Cleveland, little attention has been given to United’s hubs in Denver and Washington Dulles Airport which also lack immunity to large capacity cuts as the merger takes shape.  In the great mix of goodies acquired by each airline, Continental’s Newark hub stands out as one of the grand prizes in the CO/UA merger.  You couldn’t ask for a better location for an international hub residing in the nation’s largest air travel market at an airport that is still less congested and constrained than the other two NY airports.

The new United is likely to make Newark its premier international gateway to Europe, Latin America and even Asia and the Pacific.  As the new United reshuffles resources among its assets, Washington Dulles becomes a lot less important and strategic.  I believe it’s likely United will severely downsize that hub or even abandon it eventually.

Denver is United’s other problem.  Although it is one of the fastest growing markets in the U.S. Denver has been invaded by low cost airlines in recent years.  Southwest has expanded rapidly in the past couple of years to become the #3 airline at that airport and now holds a 16% market share.  In that same three year period United dropped from 44% to 32% of market share at Denver according to U.S. Department of Transportation data.

In addition to Southwest’s rapid expansion, Frontier Airlines has been revitalized following its recent acquisition by Republic Airways.  Making money in Denver for any network airline would be a challenge in this environment and while Denver is certainly a very desirable location, it will be less important to United as an alternate hub to reroute traffic when other hubs get congested.  With the addition of Continental’s Houston hub, United now has two perfectly positioned hubs in the center of the country and it can easily reroute traffic through one of those hubs when inclement weather impacts traffic at the other.  I will bet United will eventually cut its losses and draw down this hub as the two low cost airlines fight it out.

While most eyes are tuned to the big news about a possible blockbuster merger in the airline industry between United and US Airways or United and Continental, almost lost in the shuffle is news of equal importance to business travelers about consolidation in the rental car industry.  If the deal goes through, Dollar and Thrifty rental car companies will become discount brands for Hertz.  This merger will leave the rental car industry with three major players: 1) Avis/Budget, 2) National/Alamo/Enterprise, and 3) Hertz/Dollar/Thrifty.

Hertz is the last major car rental company to adopt the multi-brand strategy to serve business travelers at airport locations during the week and leisure travelers on weekends.  By combining cars into a single fleet, the company can economize by branding most cars as Hertz during the week and Dollar/Thrifty on weekends and moving cars between brands as necessary to accommodate fluctuations in the market.  Although the brands will maintain their individual identities as Avis and National did with their acquisitions, it will be interesting to see if prices will rise with fewer players overall in the rental car sector.

In my most recent Business Traveler column airline, analyst Darryl Jenkins enumerates the three biggest issues facing airlines going forward – capacity, debt, and rising oil prices.  As oil prices gradually creep upwards again, Jenkins describes a scenario of what would happen if oil prices continue to rise, a highly likely probability as the economy recovers and demand from exploding growth in India and China puts tremendous strain on the world’s oil supplies

According to Jenkins, when oil reaches $100 per barrel, only 50% of routes currently flown by U.S. airlines will still be profitable.  At $120 per barrel only 25% of U.S. airline routes make money and at $140 per barrel a scant 5% of domestic routes are still viable.

In a world where oil prices climb back over the $100 per barrel mark, there will be great reductions in air service particularly in smaller cities.  Approximately 400 small airports, representing more than 75% of all U.S. airports, may close forcing travelers to drive further distances.  Even in the larger airports, there are likely to be fewer frequencies, higher airfares, and a resurgence of slower turboprops, which are more fuel efficient than regional jets.

Should there be a return to the highest oil price levels we saw in 2008, the scenario becomes substantially dire.  At $150 per barrel over a sustained period, airlines begin to go out of business, according to Jenkins.   In the first two years of sustained inflated oil prices, smaller low cost airlines would be hit hardest as they don’t have any premium first/business class or international routes to help offset burgeoning oil prices and many are undercapitalized.  Brands like AirTran, Frontier, jetBlue, Spirit, and Virgin America would be the first to go.

Over the next year, all five of major airlines (American, Continental, Delta, United, and US Airways) would burn through their remaining cash and then go out of business.

If no action was taken to intervene the only remaining airline would be Southwest, according to Jenkins.  All in all, it is a pretty grim scenario and I hope we won’t ever see it.

The deal between American Airlines and jetBlue to cooperate and interline at New York’s JFK Airport looks like a win-win scenario for both carriers, but it also creates an interesting situation in the airline alliance world.  jetBlue will gain entry into slot controlled Washington Reagan Airport, while American will gain more slots at JFK to bolster its international service there.  Additionally, American will feed jetBlue’s domestic network and jetBlue will feed American’s international flights at JFK, and both airlines will be able to sell tickets with combined itineraries, which should increase load factors for both airlines.

This is not only a boon for both airlines, but is also good for passengers originating, terminating, or transiting through New York, as those travelers will have another alternative to Continental and Delta Air Lines.  Adding a third American-jetBlue option could ultimately put downward pressure on airfares, but this new arrangement creates an interesting dilemma for Lufthansa, which invested $300 million in 2007 to acquire a minority ownership stake in jetBlue.

From a purely economic view, a relationship with another airline that improves earnings for jetBlue is a good investment for Lufthansa, but Lufthansa is a member of the Star Alliance and American Airlines belongs to the oneworld alliance and both compete against each other for traffic across the North Atlantic.  Additionally, this new American-jetBlue arrangement is coming at a time when American is vying for antitrust immunity status to set prices and coordinate schedules in a big way with British Airways and Iberia, which are two of Lufthansa’s greatest rivals throughout Europe.

Beyond Lufthansa’s financial/equity investment in jetBlue, both airlines have an extensive code sharing and marketing pact.  It is likely Lufthansa originally entered that agreement to gain greater access to the U.S. market beyond JFK by using jetBlue to feed traffic to and from the German airline’s international network.  Additionally, when Lufthansa acquired the ownership stake, many industry insiders believed the move was pre-emptive to prevent an airline from another alliance from tying up jetBlue.  Unfortunately, for Lufthansa and the Star Alliance, that strategy doesn’t seem to have worked.

Although there are other instances where airlines crossed alliances to partner with another carrier, this one could be extremely contentious, given the competitive positions of both airlines partnering with jetBlue and the strategic importance of gaining share in the largest airline market in the U.S.

While the initial agreement with American is only an interline cooperation agreement, and jetBlue’s largely domestic product is very different from American’s global network, it is quite possible the relationship between American and jetBlue might expand further if it is successful for both airlines and if American decides to become even more competitive in the New York market.

While one day American could even be a possible merger partner for jetBlue, because it is foreign owned, Lufthansa is only allowed to own a maximum 25% share of jetBlue, at least for now.  That foreign ownership situation may change as a result of progressing open skies negotiations between the U.S. and the European Union.  In any event, it will be interesting to see what, if anything Lufthansa will do in response to this new agreement and how the new partnership between jetBlue and American may ultimately impact the airline alliance map.

Remember the days when Southwest flight attendants routinely sang songs and entertained passengers with all kinds of antics quite unbecoming of a serious airline?  If you fly Southwest these days, as I often do, you might have noticed that things have changed.  As Southwest has matured and transformed itself to woo business travelers with such perks as Business Select early boarding, the “A” list elite Rapid Rewards echelon, and a special area of seating at many gates with electrical outlets and USB connections, it’s rare to find a Southwest flight with an entertaining cabin crew.

So I had to smile when I noticed the three flight attendants on my flight from DEN to OAK earlier today donning their bunny ears as they passed out the peanuts to remind us of the upcoming holiday and that flying can still be fun.

The first round is over and Adam is the winner selected at random from Flight Diversions.  Adam’s tip is:

When redeeming remember to use partner award travel options. Several times they will not be displayed online and the agent will not list them over the phone. Make sure you know the alliance and non alliance airline partners and try to create your own itinerary using a travel site. Once you have an itinerary call the airline and ask the agent for availability on those flights you’ve selected. Have several options in terms of airlines, dates, and flight times. For earning miles use your credit card for everything. I use my SPG Amex card for something as small as a 99cent purchase. The SPG Amex actually allows you to earn 1.25 miles per dollar as for every 20000 points transferred to an airline you received a 5,000 bonus.

Approximately 400 entries were submitted to Flight Diversions, many with multiple, really great tips for earning and using miles and points.  I found myself writing down many tips submitted for the contest for my own use.

Thank you to everyone who participated in the contest and good luck to Adam in the final round!

David

Last week the U.S. and the European Union (E.U.) signed phase 2 of a historic Open Skies agreement, but many questions still remain.  Open Skies attempts to remove the trade barriers limiting air travel between each side.  Unfortunately, the proposed agreement has been mired in controversy since its inception and the battle for Open Skies may not be over yet.

Phase 1 of Open Skies between the U.S. and E.U. went into effect in early 2008.  It gave airlines on either side of the pond the rights to fly between any U.S. city and any city in the E.U.  This meant that British Airways, for example, could now fly non-stop from Paris to New York, which they do under their subsidiary airline called “Open Skies”.  Similarly, U.S. airlines have reciprocal rights to open new routes to the E.U.

Phase 1 was the easy part, but Phase 2 is where the controversy begins.  Although it is not spelled out in detail yet, Phase 2 will definitely affect foreign ownership restrictions on airlines.  Currently, a foreign company may not own any more than a 25% stake in a U.S. based airline.  It is likely that Phase 2 of Open Skies will relax these restrictions allowing foreign airlines to own a controlling interest in U.S. airlines and vice versa.  If these provisions go into effect, Lufthansa could purchase jetBlue, for example, or American Airlines could purchase Finnair or Malev Hungarian Airlines.

Beyond foreign ownership is addressing the issue of “cabotage”, which would allow U.S. airlines to sell tickets between any two cities inside the E.U. and pick up and deliver passengers to those cities, and vice versa for European airlines flying within the U.S.  If the current restrictions were removed Air France could fly from New York to Los Angeles and Continental Airlines could carry passengers from London to Zurich, for example.

Those in favor of Open Skies believe that the foreign investment could greatly improve the financial condition of U.S. airlines and provide a larger route network and perhaps a better quality of service.  On the other side, many lawmakers, labor unions, and others have opposed these provisions fearing that foreign ownership and allowing European airlines to compete directly with U.S. airlines in domestic markets would result in a loss of jobs and perhaps the demise of many U.S. airlines.  Additionally, many believe that the U.S. aircraft fleet could be held hostage by a foreign government during a war when the U.S. military might need to use those planes to transport soldiers or equipment.

Are the skeptics correct?  At this point it’s too early to tell.  Those who favor Open Skies cite the case in most other industries where foreign ownership is unrestricted and any company can do business in any other country.  Multinational corporations provide many thousands of jobs in the U.S.  Competition from more players in the market means lower prices for consumers, and many U.S. corporations and their investors and employees benefit from expansion in foreign markets.

Though airlines may be no different from computer chips, television sets, or automobiles, many believe E.U. airlines have more to gain from an Open Skies arrangement that their U.S. competitors.  The U.S. airlines are much weaker financially and are less likely to be able to take advantage of an Open Skies treaty.  It is more likely that E.U. airlines will have the resources to invest in U.S. airlines and expand their route networks in the short term.  Cash strapped U.S. airlines have been unable to upgrade their fleets and service and have fallen behind European airlines in product quality.  Additionally, as the U.S. domestic airline market is the largest in the world, many believe this benefits the European carriers more than U.S. airlines expanding service in Europe.

On the other hand, proponents of Open Skies feel that foreign investment might be the ticket that allows U.S. airlines to improve their balance sheets and upgrade their products.  Foreign airlines investing in U.S. airlines will definitely want to improve the product offering to match their own.  Increased air service as a result of Open Skies should bolster the economies of both sides and increase trade between the U.S. and the E.U.  Opening the playing field to more airlines will also increase competition and is likely to drive down prices – which is good for consumers.

With good arguments on both sides it is difficult to determine which side is right.  In any case it may be a moot point as Congress must approve any major changes in trade rules, so it is still possible that this historic accord may never be implemented at all.

If you want your message to be heard by airlines, hoteliers, and other travel industry vendors, you should be Tweeting on Twitter.  At the annual EyeforTravel conference on “Social Media Strategies for Travel” in San Francisco this week, more than 200 representatives of travel providers from across the country gathered to discuss the use of social media web sites, such as Facebook and Twitter, by their customers.

Travel companies are definitely seeking new ways to reach their customers and market their products on social media web sites.  Those companies that have mastered the social media web sites generally recognize that these sites are not at all about them, but rather a place where travelers gather to converse.

Conference speakers urged travel companies to listen and participate in conversations between customers on social media web sites.  “The conversation will happen with or without us,” Porter Gale, the Vice President of Marketing at Virgin America Airlines, told the audience.   Of course some travel companies are more conscientious and adept than others in monitoring the “Twittisphere”, as one speaker referred to that place in cyberspace where travelers banter and rant about their travel experiences.

Of course, frequent travelers were already conversing on Flyertalk long before social media caught on with the rest of the world.  However, I was amazed to learn that there may be as many as 60 million people using Twitter and even more amazed that the vast majority of travel companies at the conference are among those Twitter users.  Many said they monitor conversations about their products on Twitter and have responded to Tweets sent by customers to correct a problem noted by that customer or to simply build a relationship with that customer.

In contrast I was surprised to learn that only 4% of hoteliers actually respond to posts on Trip Advisor, which is certainly the premier web site for user hotel reviews and has also been around longer than most popular social media sites.  Trip Advisor currently has 32 million reviews in their database with an average of 16 new reviews posted every minute, according to April Robb, Communications Specialist for Trip Advisor.  Despite the disappointing statistic that so few hoteliers use the reviews in Trip Advisor to help correct problems at their properties, that enormous database of reviews makes it highly likely to find recent posts from other travelers at just about any hotel you are considering.

While Americans flock to Facebook and Twitter, in a parallel universe a social media web site called QQ International attracts many millions of Chinese users and Orkut is a social media web site used primarily by people in Brazil, India and a handful of other countries.

Of course not all social media web sites have enjoyed sustained success.  My Space was the most popular site for a while and has lost that status in recent years and most travel companies at the conference agreed that Second Life never became the social force many thought it would be just several years ago.

Ted Souder, Head of Industry – Central Travel at Google, also gave a very interesting presentation on the convergence of mobile computing and social media.  Souder told the audience that 1.2 billion cell phones equipped with Internet access will be shipped this year and Google projects that 50% of all Internet usage will be conducted via mobile phones in the next five years.  According to Souder 100 million people already use Facebook mobile applications.

With travel vendors clamoring to enter the social media space to monitor and respond to conversations about their products and manage their customers, every traveler ought to be using online social media web sites to provide input and feedback and better manage the travel providers.

This is your GOLDen opportunity to see Australia’s fabulous Gold Coast in style — FOR FREE! — courtesy of American Express and Boarding Area.

Just tell me: “What is your top tip for travelers who want to earn and use their loyalty points?”

Share your top travel tip for earning and using loyalty points here and one lucky tipster will be entered into the sweepstakes for the grand prize offered by the American Express Premier Rewards Gold Card and Boarding Area.com.

You and your lucky companion will receive seven nights/eight days of hotel accommodations, transportation, meals, activities, and round-trip airfare to the Gold Coast of Australia.

I look forward to reading your top tips and wish you good luck!

An article in the current issue of Airline Weekly discusses recent losses posted by Qantas, a traditionally profitable airline.  As more countries adopt open skies policies and airlines add new aircraft capable of flying increasingly longer distances, Qantas and many other long haul airlines are facing new competition.  While more competition is not always good for incumbent airlines, these new developments will likely offer global air travelers more options and ultimately lower air fares.

According to Airline Weekly, Qantas and United Airlines were once the only airlines serving the market between the U.S. and Australia.  Now Delta Air Lines and V Australia have entered the market.  While Australia is facing an influx of new flights from many places, perhaps the most interesting challenge comes from a less likely part of the world – the Middle East.  Three airlines from the Gulf region – Emirates, Etihad, and Qatar all fly non-stop to Australia from their respective hubs in Dubai, Abu Dhabi, and Doha.

While no commercial airplane can fly non-stop between major cities in Europe and Australia, new ultra long range versions of the Boeing 777, the Airbus A340, and the Airbus A380 can fly non-stop to Australia from major cities in the Gulf region.  Traditionally, most airlines flying from Europe to Australia required an intermediate stop in an Asian city like Hong Kong or Singapore, but now these rapidly growing Middle Eastern airlines are poised to capture a growing portion of global long haul traffic.

According to the Airline Weekly article, Emirates alone now flies an average of ten flights per day between Dubai and Brisbane, Melbourne, Perth, and Sydney and the rapidly growing airline has captured 18% of the market between the U.K. and Australia.

The new ultra long range Airbus and Boeing airplanes are changing the global flight map as cities in the Gulf region are uniquely able to serve just about any point – from the Americas to Asia and Australia – non-stop.  While the Airline Weekly article describes the shake-up in Australia, the proliferation of ultra long range airplanes and the strategic location of cities in the Middle East or India are likely to impact many other major connecting airports in Europe or Asia, like Amsterdam, Bangkok, Frankfurt, Hong Kong, Kuala Lumpur, London, Paris, or Singapore.

With long range aircraft, travelers in the U.S., who formerly connected in Europe to go to places like India or Africa, can now connect in Abu Dhabi, Doha, or Dubai as can those in Europe going to Australia.  As longer range aircraft continue to enter service and more airlines in the Middle East or India begin flying these extended routes, it will be quite interesting to see how the airline route map will change over time.