Heading in to the launch of the Emirates/Qantas strategic partnership this month some numbers were released by the Australian carrier regarding booking trends. Most notable, perhaps, is the claim that bookings to Europe are six times greater than the prior year. That’s a rather significant swing, and it is based almost entirely on dumping the inefficient connections via Asia in favor of better options available via Emirates’ hub in Dubai. And, depending on how one reads the tea leaves, it provides an interesting commentary on the value of global alliances.
Photo from the Qantas/Emirates flyover of Sydney Harbour courtesy of Qantas
It seems that the oneworld partnership between Qantas and both Cathay Pacific and British Airways was less that spectacular in pushing passengers into Europe; many of the destinations required an extra connection or less than desirable flight times. Or both. That’s not a great way to attract passengers. Emirates offers better connections and more than 50 destinations in Europe with a single connection from Australia. It is not all that difficult to believe that customers prefer that approach.
The bigger question from this data is what it means for the global alliances. Have they run their course?
Emirates doesn’t seem to want to join one and Qantas is more concerned with being profitable than with being exclusive to the oneworld group. Neither of those should be much of a surprise. Yet the partnership was quite a surprise when announced.
I still believe that the alliance serve a purpose. They provide great opportunities for joint marketing and certain customer benefits. But they are no longer the only way to build a solid international footprint. Focused bilateral partnerships (Air New Zealand and Cathay are launching a similar one) can be bar more valuable in many scenarios.
The times, they are a-changin.
Similar to last week’s post, here’s a collection of trans(north)atlantic routes offered by members of the oneworld alliance. Compared to the map from Star Alliance the network looks a bit light, but there are still a lot of options out there; nearly 100 by my initial count (and I’m sure I missed a few which y’all will remind me of, pushing the number up). And the oneworld collection is quite dispersed on the Americas side of the map, covering a lot of the Caribbean in addition to the USA, Canada and Mexico. Here’s the full collection:
For the two smaller TATL carriers in oneworld, Air Berlin and Finnair, the maps are particularly light in coverage, though Air Berlin does have a number of leisure/islands destinations with limited frequencies:
Iberia has a number of destinations, split between the USA and other countries (Note: this has been updated to remove the LatAm routes getting killed at the end of March):
American Airlines has a 20 TATL routes from what I can see (I’ve excluded BOS-LHR as that is ending soon from what I recall):
And, of course, British Airways and their coverage out of 3 London airports:
Oneworld has more coverage in the Americas than Star Alliance from a destination count; there are at least these 44 that I can find:
On the European side there are these 16 destinations, far fewer than what Star Alliance offers:
The table of all the oneworld North Atlantic routes can be found here.
The only surprise in today’s announcement from TAM that they will officially be moving from Star Alliance to oneworld in 2014 is that there is finally a date behind the change. Sortof. The company has set a target for the move in the second quarter of 2014 but still does not have a specific date. They expect to announce that later date, well, later. The shift was virtually guaranteed by the merger of TAM with LAN, as well as the merger between TACA and Avianca; authorities indicated that both groups could not be in the same alliance.
This move consolidates much of the South American market into the oneworld alliance. With the impending American Airlines/US Airways merger it also shifts much of the traffic between the Americas into oneworld. In other news out today, Finnair is seeking to join the ATI-protected joint venture for transatlantic travel currently composed of American, British Airways and Iberia. No real surprise there, either, and it seems unlikely that there will be much in the way of objections to that move.
Oneworld is seeing big gains these days, both through mergers and through natural growth in the Middle East and South Asia. While the mergers overall are reducing competition shifts like this do seem to balance out the alliance competition levels a bit, even if some of the markets become near-monopolies.
TAM has provided a FAQ here which doesn’t have a ton of details. The press release from oneworld has a few more bits to it.
PS- Here is the obligatory, "don’t worry, your points are all fine" comment because inevitably someone will ask. It is at least a year yet before anything changes.
If you’re surprised about the impending announcement expected Thursday morning of a merger between US Airways and American Airlines then perhaps you should get out more. It has been the talk of the industry pretty much since American filed for Chapter 11 bankruptcy protection over a year ago. And now the speculation about when they will merge can end, replaced with even better speculation about what will happen to the merged carrier.
We know a few things, or at least we’re pretty sure. Doug Parker will be in charge; Tom Horton will be a non-executive Chairman and will be paid handsomely for bringing the company almost out of bankruptcy. The carrier will keep the American Airlines name, brand and Texas headquarters. They will remain in the oneworld alliance and keep AAdvantage as their loyalty program. No surprises there.
But what about the things we don’t know?
- What happens to the Alaska Airlines partnership, for example? Especially considering the recent announcement of an even tighter partnership.
- When will Dividend Miles be rolled in to the AAdvantage program and which program rules will they keep. The two are plenty different and there are plenty of reasons both sides will lobby to keep theirs.
- Which hubs get shut down?
- Will they ever figure out how to expand into Asia and Europe in a sizable way without depending on partners?
- Which PSS will they choose? American has been looking to get a new one for some time now; will they use the merger as the impetus to replace both systems with something brand new?
- How long until the extensive short-haul network US Airways operates on the east coast can be redeemed for tiny amounts of Avios?
- Just how badly will consumers get screwed with less competition and higher fares?
Oh, and perhaps the biggest question of them all: Will Doug’s plan to use the AA unions to out-vote the US and HP unions and end their integration woes actually work?
In the meantime, make sure you look at a status match to Alaska Airlines Mileage Plan program, just in case. And now is probably a good time to pick up a US Airways credit card if you haven’t lately. Getting an extra 40,000 points in the combined program isn’t a bad thing.
Definitely going to be fun to watch over the coming months, more so than watching the speculation about when the merger was going to happen.
The oneworld alliance has added a new member today (or yesterday, depending on which time zone you’re in) with Malaysian Airlines being added to the group. Malaysian is the 12th carrier in the alliance and adds a route network covering more than 60 destinations to the oneworld alliance. Sixteen of these destinations are new to the alliance with no other member service. Plus Brunei has been added as a country with oneworld service now.
In celebration of the new member other oneworld member carriers are running promotions to encourage travel on Malaysian. Passengers will earn double points for travel on Malaysian when flying between 15 February 2013 and 15 April 2013. The fine print varies by crediting program so double-check with your program of choice before booking a crazy mileage run, but the bonus is definitely a nice touch. That said, I’ve found a few of the earnings charts and the numbers aren’t pretty. I discussed the JAL chart earlier in the week and lamented the minimal earning rates at the lower end of the fare spectrum. It seems that British Airways and Qantas have followed suit. Both are offering quite limited credit for lower fares and Qantas also adds a distinction between long-haul and short-haul travel, with better credit offered for short-haul travel. No doubt this is to discourage travel on a partner in long-haul markets where Qantas competes against them. Unfortunately earning details from American Airlines are not yet available.
And, finally, the alliance used the celebration of their new member to increase benefits for their top tier elites. Effective immediately oneworld Emerald elites will now receive an additional baggage allowance on all tickets and priority handling at certain security checkpoints. The baggage allowance will permit either one additional bag or an additional 20kg, depending on the system in use for the trip. Details on where the priority security access will be offered are not so clear right now.
The successful addition of a new carrier to the alliance is a great step forward for oneworld. The carrier had two rather notable losses in 2012, with Kingfisher falling apart just days before they were due to join and Malev liquidating early in the year as well. It appears that 2013 is kicking off on quite a different path, and that’s a good thing for everyone.
For India‘s Kingfisher Airlines the descent into near oblivion over the past year has been quite dramatic. The latest event – happening this past week – is that their operating license from the Indian aviation authorities has officially lapsed. This comes a few months after the license was suspended due to concerns about their ability to provide "safe, efficient and reliable service."
The carrier is continuing to play down the issues associated with their operations license, noting that they expect the lapsed certificate to be reactivated once they have finalized their new funding plans. Or, as a spokesman put it in a statement:
Kingfisher is confident of securing approval from the regulator on the restart plan, licence approval and reinstatement of its operating permit.
Over the past year Kingfisher has gone from the second largest carrier in India, on the cusp of joining the oneworld global alliance to carrying only 3.5% of the country’s traffic and then being forced to halt operations completely. Along the way there were unpaid contracts, employee strikes and a variety of other problems. The carrier is keeping up appearances as they search for fresh capital but this one seems unlikely to end well.
Air Berlin has joined the relatively small pool of airlines which no longer directly operate their own loyalty program. The carrier sold their Topbonus program to Etihad, a 29% shareholder in the German airline. The move is expected to push Air Berlin to a profit for the first time since 2007.
Loyalty programs are, in many cases, the only consistently profitable portion of an airline operation. The loyalty programs also have many more avenues over which they can expand and generate additional partnerships and profits. And Etihad sees these opportunities quite well. CEO James Hogan, at the announcement in Berlin, noted, "the loyalty-program sector is a faster growing and higher margin business than the airline industry." Etihad aims to build a global loyalty management platform which can cover multiple airlines. Currently Air Berlin, Etihad and Air Seychelles are covered by Etihad’s stake but others could be folded in to the operation in the future based on the way it is being set up.
Etihad has been on the leading edge of loyalty program technology and partnerships in recent years. The carrier has more than 170 partners, a very large number for a program with fewer than 2 million enrolled members. And Etihad has been pushing to improve the fungibility of points through programs like PointsPay, a partnership which allows members to spend points like cash using a credit card funded by their points balances. It would not be particularly surprising to see programs like PointsPay extend to the Topbonus program in the not-so-distant future.
For Air Berlin losing direct control over their loyalty program is probably not all that huge a deal, though they do have to ensure that they continue to meet the rules of oneworld with respect to policies and participation. It is, however, a one-time windfall financially. If the carrier cannot keep operational profits flowing they won’t be able to generate the large cash infusion again, at least not from Topbonus.
Seeking greater access for their customers into mainland China markets, Air New Zealand announced an agreement with Cathay Pacific to launch a strategic agreement in December 2012. The two carriers will coordinate their schedules for service between Auckland and Hong Kong, including code-sharing on flights. Additionally, connections to mainland China on Cathay will be coordinated with the Air New Zealand schedule, allowing better access to those markets for the Kiwis. The partnership will include reciprocity on frequent flyer points earning and elite status benefits, including lounge access and other priority services.
At the same time, Air New Zealand has announced that they will be dropping service between London and Hong Kong as of March 2013. The carrier will redeploy much of that capacity on flights to North America. Long-haul markets have been a sore spot for the carrier’s profitability in recent years and, according to CEO Rob Fyfe, the Hong Kong – London route showed no signs of reversing that trend anytime soon.
Of significant note in the new partnership is that the two carriers belong to separate global alliances. Cathay is a founding member of oneworld and Air New Zealand is a member of Star Alliance. Despite participating in different alliances the two carriers have managed to establish a bilateral agreement which should prove beneficial to their respective customers. Just another example of partnerships growing outside of the alliances. And these new partnerships, for the most part, work in favor of the customers.
It looks like the days of independence for London-based carrier Virgin Atlantic may be coming to an end. Speaking in an interview with Bloomberg in Mumbai on Friday Richard Branson indicated that the carrier is looking to join up with one of the big three and that "to survive we need to have an alliance." So, which will it be??
There’s virtually no chance of oneworld being the alliance. The vicious competition between Virgin Atlantic and British Airways, as well as the massive domination at Heathrow, simply exclude that from reasonable consideration. Singapore Airlines holds a huge minority stake (49%) in the carrier and Singapore is a member of Star Alliance. But that doesn’t necessarily mean they would join up. In some ways it is better for Singapore Air to have the diversity of their investments in both alliances rather than just one.
There are two levels of membership in the alliances these days; which level of participation Virgin is looking to reach could drive which they ultimately join. As just a member the competition issues are relatively minimal. There will be codesharing and frequent flyer reciprocity but that won’t severely shift the competitive balance in the market. If Virgin is looking to join one of the Anti-Trust Immunity (ATI) agreements, however, that will likely change things significantly.
Getting in to the ATI will require approval from government authorities on both sides of the Atlantic. Those approvals are rather more strict and look at the competitive balance more significantly. At first blush SkyTeam is more likely the winner if ATI membership is desired. Star Alliance has many more destinations in North America served from London than SkyTeam does. And Virgin’s lack of short-haul service means that, for the ATI, it is all about London.
Keep your eyes and ears open on this one…it will be interesting to watch.
The coming years should see growth in the employee ranks at American Airlines according to company CEO Thomas Horton. In a letter to employees this week Horton indicated that the company intends to grow the pilot numbers by 2,500 over the next five years. That growth is similar to the announced plans to hire flight attendants in the near future. The growth is expected to support, among other things, the growing international route map for the carrier; those flights are longer and on larger planes requiring more crew to operate. The hiring will also cover 650 pilots on furlough and offset 500-600 who are approaching mandatory retirement in the same timeframe.
The carrier announced four specific new routes this week which they intend to serve starting in Spring 2013. The new routes being launched are:
- Dallas/Fort Worth ─ Seoul, South Korea starting May 9, 2013
- Dallas/Fort Worth ─ Lima, Peru starting April 2, 2013
- Chicago O’Hare ─ Dusseldorf, Germany starting April 11, 2013
- New York JFK ─ Dublin, Ireland starting June 12, 2013
The Seoul route will operate in conjunction with American’s oneworld partner JAL. The Dublin and Dusseldorf routes will operate as part of the airline’s joint business agreement with British Airways and Iberia. The Dusseldorf route will also operate as a codeshare with oneworld partner AirBerlin. Passengers will have access to a number of onward connections on the AirBerlin route network out of Dusseldorf.
And while the pilots’ union contract issues are still out there the other labor groups seem to be on board with the latest plans. The head of the union even expressed mild satisfaction with the hiring plans, though also noting that the company still isn’t as big as it has been in the past. So, has American turned the corner in their bankruptcy reorganization? These latest moves suggest that they think they have.