Let’s say, hypothetically speaking, that you’re looking to make a splash in the travel market. Sure, you already might have some products which allow your users to display a boarding pass or track flight status, but you are always thinking bigger. You want to have a fully integrated reservations system, not just displaying bookings made elsewhere; you want to fully own the process. You’ve also got a few patents which seem overly broad in some ways, but which should cover the unified booking, management and actual travel process through a single interface. Oh, and you’ve also got more than $145 billion sitting around, looking for a useful outlet. What’s your next move?
The key component to the booking and management process is the Global Distribution System (GDS) platforms which work as the middle-men between travelers and service providers. There aren’t too many players in that space and there are plenty of reasons to be wary of their profit potential, especially from the airline side of things. Still, if you want to build a massive travel solution having your own GDS is a pretty efficient way to approach the situation. Why bother negotiating API integration and fee structures when you can simply own the whole platform? Especially when there are other, ancillary benefits which might come with that purchase?
There are arguably three major players in the online consumer market today: Microsoft, Google and Apple. In April 2008 Microsoft purchased Farecast, integrating the historical fare data and prediction algorithms into their Bing Travel platform. Google made their move a couple years later, snapping up ITA Software in 2010. The ITA platform is much closer to a full GDS than what Farecast offered, though it doesn’t have the direct-to-consumer front-end aspect of things in place. Apple has been competing with Google in many areas recently and getting a leg up in the travel space – a market with huge amounts of money (and customer affinity) in play – is not such a bad idea. The only real company in play right now is Sabre and the company is once again raising the idea of launching their IPO; if Apple wants in on the action now is the time to act.
To be fair, the patent details are mostly focused on how to use NFC or similar technologies for the passengers’ mobile devices to talk with other systems so that check-in and boarding can be handled more smoothly, not about the overall booking process. But making reservations is mentioned several times and, if history is any indicator, Apple’s desire to control the whole process makes this sort of transaction quite feasible. Building a fully integrated booking interface from scratch is a ridiculously complicated undertaking and there is very little up-side to that approach. Apple would still have to negotiate access to all the underlying data, in addition to building out the management and processing systems and user-facing interfaces. That last bit is likely something they would want to redo anyways, but the back-end stuff is major work and buying a functional version in situ is a nice way to get a head start. It is also worth noting that Sabre is a lot more than just the GDS platform. Through its history Sabre has acquired or launched many other businesses, including travel agencies, online communities (IgoUgo) and booking engines (Travelocity). Yes, buying them outright would have a significant cash cost, but getting all the parts at once rather than assembling them piece-meal means the project would be live much sooner.
If Apple is going to get into this market they’re already facing an uphill battle. Roughly 75% of the travel agency market (including OTAs) is dominated by 4 key players. To break in to that space would require a disruptive shift, the type of move Apple has embraced in the past. They could play it slow, depending on travel providers to integrate into their Passbook application but the adoption has been somewhat slow. Also, there isn’t a ton of upside for the company for depending on partners to integrate into their ecosystem; Apple likes to control the whole experience. If Apple wants in on the hundreds of billions of dollars in annual online travel revenue, going slow into the market is a bad move.
Is Apple going to buy Sabre? I honestly have no idea. But there are rumors of such circulating (I didn’t come up with all of this all by myself) and, quite frankly, it wouldn’t be the stupidest thing they’ve ever done.
It sure is fun to imagine what they could accomplish if they did, though…
I’m often intrigued by the information I can glean from Twitter chats. I tend to avoid them more than participate in them but a chat this past Friday hosted by @JohnnyJet and @CJMcGinnis piqued my curiosity so I tuned in. The chat was about summer travel and used the #TravelSkills tag for tracking the conversation. The two hosts didn’t waste any time getting in to what is often a touchy subject: How much is a reasonable price for airfare?
My answer was actually easy to come up with. For summer travel I’ll spend up to 100,000 points for a business class trip to Europe. And I’ve been quite successful in finding those when and where I want them over the years. But that’s just me. What was interesting to me were some of the other responses I saw to the inquiry. Seems that a lot of people think that $1000 is an reasonable upper limit, with many believing that even lower fares are "fair" for such a trip.
Some responses based the price on where they’d end up:
And some considered where in the USA they were starting as part of the thought process:
Every single one of the numbers tossed out as being "fair" was actually below the average cost to operate the flight which would carry the passenger on the trip (based on published average cost data from the airlines). So, with the exception of some bargain fares on oneworld carriers to Dusseldorf (and even those are ~$900 from the east coast), it seems that many of the chat participants are going to be disappointed. Chris points out that average fares are in the $1200-1500 range already and there are no signs of those dropping much anytime soon.
Fares are higher on average than they have been the past few years; there is no doubt about that. Even off-season fares are higher. That mostly comes from less competition, less capacity and a desire by the airlines to actually make some money. Absolute fares are at or near all-time highs, while inflation-adjusted fares are still quite reasonable according to DoT analysis (note that the DoT data is for domestic, not international, but the trends are similar):
Not adjusted for inflation, the $367 third-quarter 2012 average fare is the fifth-highest average fare for any quarter since BTS began collecting air fare records in 1995. The highest was $385 in the second quarter of 2012. The previous third-quarter high was $361 in 2011. Third-quarter 2012 fares were $243 in 1995 dollars, down 18.1 percent from the average fare of $297 in 2000, the inflation-adjusted high for any third quarter (Tables 1 and 2).
Here’s another bit of analysis from Airlines for America, the industry trade group in the USA. It uses DoT data to track overall international fares since 1990 (a subset shown here).
These are overall averages for all international travel, not just peak season transatlantic. Still, the numbers make it hard to believe that getting peak season airfares at below average rates is going to work out well very often.
There was one slightly off-topic aside in the conversation which was also rather entertaining:
Apparently relatively normal airfares are, in some cases, shocking.
Don’t get me wrong – I don’t like paying very much for airfare and when the fare is too high I either don’t travel or I go somewhere else. But I also go in to the transaction knowing what to expect and being able to tell if I got a good deal or not rather than just expecting that fares are always so low. At the end of the day I guess I’m just surprised how low some people think airfare should be to be considered reasonable.
No wonder the airlines are struggling to eke out profits. For too long passengers have become used to the cheap fares offered as a result of excess capacity and increased competition. Mergers and ATI deals have cut almost all of that out of the system. And with the impending US Airways/American Airlines merger and Delta/Virgin Atlantic ATI request working their way through the regulators the competition is going to decrease. It is good for consumers that the airlines are able to remain in business. But that will mean higher fares, more crowded planes and fewer choices, all of which make for not-so-happy passengers.
We are another step closer to the merger of US Airways and American Airlines today following a hearing in the bankruptcy court in New York City. The planned merger was approved by the judge overseeing the bankruptcy reorganization of AMR, American’s parent company. The approval was expected and allows the two carriers to move forward with their efforts, though it is also far from the last approval needed.
But it was not all smooth sailing during the hearing. Tom Horton, the current CEO of American, is due to receive a severance payout of $19.9 million in cash and stock as part of his stepping down for Doug Parker to lead the combined company. That part of the deal was blocked by the judge who stated, "Approving it today is just not appropriate." It seems that there are issues with the way the bankruptcy code is written and the fact that the merger was consummated in bankruptcy rather than after AMR emerged from the court’s protection. The judge noted that he doesn’t object in principle to the payout but that the law simply didn’t allow him to approve it at this time.
Perhaps this is why Horton was so adamant for so long about wanting to emerge from bankruptcy before agreeing to merge with US Airways. Odds are that he’ll get paid anyways eventually so maybe this is more of a delay than denied. Still, it is always interesting to watch these processes play out.
This week Southwest announced a rather significant milestone related to their integration with subsidiary AirTran. All flights on both carriers can now be booked as a single itinerary. There are a few limitations – most notably that international routes cannot be booked on the Southwest site – but overall the change means great news for AirTran passengers who don’t like bag fees.
Despite the merger there are a few policies where Southwest is rather more customer friendly which have not migrated to the AirTran side of the operations. Things like bag fees, for example, still exist on AirTran and they were recently raised. Similarly, change fees and re-fare policies on AirTran aren’t nearly as generous to the customer as they are on the Southwest side of things. Up until this past Monday you had to book on the AirTran site to get access to many AirTran routes and destinations. And that meant you had to accept the less customer-friendly policies. Today, however, other than the 8 international destinations served by AirTran, that is no longer the case.
As an example, take a trip from New York to Pensacola. Service into Pensacola is only offered on AirTran flights but they can now be booked using the Southwest site and the prices are identical.
Mixed carrier itineraries look similar on the systems:
Booking these itineraries on the AirTran site means you’re stuck with the AirTran policies. The press release states that any booking which includes a Southwest-operated segment should be exempt from bag fees but the other restrictive rules will still apply:
…[A]ny itinerary with a Southwest segment or that is purchased through a Southwest point-of-sale channel will not have bag fees for the first or second checked bag (weight and size restrictions apply.)
Also worth noting that points earning is dictated by the booking channel. If you book through AirTran you earn A+ rewards, regardless of who operates the segments. There are scenarios where that might be beneficial to the passenger to switch the booking channel depending on whether you want A+ credits or RapidRewards points.
Customers will continue to earn and redeem currency through the frequent flyer loyalty programs of their Marketing Carrier, regardless of the Operating Carrier they travel on. Customers should be enrolled in both Southwest Airlines Rapid Rewards and AirTran Airways A+ Rewards programs in order to earn currency from whichever airline they purchase a ticket.
Lots of decisions to make depending on which earns you the best points and has the best policies.
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.
There are plenty of opinions out there right now about the future of the aviation market in the USA in light of this week’s announcement about US Airways and American Airlines finally coming to terms on their merger this past week. I’m only slightly dismayed – though not at all surprised – to see so many bloggers announcing that they know what the loyalty program is going to look like and what to do about points right now (here’s a hint: they’re all guessing). I’m not at all surprised, however, to se so many pundits speaking to what the net effect will be for the traveling public. Anyone on the industry side is lauding the stability and efficiencies of the larger route network and more flexible fleet. From the consumer side, however, the views are a little less positive. In some cases, VERY much so.
Here are two headlines which made the rounds a few days ago shortly after the announcement came out. One is from The Onion, a satire site which plays on real news. The other is from Salon.com, something more akin to a real news site. Though from reading the headlines it isn’t entirely clear which is which:
American Airlines, US Airways Merge To Form World’s Largest Inconvenience
U.S. Airways and American Airlines, two crappy airlines, are merging to form one mega airline — the biggest in the world — with a $11 billion deal agreed Thursday.
American, U.S. merge to form biggest, crappiest airline
American Airlines and US Airways stunned the aviation industry Thursday upon announcing the two air travel titans have combined in an $11 billion merger that sources say will unite the industry powerhouses into the world’s largest and most complete pain in the ass.
Even with the first line of the story included it is not clear which one is satire. If you keep reading it becomes clear reasonably quickly, mostly because the Onion article includes some rather entertaining "quotes" attributed to American’s current CEO. But that would require actually reading past the headline.
It does raise the interesting question, however, of just how challenging the merger will be over the coming years for consumers. Higher fares are almost a certainty; that’s what happens when competition is reduced. And while the two carriers were quick to point out that only a tiny number of their routes overlap they skipped the part where they serve many of the same markets, just via different hubs. The combined carrier will still have woefully limited coverage to Asia and the Middle East (odds of the TLV route sticking around given the open TWA-related judgment against AA??) and Europe isn’t all that much better. Africa and Australia are complete black holes on the map. Their domestic route map is pretty good, except on the west coast where they’d still need Alaska Airlines to fill in the north-south shuttle service and provide coverage to a number of markets. The combined carrier will be a beast in the Caribbean and Latin America, but that’s another situation where the benefits to consumers are questionable; the two were, in many cases, the main competition for each other and that’s disappearing.
There is no doubt in my mind that the stability of the industry will improve from this merger and that is, in general, a good thing. That doesn’t mean I’m not just a bit worried about how it will impact my personal travel patterns. After all, I’m on a pretty tight budget and I cannot get enough time in the air.
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.
Did you catch the latest episode of the PointsHoarder podcast? If not you missed Stephan, Fozz and me talking about a bunch of changes to hotel loyalty programs for 2013, mostly regarding it becoming harder to qualify for elite status. And, believe it or not, one of the three actually thinks it is a good thing. We also talked a bit about American Airlines getting their pilots on board with a contract and the potential that leads to with respect to the theoretical merger with US Airways somewhere down the line. You can listen to the episode here.
In addition to the podcast there have been a few useful posts over there including:
Give it a listen (or read) and let me know what you think. There’s some pretty good stuff over there these days…
Late last week the pilots at American Airlines ratified the latest contract with the company. The pilots were the last of the labor groups without a new agreement following the company’s bankruptcy filing just over a year ago and now, with all the labor deals finalized, the company is finally in a position to complete their reorganization efforts. But will those efforts include a merger with US Airways?
It is no secret that US Airways is keen to see such a deal nor that American is hoping to emerge from bankruptcy as an independent operation. There was even a formal proposal from US Airways at some point in November, a deal which suggested US would hold 30% of the combined company and AMR 70% valuing the combined company over $8bn. That would be huge, though American executives apparently felt that the offer was a bit light. Then again, the AMR executives are still holding to the line that emerging from bankruptcy as a stand-alone company is the best option. It isn’t clear whether they simply think that is the best option for their job security – Doug Parker, US Airways’ CEO has made it clear he wants to run the combined operation – or for the company as a whole. It is hard to believe they do not see some additional consolidation in the industry as good for their operations.
From the pilots’ perspective this move is very much not an endorsement of the current management. In fact, the Union has come out with the bold statement that "this contract represents a bridge to a merger with US Airways." In other words, just enough to get by until something better can be arranged.
The question is whether American Airlines – and really their creditors, not current management – things that the US Airways offer is that something better. I’ve got my popcorn out, ready to watch the show.
After several weeks of speculation Delta, Singapore Airlines and Virgin Atlantic have come to an agreement which will see Delta acquire a 49% ownership stake in Virgin Atlantic for $360mm. Delta’s stake will come from Singapore Airlines; Virgin Group, headed by Sir Richard Branson, will retain their current 51% share and control of the company. The Virgin brand and operating certificate will remain intact. The deal is still dependent on approval from regulators on both sides of the Atlantic. The airlines expect the deal to close by the end of 2013.
Delta and Virgin Atlantic also intend to establish a joint venture operation for trans-Atlantic operations. The joint venture will not, at least for now, include other SkyTeam partners. It will, however include:
- A fully integrated joint venture that will operate on a "metal neutral" basis with both airlines sharing the costs and revenues from all joint venture flights.
- A combined trans-Atlantic network between the United Kingdom and North America with 31 peak-day round-trip flights.
- Enhanced benefits for customers including cooperation on services between New York and London, with a combined total of nine daily round-trip flights from London-Heathrow to John F. Kennedy International Airport and Newark Liberty International Airport.
- Reciprocal frequent flyer benefits.
- Shared access to Delta Sky Club and Virgin Atlantic Clubhouse airport lounges for elite passengers.
The joint venture will definitely give the combined carriers a leg up in the ultra-competitive London market. That said, the combined lift between London and New York City and Newark still doesn’t begin to reach the frequencies at British Airways/American Airlines offer. The 23 total flights daily between the USA and Heathrow will place Delta/Virgin in a solid second place, ahead of United’s 16 but well behind BA/AA’s nearly 40 daily operations.
From a passenger perspective the overall product should be very competitive in both economy and business class. Both Delta and Virgin Atlantic currently offer flat beds for all passengers in their business class cabins. For economy class the AVOD systems on both carriers should provide sufficient entertainment to distract the passengers from their tighter seating quarters. Virgin Atlantic has a proper premium economy cabin which Delta does not offer; there may be some work to reconcile that difference at some point. On the ground the Virgin Clubhouse lounges are some of the nicest business class operations, particularly in New York and London. Delta’s SkyClubs are not at the same level but in shared markets customers will have the benefit of access to both.
Delta has been looking for a way to get at more slots into Heathrow. They picked up a couple when British Airways was forced to divest them following their acquisition of bmi but that wasn’t enough to significantly change their operations. The partnership with Virgin Atlantic will open up access to many more slots eventually. And the price point was quite reasonable. Of course, Virgin Atlantic has been losing money in recent quarters so it might become a more expensive investment over time, but at least initially it looks like a positive opportunity for both carriers.