Delta: single large airline looking for Virgin partner

by Tom Johansmeyer on

I hope you haven’t become too attached to Virgin Atlantic. The airline has gotten its share of calls lately about potential mergers, but they are qualified with expressions like “early stages” and “far too early” to say anything about. This isn’t all that surprising, given the strength of its brand and the fact that the airline hired Deutsche Bank to help it evaluate its available growth opportunities.

Word on the street is that Delta is sniffing around, but neither Delta nor Virgin Atlantic would say anything about it.

The notion of a merger with an airline of Delta’s size is interesting, as majority owner of Virgin Atlantic, Sir Richard Branson, didn’t have much in the way of positive commentary for the British Airways/Iberia deal, which he believed would lead to higher prices and lower competition.

But, the aviation business is feeling the urge to merge, and analysts are saying that Virgin Atlantic needs a big buddy in order to compete effectively, the BBC reports.

[photo by eisenbahner via Flickr]

Five United Airlines non-answers about the frequent-flier future

by Tom Johansmeyer on

United Airlines decided to dive into the weeds. Executives from the airline met with close to 200 members of the online forum FlyerTalkers to discuss some of the major issues they see with the carrier, according to USA Today. This may not seem like a bold move, but to put the company’s top dogs out in front of some of the highest-value customers comes with plenty of risk, especially for an airline recently named the second worst in the United States.

So, what was on the agenda? The frequent-flier program was of course top of mind, as many of the people in attendance hold elite-level memberships. Despite being pressed by customers and media, however, the United Airlines executives kept their lips sealed on future plans for the program.

Here are five key topics from the event:
1. How the merger will affect the Mileage Plus and One Pass programs: no details were provided on what will change. But, they are expected to come out in the next few weeks. Through 2011, according to USA Today, the programs will not be integrated, “though some streamlining changes will begin. Look for them to be integrated in 2010.

2. Doubling down for the end of the year: USA Today pushed to see if United would be offering any year-end double-elite-qualifying mile offers. The company was “noncommittal.”

3. A place to put your feet up: United would only say that a rebranding effort for its Untied and Continental lounges is “a possibility.” It may use one of the existing names – United’s Red Carpet or Continental’s Presidents Club – or it may not.

4. Slightly better seating: United wouldn’t reveal whether it’s premium economy section would be retained post-merger. Continental doesn’t have a similar offer.

5. Thresholds for top-tier: will it take 75,000 miles or 100,000 miles to become the top dog? Well, there’s still no answer.

So, United made itself visible and accessible, but it didn’t bring much to the table. This leads to the obvious question … why bother?

[photo by Deanster1983 via Flickr]

Fallen American Airlines could be next to merge … with JetBlue?

by Tom Johansmeyer on

American Airlines used to be the largest airline in the industry – now it’s third. Merger activity has narrowed the field, with Southwest–AirTran and United-Continental the latest deals that hit the sector. So, all eyes are on who will succumb to the urge to merge next, and American is being eyed as the next player.

According to a Forbes blog post, analysts from Morningstar believe that American Airlines “needs to make a big splash” to remain a player in an increasingly competitive market. The post continues:

“Once the industry’s largest carrier, [American Airlines] is now the third-largest…and any scale advantage it may have garnered is gone,” the Morningstar analysts write. “Ironically, AMR is at a substantial disadvantage, given that it steered clear of bankruptcy during the recession,” [Basili] Alukos and [Adam] Fleck say, pointing out that American’s labor rate is the industry’s highest on an equivalent basis.

So, who’s the right partner for American? The analysts at Morningstar are looking at JetBlue, especially given the latter’s “lighter cost structure.” Notes founder of Training the Street and former M&A investment banker Scott Rostan, “Three dominoes have fallen – Delta/Northwest, UAL/Continental and Southwest/AirTran.” He sees Alaska, Frontier and JetBlue as likely to make some noise.

[photo by Andrew Morrell Photography via Flickr]

Southwest uses AirTran for access to business travelers

by Tom Johansmeyer on

The key to success in the airline industry is the business traveler. This category flies often, has less flexibility in pricing and spends more on flights than a leisure traveler could possibly imagine. So, it’s hardly surprising that Southwest‘s acquisition of AirTran – a $1.42 billion transaction – could help deliver greater share of the white collar travel crowd to the low-cost carrier.

According to MSNBC:

Southwest – which currently serves key cities such as Dallas, Chicago, Denver, Phoenix and Baltimore – has long been considered a vacationer’s airline. But it has lured corporate road warriors with offers like Business Select fares that cost more but promise priority boarding, extra frequent-flier credit and a free drink.

So, we’re looking at an expansion of Southwest’s strategy into a more lucrative market. Southwest has already proved that it can thrive in the volatile leisure market, ostensibly more challenging than catering to the business crowd. It seems as though this strategic shift is as close to a “sure thing” as one can imagine in the airline industry.

The acquisition also provides Southwest with international routes, as it picks up AirTran’s access to Mexico and the Caribbean.
[photo by AGeekMom via Flickr]

Airline mergers could lead to fare “creep”

by Tom Johansmeyer on

The Southwest/AirTran merger isn’t expected to push fares much higher. The disappearance of seats that comes with airline consolidation would make you think that prices are about to rise, as the fundamental commodity of the airline industry becomes increasingly scarce. But, we’re not close to that point yet, notes USA Today:

“We’re not at the tipping point,” says George Hobica, founder of Airfarewatchdog.com. “I don’t think fares will be impacted much until we have three legacy carriers and one discount carrier remaining.”

The number of seats, however, is shrinking across the airline industry. Since September 2007, the number of domestic seats available has fallen 10 percent.

According to Hobica, look for fares to “creep upward,” but not at a rate that will horrify customers, a position supported by Frank Werner, associate professor of finance at Fordham University. He tells USA Today: “Generally, airline mergers remove competition from the skies, leading to higher prices. This will happen in markets where the combined Southwest/AirTran will not have a dominant market share.”

[photo by SkilliShots via Flickr]