Delta: single large airline looking for Virgin partner

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

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?

American Airlines used to be the largest airline in the industry – now it’s third. Merger activity has narrowed the field, with SouthwestAirTran 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]

British Airways, American Airlines, and Iberia in transatlantic tie-up

British Airways has signed a “tie-up” deal with American Airlines to share passengers and costs between the European Union and North America. Two non-EU nations, Switzerland and Norway, are also covered in the agreement.

BA says the deal will be worth $7 billion a year and will give passengers greater access to discounted fares. They’ll also get better connections and access to the airlines’ global network.

The deal, which has been in the works since 2008, only received regulatory approval this summer after rival carriers complained that it would create a near-monopoly. BA and Iberia merged last year. The current tie-in deal with AA is not a merger, but instead a close cooperation agreement to integrate ground operations and other aspects of the airlines. This will reduce costs by getting rid of overlapping services, and if these savings are passed on to the customers then there could indeed be a reduction in fares. With competition as fierce as ever, BA, Iberia, and AA will want to make this deal as marketable as possible.

The joint venture will being in October. Stay tuned to see how it turns out.

[Photo courtesy Fly For Fun via Gadling’s flickr pool]

Southwest uses AirTran for access to business travelers

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]