By Joe Brancatelli
December 13, 2007 -- Assuming you weren't slogging your way through the ice and the snow that made life on the road a nightmare this week, you may have heard today's big news: Lufthansa, the oh-so-proper German carrier, is paying $300 million for a 19 percent stake in JetBlue Airways, the loosey-goosey American airline of a different color.

The mind boggles. "Boggles" being an official journalism term that means, "Oh, lord, I didn't want to have to get into all of this crap in my column just 12 days before Christmas." Still, take it from me: This Lufthansa-JetBlue thing is going to be extraordinarily small potatoes when European and American carriers finish realigning themselves during the next year or two.

Since I assume we both have much more important things to do---you probably have some Christmas shopping to finish up and I really want to settle in with the 409-page Mitchell Report--let's knock this Lufthansa-JetBlue thing off in two easy-to-digest chunks.

It looks as if Lufthansa's decision to pay $300 million for newly minted JetBlue stock is a straight financial transaction. JetBlue gets the cash, Lufthansa gets the equity and a seat on the JetBlue board, but there are no code-shares or other alliances involved. Which raises some interesting questions:
   1) Why is JetBlue so desperate for cash that it has done a deal when its stock was in the toilet? The airline, which traded north of $68 a share in 2003, closed at just $6.25 yesterday, near its historic low. Lufthansa is buying at $7.27, a premium of about 16 percent.
   2) How will Lufthansa's Star Alliance partner, United Airlines, react to the fact that the German carrier is helping fund one of its primary competitors in the U.S. domestic market? Of course, it may not matter because United needs Lufthansa a lot more than Lufthansa needs United.
   3) What happens to JetBlue's long-promised international alliance with Aer Lingus? In a conference call after the Lufthansa announcement, JetBlue chief executive Dave Barger did say that the Aer Lingus deal remains on the front burner. But no one asked him why that agreement, which could serve as a template to allow perhaps a dozen international carriers to feed traffic to JetBlue at its New York/JFK hub, has languished in development for years.

With the euro so strong against the dollar, Lufthansa's $300 million investment in JetBlue is pocket change. But it's also the flashiest, splashiest development so far in the next era of airline alignment. Three separate factors--the continuing erosion of the Big Six, the congestion at New York's airports and the imminent arrival of open skies between the United States and the European Community--are coming together simultaneously and will probably make 2008 the wackiest year ever for airlines.

First the open skies thing. On March 28, many of the shackles come off U.S. and EC carriers. They'll essentially be able to fly almost anywhere they want between the two political entities. That explains why Northwest, Continental, US Airways and Delta Air Lines have all announced they will fly to London/Heathrow beginning next spring. It explains why two existing alliances, Northwest/KLM and Delta/Air France, are planning joint service on new routes. It explains why British Airways is creating an entirely new airline to fly nonstop between the United States and continental Europe. And it even explains why Lufthansa is revamping its existing strategy of using all-business-class jets on secondary routes between the United States and Germany.

One primary focus of all this new activity is New York, where the Transportation Department may soon slap capacity controls on Kennedy Airport, the nation's primary gateway to Europe. BA is so worried that it won't find take-off and landing slots at JFK for its new airline that it might move the venture elsewhere. And it may explain some of the rationale behind Lufthansa's deal. JetBlue is the largest carrier at Kennedy. Lufthansa may need to buy or borrow slots to keep its existing service in the air. And isn't it convenient that Lufthansa now has a minority stake in the airport's largest player?

And there's the alarming deterioration of the Big Six, whose stock performance this year has been as dreadful as JetBlue. (US Airways, for example, was selling at $62.50 a share in January, but closed at $15.74 today.) Facing record-high fuel prices and softening passenger demand, the Big Six are once again edging toward the financial precipice. They've beaten all they can from their employees. They won't be able to raise money in public markets. Their domestic share of the airline market is withering and their recent profit engine (overseas flights) is facing all that new competition next year. In other words, mergers may be their only option.

Bottom line: You ain't seen nothin' yet. So go finish your Christmas shopping. This stuff will all be here to debate (and boggle the mind) next year.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.

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This column is Copyright 2007 by Joe Brancatelli. JoeSentMe.com is Copyright 2007 by Joe Brancatelli. All rights reserved.