The Brancatelli File By Joe Brancatelli
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Every Airline for Itself
March 30, 2017 -- We long ago established that the airlines aren't loyal to us, not even within the constructs of what were once laughably called loyalty plans.
But who knew the airlines aren't even loyal to each other?
In an aviation world currently carved up into three huge alliances--Star, Oneworld and SkyTeam--you'd think the airlines could stay loyal to each other. They have been building these things for decades, have a virtual chokehold on global traffic and have convinced the more feebleminded of us to choose one alliance over another.
But, you know, never mind. The airlines have a new idea: Cheating on their alliance partners because welching on their commitments is what they do.
How else to understand two seemingly unrelated announcements this week from far-flung corners of the airline world? How else to make sense of Cathay Pacific tying up with Lufthansa and American Airlines buying a stake in China Southern?
As you surely know, Cathay Pacific of Hong Kong is one of the founding carriers of Oneworld, whose bedrock European members are British Airways and Iberia, mortal commercial enemies of Cathay's newfound friend Lufthansa. Lufthansa, of course, is a founding member of the Star Alliance, which includes Air China, Singapore Airlines, Thai and Asiana of South Korea.
Meanwhile, American's decision to buy a $200 million stake in China Southern is equally bizarre. How does American take a 2.76 percent position in China Southern when American is a founding partner of Oneworld? China Southern is based in Guangzhou. Distance between Guangzhou and Hong Kong, home and hub of American's Oneworld partner Cathay Pacific? Eighty-four miles. And China Southern, at least at the moment, is a member of SkyTeam, the alliance fronted by Delta Air Lines, a mortal commercial adversary of American Airlines.
Before we get into how all this corporate double-dealing and backstabbing affects us, it's important to understand what is happening here.
The alliances are bullshit now. Dead business concepts walking ... er, flying. And they've been flying apart for years.
Alliances have been unraveling since long before Qantas, the Australian carrier and co-founder of Oneworld, aligned in 2012 with Emirates of Dubai. To do that deal, Qantas scrapped its long-standing alliance with British Airways despite the fact that BA is also a co-founder of Oneworld and BA's parent company is partially owned by Qatar Airways, a Oneworld member and, naturally, an arch-competitor of Emirates.
The era of alliances is basically over. In your heart, you know why, too. Airlines are too obsessed with squeezing every penny out of every situation to ever value long-term loyalty.
Don't take it from me. Take it from Willie Walsh, the grubbiest of the airline money grubbers. Willie is the wee Irish fellow who once upon a time saved Aer Lingus, ran British Airways and masterminded the creation of IAG, the pan-European firm that owns BA, Iberia, Vueling and Aer Lingus.
All Willie cares about is money. He'll beat it out of his employees. He'll squeeze it from us. And he doesn't think alliances are good enough moneymakers anymore, so he has no trouble predicting their demise.
"Alliances add value today," he admitted in a speech last fall to a trade group. "But I question whether they will continue in the future. There still is a role for them to play, but I would be surprised and question whether they will exist ten years from now."
Which explains why airlines are gleefully cheating on their alliance partners and shacking up with any carrier that offers them an opportunity to make a few more bucks.
What's the future of airline combinations? Not big group-hug alliances like Star, Oneworld and SkyTeam, but the aviation equivalent of one-night stands. Stuff like joint ventures (JVs), which is what United and Lufthansa have, Delta and Air France have and American Airlines and British Airways have.
In that vein, Delta and Korean Air made news this week. Delta and Korean Air have been SkyTeam-aligned frenemies for years and Delta cut the amount of miles and status you could earn by flying Korean because Korean cold-shouldered Delta's commercially amorous advances. But now the two carriers are reunited and it feels so good. They plan a joint-venture deal and all sorts of other combinations to squeeze more dough from us.
Naturally, joint ventures are worse for us than the big alliances. They are legally immunized antitrust deals that allow carriers to coordinate prices, products, schedules and capacity. They are brutally anticompetitive, they destroy innovation and hasten air travel's flight to the bottom of the barrel.
Ever wonder why transatlantic service is so dull and predictable? It's because three-quarters of the traffic is controlled by legally untouchable and unaccountable joint ventures. United is aligned with the Lufthansa Group, which also includes Austrian, Swiss and Brussels Airlines. American is teamed with the IAG carriers (BA, Iberia and, soon, Aer Lingus) and Finnair. Delta is in a JV with Air France, KLM and Alitalia and, separately, Delta owns 49 percent of Virgin Atlantic.
What's it all mean for us? Higher fares, of course. (Statistics show average fares across the Atlantic are up by double-digit percentages in the last 15 years while prices have fallen domestically.) Less choice. Fewer chances for new carriers to enter crowded markets and congested airports. Big alliances weren't great for us, but at least they helped us organize the world and our flying somewhat rationally. A mass of overlapping joint ventures is strictly a matter of commercial convenience for airlines with almost no benefit for us.
Specifically, however, the Cathay-Lufthansa hookup won't mean much for us since it is aimed at Europe- and Asia-originating flyers. What the American-China Southern deal means is yet to be determined. There'll be code-sharing and interlining, to be sure, although China Southern flies primarily from Guangzhou while American flies only to Beijing and Shanghai. (Delta has invested in China Eastern, but at least their flight networks meet in Shanghai.)
What's the silver lining? Ain't one. Airlines care nothing for loyalty, to us or their putative partners. It's every airline for itself.
We business travelers should act the same way. Always.
This column is Copyright © 2017 by Joe Brancatelli. JoeSentMe.com is Copyright © 2017 by Joe Brancatelli. All rights reserved. All of the opinions and material in this column are the sole property and responsibility of Joe Brancatelli. This material may not be reproduced in any form without his express written permission.