Combined Airline Deals – Good or Bad?

I was surprised to read that one of the new British Airways/Iberia/American Airlines triumvirate had stated that the market can expect combined corporate deals within the coming few months. Astonishing really considering alliances have been finding reasons ranging from anti trust to market difference to avoid doing such a thing in the past. However, if they now go ahead it has the potential to impact the market as significantly as direct connect.

Let us assume such deals are going to come on the market. What will they look like? What benefits or otherwise will they deliver? What value (if any) will they bring? And was it worth globalising ones travel programme for? Here are some of my thoughts which I must emphasise are my own and not shaped by what anyone else has said on the subject.

There will be a clear set of obstacles for the airlines, not the least of which will be coming to some mutual consensus. None of them will want to dilute existing yield particularly in their own market and they all have their own regulatory rules to abide by. For example BA and Iberia cannot fall foul of European competition law and AA has to live with its own US legislation. There is also an imbalance in that Iberia is based in a much smaller and less corporately mature market than the other two with less to contribute in key business areas.

The biggest obstacle is that of desire/willingness to combine commercial strategies particularly between AA and BA who are still deadly rivals for the same customers. Admittedly they will be very interested in being favoured with onward traveller connections but the core routes (and yields therein) are equally vital to both. However they will be interested in marrying their main services and ancillary connections together to best economic effect hence you can understand why Virgin and others tried to stop this happening.

If they are really serious about coming up with joint corporate deals (which I still doubt) what will they look like? I think they will follow the models used by some alliances with TMCs. I explained a bit about this in my blog in June last year under the heading ‘Global Travel Programmes – Delivering? Here it is again:

a) Initial deals will not be very different to now except there will be a bonus if you have arrangements with the others too.
b) An overall separate umbrella deal will be introduced over and above individual ones. This will be linked to growth.
c) The above will then start being modified so that you only earn if you achieve certain targets on all participating airlines.
d) The overall deal will be tightened to the extent that you have to put all participating carriers in your programme whether you wish to or not.

Eventually you may get one complete deal but it will be riddled with conditions and caveats as they all really do operate differently in different markets and different cultures and customers. You will not say get the same deal with BA as you get with AA and then both of those will be different to Iberia. And you wouldn’t want to either.
Call me an old cynic but I have said it before and will no doubt say it again. These airlines are not coming together to offer better financial packages to customers. Why should they? They are combining to win more customers and greater economies through linking services, connections and cost. The customer should get a better overall package but not necessarily a cheaper price. This is really just a much improved version of code sharing or alliances and you will soon see service harmonisation and rationalising happen.

In saying all this I believe it to be just the start of a journey towards meaningful global deals. Airlines saw commission reductions, net pricing and unbundling as ways to improve profit and look where that got them. If market pressures grow they will have to broaden their commercial offering in the future.

Airline marriages? Call for Jerry Springer.

Well we seem to be heading towards merger-land again if reports, papers and gossip are correct. It seems a bit like springtime when you get the posturing male birds strutting around whilst the shy females look coy and occasionally defensive before they are finally !!!!!! – Well, you know. Then afterwards? You might wonder who actually got taken advantage of.

For instance a possible coupling between United and US Air would be a marriage not so much made in heaven but more likely the other place and I suggest that a strong ’prenup’agreement is put in place. Just think of what kind of offspring they would produce. Something like the banjo playing kid in the old Deliverance film I expect. At least just as smaller stunted and inbred I suspect.

If you want to see a bit of what happens in fast forward look at the quite recent post honeymoon period between Mr Lufthansa and Mrs BMI. According to today’s UK Times newspaper they may have already begun the Brad and Angelina phase along with drastic reductions in the family budget and relatives being shown the door. Are they both happy and will they be soul-mates for life? I am not sure now Mrs BMI is being told a large chunk of her dowry is going to disappear.

I used to think mergers were a great thing. It meant the strong got stronger and the weak were culled but then I started to wonder what benefits (or otherwise) the travelling customer and their employers would receive. If you look at those airlines who choose to ‘live in sin’ by joining alliances I would wager not much. I have not seen any significant financial improvement for customers in fact I have observed the opposite. OK flight services are linked more seamlessly but choice goes down, monopolies go up and contract negotiations become harder. These partnerships are more one of convenience than a desire to do good for their passengers.

Clearly airline mergers will become more frequent as time progresses and barriers disappear. They have become more common because of the new competition airlines are now facing combined with customer behaviour. The more prices are driven down and the more full service airlines fail to sell their benefits in the value add war with no frills carriers the more closures and mergers will take place. The more this happens then the less choice will be out there with less competitive routes and less keen pricing.

I think this kind of ‘progress’ is inevitable and I am not wholly sure I would want to try and stop it anyway. Goodness knows this industry needs to change and this just might be one of the catalysts. What I do think is, rather like the blushing bride we need to go into this with our eyes open and our legs crossed….well at least until after the ceremony!