Next Generation of Airline Alliances 2008 International Aviation Issues Seminar Washington, DC December 4, 2008 strategic transportation & tourism solutions Presented by: Howard Mann Director, Policy & Market Analysis InterVISTAS-ga 2 Consulting Inc. 1615 L Street, NW, Suite 910 Washington, DC 20036 howard_mann@intervistas.us
Outline New Southwest Partnerships WestJet, Volaris Aer Lingus JetBlue, United United and Continental + Star American, BA + oneworld Jet Airways and Kingfisher 1
The Airlines Priorities 100% Profit Optimization CODE SHARE LIMITED JOINT VENTURE ANTITRUST IMMUNITY MERGER OR ACQUISITION ATI allows for optimatization of schedules and fares and delivers greater benefits to consumers and travel managers 0% Integration Level 100% 2
Southwest and WestJet Announced in July 2008, plans to commence partnership in Late 2009 Similarities in website ticketing, aircraft, pricing, etc. Southwest 537 737 Series aircraft (99 on order) WestJet 76 737 Series aircraft (38 on order) WestJet metal will fly transborder routes 3
Current Route Map Source: OAG Source: OAG 4
Schedule Snapshot RANK Top Dep Cities Nonstop Cities Top Dep Cities Nonstop Cities 1 Las Vegas 228 Las Vegas 56 Calgary 71 Calgary 28 2 Chicago MDW 206 Chicago MDW 48 Toronto 54 Toronto 25 3 Phoenix 178 Phoenix 42 Vancouver 40 Edmonton 21 4 Baltimore 156 Baltimore 38 Edmonton 39 Winnipeg 15 5 Houston 127 Orlando 33 Winnipeg 21 Vancouver 14 6 Dallas Love 124 Denver 32 Kelowna 13 Las Vegas 9 7 Orlando 117 Tampa 30 Montreal 12 Orlando 9 8 Los Angeles 115 Houston 29 Las Vegas 10 Kelowna 6 9 Oakland 112 Nashville 26 Ottawa 9 Montreal 6 10 Denver 111 St. Louis 24 Halifax 8 Ottawa 6 Source: OAG 5
Top Transborder O-D Markets YVR YYC YUL YYZ BOS SFO CHI NYC PHL DC LAX LAS DFW ATL IAH MCO FLL MIA Source: Statistics Canada (2006) 6
Impact for U.S. Airports? Metro Area Total Roundtrip U.S. Canada Onboard Passengers New York City 2,743,190 Chicago 2,091,099 Los Angeles 1,607,316 Las Vegas 1,358,874 San Francisco Bay Area 1,249,591 Miami/Ft. Lauderdale 1,244,578 Seattle 1,082,398 Minneapolis/St. Paul 1,003,293 Denver 948,303 Dallas/Fort Worth 712,104 Houston 655,438 Orlando 640,030 New opportunities on major routes for both O&D and Connecting traffic Canadian airports with U.S. Preclearance have clear advantages Market sizes larger Efficiencies gained with onward domestic connections to Southwest U.S.-Canada market has large presence by multiple carriers/alliances: Competitive response on frequencies and fares likely Size of 737s still provide challenges in developing certain markets without connections. Washington/Baltimore 633,413 Detroit 631,846 Source: DOT T-100 7
Southwest and Volaris Announced in November 2008, plans to commence code share partnership in Spring 2009 First flight operated by Volaris in March 2006 19 Airbus A319/A320 aircraft (26 on order) Based in Toluca Similar to WestJet partnership, Volaris will be metal flying international sectors. 8
Southwest and Volaris Source: OAG TIJ MXL HMO CUU LAP SJD CUL PVR MTY REX AGU GDL BJX TLC UPN MLM PBC MID VSA CUN ACA OAX TAP Source: OAG 9
Schedule Snapshot RANK Top Dep Cities Nonstop Cities Top Dep Cities Nonstop Cities 1 Las Vegas 228 Las Vegas 56 Toluca 24 Toluca 17 2 Chicago MDW 206 Chicago MDW 48 Tijuana 14 Tijuana 14 3 Phoenix 178 Phoenix 42 Guadalajara 9 Guadalajara 7 4 Baltimore 156 Baltimore 38 Culiacan 4 Culiacan 3 5 Houston 127 Orlando 33 Cancun 4 La Paz 3 6 Dallas Love 124 Denver 32 Mexicali 3 San Jose del Cabo 3 7 Orlando 117 Tampa 30 La Paz 3 Cancun 2 8 Los Angeles 115 Houston 29 San Jose del Cabo 2 Mexicali 2 9 Oakland 112 Nashville 26 Mazatlan 2 Mazatlan 2 10 Denver 111 St. Louis 24 Oaxaca + 5 others at 2 Oaxaca + 2 others at 2 10
Impact for U.S. Airports? Many potential connection opportunities at large Southwest gateways in Southern Tier of U.S. Las Vegas, Phoenix, Los Angeles, Orlando, Fort Lauderdale International arrivals requirements would create barriers at two large Southwest gateways without CBP facilities Houston Hobby, Dallas Love Unknowns of partnership Outside of major focus cities, will the carriers focus on leisure and ethnic routes? Will Volaris serve non-southwest gateways such as DFW and IAH or will they avoid major U.S.-Mexico hubs? Will Volaris go into secondary cities where Southwest has a major presence (San Antonio, New Orleans, Austin, Albuquerque, Ontario, San Diego, Sacramento) Will Volaris go into larger metro areas in Northern Tier? (Chicago, Washington, Denver, Bay Area) Bilateral presents certain barriers Restrictions in place on carriers in city-pair markets. 11
Aer Lingus and JetBlue Began in April 2008 Through ticketing available on aerlingus.com Does not include code share flight operations Partnership includes baggage transfer on outbound and inbound U.S. services over BOS and JFK. Dulles, SFO and Chicago not available as connecting opportunities because of Source: aerlingus.com 12
Aer Lingus and United Code share partnership became effective in November 2008 on all Aer Lingus Transatlantic services and beyond to London Carriers still seek to develop partnerships outside of alliance allegiance which will help generate additional passengers and revenue SNN DUB LHR LGW SFO ORD IAD JFK BOS MCO Source: OAG June 2009 13
Continental and United June 2008 announcement that Continental will join the Star Alliance Application for CO to join Star ATI filed in Late July CO added to UA, LH, AC, BD, LO, OS, SK, LX, TP ATI will allow CO, UA, LH and AC to enter into a more advanced Joint Venture CO and UA would seek to expand Joint Ventures/ATI into Latin and Asia/Pacific regions in the future Code sharing, mileage accrual, Reciprocal lounge access, Elite recognition, etc. Moving from bystander in SkyTeam to a fully integrated member of Star 14
Star Alliance route synergies SFO LAX CO UA DEN IAH ORD CLE Scheduled Nonstop Flights U.S.-Latin America December 2008 IAD EWR Latin America one of many regions where United and Continental alliance will bring together two complimentary networks. Strong longhaul network out of Newark, Chicago, Washington and Houston Two regional carriers have partnerships with United and Continental Copa Continental Grupo Taca United Will be complemented by new Star carrier TAM 15
American and British Airways Previous efforts to work towards ATI have proven problematic due to limited slot availability and barriers to entry at Heathrow. Application for oneworld ATI filed in August 2008 AA, BA, IB, AY, RJ Question of how many slots AA/BA will have to give up at Heathrow at issue Although different from previous applications since now Heathrow is open for all U.S./UK carriers to serve Would look to expand code sharing, Reciprocal lounge access, Elite recognition, etc. 16
Shifts in U.S.-Europe nonstop routes Year-over-Year Comparison of Nonstop Routes Percentage 175 150 125 100 75 50 25 53 51 133 99 98 128 2008 2009 62 50 0 Other Source: OAG June 2008/2009, Does not include transatlantic service to Russia, Middle East, Israel, North Africa 17
Shifts in U.S.-Europe available seats Total Seats (One Way 000s) 350 300 250 200 150 100 50 0 163 Year-over-Year Comparison of Nonstop Available Seats One Way Direction 156 284 206 205 263 116 2008 2009 95 Other Source: OAG June 2008/2009, Does not include transatlantic service to Russia, Middle East, Israel, North Africa 18
Jet Airways and Kingfisher The Indian airline sector has suffered heavy financial losses Alliance was announced in October 2008. Alliance will include Code-shares, Joint Network rationalization and synergies, Joint fuel management, Common ground handling, Cross utilization of crew, FF Reciprocity All subject to DGCA approval (alliance, cooperation, slot allocation, etc.) Jet and Kingfisher estimated combined losses at $1.3 billion Discontinued SFO-PVG-BOM service and reallocating longhaul services to US and UK Working to try to lease out long haul aircraft Once considered Kingfisher arch-rival and have overlapping routes in domestic sector Merger on the horizon???? Delayed start of BOM-LHR route and SFO- BLR route Five-strong A340-500 fleet either being leased out or grounded Cut domestic capacity by 22% and deferred delivery of 29 A320 airplanes and 5 A380s 19
Alliances still have traditional membership growth Alliance Recent and Future Additions 20
Conclusion: Where are alliances/partnerships headed? Regional low-cost carriers are moving into cross-border alliances All carriers Major alliance partners are moving from code share to antititrust to mergers in some cases More single carrier services for the consumer Future of alliance evolution will be driven by strategic and economic issues, not by bilateral air service agreements and government regulation 21
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