For many airlines in search of new revenue opportunities – the alliance game has played out and the incremental revenues are becoming less and less attractive. Consider the basic mathematics. For new partners joining an Alliance – they tend to be smaller and with an in inferior product than the established carriers. So the lager airlines are unlikely to gain much from a new partner joining. The new joinee tends to get greater reach and the benefit from the larger airline.

Of the alliances – the Star group probably has the most structure and is the most mature. But they are now struggling with the fundemental flaws of the concept. Consider Singapore Airlines. They have been very reluctant to put their code onto any other airlines' flight. Indeed if you look at the actual SQ codeshares – the number is very small. On the other hand many carriers want to place their code on SQ because of its “superior” product. In the past I have used Lufthansa as an example of where the Alliance concept is broken. Perhaps now SQ is a better example. If I was a SQ frequent flyer I don’t think I would be happy to be flying on say LOT.

Now lets consider the new (well not new lets call it a rebirth) of the bilateral arrangement which has (usually) hard equity in a formal JV. Recently we have seen two good examples of this:
Air France/KLM Group joint venture with Delta for servicing Transatlantic passengers including from London’s Heathrow. Another example is the recent Lufthansa investment in jetBlue. Both these arrangements return real value in the near term that can be both quantified and tracked in real time.

In our opinion the future of Alliances is not rosy. Those guys who work there are going to be working overtime trying to justify their existence. Not just to their bosses but well each airline.
Example are: Fees that keep rising, more complications, advertising that is ineffective, endless meetings that produce no results… I think you get the picture.

On the other hand consider a partnership with mutual investment or a big parent owning a smaller player. Sound good? Well maybe. The recent past of mutual investment didn’t work out… remember BA and US Airways, SQ and Virgin, The Quality Alliance: SwissAir, Virgin and Delta… lots of not so good stories.

However at the end of the day – airlines like to be married. They are a bit like humans. Maybe polygamy is not such a good thing. Just sleeping together or even getting engaged even married is a better solution for a relationship. Interlining is just being good friends.

USA finally gets ADS from China

The USA has finally qualified for ADS making the world’s second largest market inbound open to the world’s fastest growing source market. Getting ADS – Approved Destination Status – was never a sure thing. The politics are very complex as can be imagined. Also the USA is not the first. Many countries already have mature ADS agreements with China and have seen the benefits rise enormously. Why is ADS important? As the China market opens up to new travelers seeking new experiences the USA would be number 1 on their list of places to go. For many the first trip is important as travel begets more travel. China is fast becoming a consumerist society driven by their burgeoning individual middle class wealth. Their lack of other major expenses (housing and education plus costs of children) drives a bigger disposable portion of their salaries.
However a cautionary note. If the USA continues to make it difficult to obtain Visas and persists in setting up roadblocks to entry from China (justified or not) then the business will go elsewhere. The USA also will need to start learning to speak Mandarin.

USA finally gets ADS from China

The USA has finally qualified for ADS making the world’s second largest market inbound open to the world’s fastest growing source market. Getting ADS – Approved Destination Status – was never a sure thing. The politics are very complex as can be imagined. Also the USA is not the first. Many countries already have mature ADS agreements with China and have seen the benefits rise enormously. Why is ADS important? As the China market opens up to new travelers seeking new experiences the USA would be number 1 on their list of places to go. For many the first trip is important as travel begets more travel. China is fast becoming a consumerist society driven by their burgeoning individual middle class wealth. Their lack of other major expenses (housing and education plus costs of children) drives a bigger disposable portion of their salaries.
However a cautionary note. If the USA continues to make it difficult to obtain Visas and persists in setting up roadblocks to entry from China (justified or not) then the business will go elsewhere. The USA also will need to start learning to speak Mandarin.

The big keep getting bigger - EU Giants In Travel

The big keep getting bigger.

The sea change that occurred over the last 18 months in Europe in distribution is now starting to bear fruit. The two powerhouses of TUI and Thomas Cook (daughter company of the old Karstadt Quelle) have now been admitted to the UK’s FTSE (Footsie) 100 top shares. (This is the UK equivalent of the Dow Jones index). This may seem to be a big achievement but in reality it simply acknowledges that the world’s second largest commercial market after financial services is Travel. Further it acknowledges that the concentration of the distribution system into fewer hands is a global trend. Congrats to both companies. Let the battle commence. At December 12th close, Thomas Cook Group had the 96th largest market capitalization of UK listed companies; TUI Travel was 88th.

Alitalia - it aint over yet folks

Well they postponed again - but now there is a reason. LH is back interested. SQ is denying everything and even BA is having a look.

The price just went a little higher. However will it go really high? Not in our opinion.

Stay tuned.

Lufthansa rides into rescue jetBlue's damsel in distress

As if further proof was needed - the world is a crazy mixed up place. So LH is spending some of its cashpile to buy into jetblue and create a local USA footprint. jetblue needed a big strategic change given its current malaise and this is a good match. If for no other reason than it stirs things up a bit.

So this is a good win for LH - with the dollar at an all time low - this is costing LH very little.
This is bad for UAL as it means that LH (who has a real service issue with UAL's product) can have alternative and put its code on a number of flights from JFK hub, as well as the other interconnecting points - DEN, BOS, IAD, etc etc.

It is a shot to Virgin that they cannot have it both ways - on the periphery of Star, and eating their cake domestically in the USA.

It is a competitive response to the tie ups of US and European airlines - if you like there are now 2 layers of alliance. Super Partners (AF and DL, KL and NW, LH and B6 etc), and Alliance partners. Frankly we believe that the general alliance market as reached its sell by date. These tighter relationships will make for better service levels.

We predict more of these in the near future

This is a good move

2008 The year of the Spaceship says Virgin Glactic

Well sorry folks I dont have the $200K for the seat - nor the $3 million for the satellite launch cost lying around in my pocket - but it seems that others do. Virgin Galactic is making is plans sound much more realistic wth the maiden flght of SS2 (Spaceship 2) the pre-production version of the in flight vehicle and its carrier - WK2 - White Knight 2 scheduled in July 2008.

The company now has $30 million in fully paid tickets and deposits and 100 of its around 200 "signed customers" have experienced the SS2 flight profile in a centrifuge. That's a pretty big WOW. So go and sign up... and if you can save a space for me. Window seat please

Thanks

Sabre Opening Up to LCCs

The battle ground for the love of LCCs and HVCs has just become a little more interesting. As regular readers know we are strong believers in the emergence of Hybrid (HVC) airlines. Thus far the game has been some what interesting. But recently we have seen Amadeus making a big play for LCCs while at the same time Sabre has been sitting on the sidelines. Now Sabre has come out with all guns blazing.

Will this be enough? It will depend signficantly on the costs. So the battle is now joined. Galileo - where are you in all this?

To see the Sabre press release go here: http://phx.corporate-ir.net/phoenix.zhtml?c=73098&p=irol-newsArticle&ID=1085638&highlight=

Cheers

Timothy