Here It Comes - Spanish Fly

OK so the headline is a bit hokey but BA and Iberia have had their merger blessed. So now we have definitely have airlines in Europe who are part of a cabal and have not airlines who are - well have not players.

The big 3 groupings of legacy carriers are the expected players -

BA (OneWorld)
AF (Skyteam)
LH (Star)

Their partners cover almost all of Europe. However and in my view this is a good thing - the total pie they control is much less than say in the USA. Ryanair, Easyjet Air Berlin and Wizz all represent a sizeable chunk of the EU market. With North America pretty much aligned and Europe the same - there really is little opportunity for choice amongst consumers other than from just 3 group choices.

In my view this is going to finally dawn on the consumer that he has only 3 options plus a few minor ones when ever he is looking to buy airline seats.

did someone say pork?

Cheers

Mega Airlines Inc - aka BA+IB

The 2 airlines have finally sealed their deal. Newly emboldened BA (despite some heavy losses during the 2 strikes over the Easter Holidays) has signed on its definitive agreement with Spanish airline Iberia.

The share ownership will be 55/45 in favour of BA. There is still one get out of jail free card - this is if BA fails by June 30th to conclude their agreements to resolve the somewhat large pension deficit issue. Despite securing agreements with the unions this is by no means a sure thing. There is a small issue of the amount of cash that the fund is deficient by....

So things are looking up for the new airline group. Let's see what the EU regulators say to the deal. They still have to rule.

The merger should be completed officially by the end of the year and full integration (except for the brands) is targeted for about 5 years.

Cheers

NEWS FLASH: Iberia to Hold Off Signing Final Merger Docs

I am not one to normally put out a news story - preferring to comment. But this is a fresh off the wires story that I have been following for some time.

According to Aviator.Aero the board at Iberia has decided to hold off "indefinitely" their final merger approval with British Airways.

In the Aviator.Aero news letter of today March 25th 2010 the following story appears.

"Iberia (Spain) board of directors to hold off signing merger agreement with British Airways indefinitely."

More details (or a retraction) as this story progresses. So far it has not appeared on their website either and no one else has picked it up

Cheers

BA Looses 1 Billion Pounds. Red Ink Continues

BA is reported to be losing more than $2 Million per day. When most other players seem to have got their costs under control and started on the road to recovery - BA is not having a good time yet. it is slated to report losses in the most recent quarter of 151 million pounds.

BA is already a very lean carrier. However it has all the issues of a legacy carrier infrastructure that results in costs being too high. For the airline to survive it needs some radical thinking. Here is where I believe that strategy of bigger is better tends to fall apart.

Case in point - their merger with Iberia. IB is a smaller airline and it has higher labour costs. They have totally incompatible long haul fleets (IB is A340s and Boeing 777s and 747s.). Their products are also pretty dissimilar. Thus the benefits of synergy that come from scale will take a long time to impact the bottom line. BA needs a new plan now. Oh yes and how about that pension overhang. On the recent flight from Madrid to London on BA connecting - I had to go through a frankly awful connecting process that took longer than one hour. If this is supposed to be the way IB and BA are to cooperate - they have a very long way to go. (At least till April 2011 when the C concourse opens up at T5).

Thus in my humble opinion - BA needs to look a lot closer to home and fixing its internal issues before venturing out into the wide world. Is it time for Willie to go?

Cheers

Not A Great Day For AA/OneWorld

All humour aside, OneWorld received two bits of bad news yesterday.

Firstly from Asia came the news that the Japanese Government is unlikely to provide a full bailout for JAL. JAL's stock in recent days has risen on reports that Delta has won the dance card of the old lady JAL.

Then today the US Dept. Of Justice nixed the BAAABI (BA, AA, Iberia) Alliance. However this is last one may not be that bad. The DoJ also tried to nix the CO/Star Alliance partnership. The DoT is the ruling authority in the case. They could well do the same and rule in American's favour.

Finally our hope is that the injuries sustained in the accident to AA 331 are minimal - so far there are reports of injuries but no fatalities. The aircraft (Boeing 737-800) whose route was DCA-MIA-KIN, broke in three pieces after a landing overrun tonight in what was pretty foul weather. So far 40 injuries have been reported and 3 possibly serious. The aircraft has been reported to be one of the older 738s in AA's fleet.

Cheers

BA-IB Agreed - Now The Fun Begins

As the details emerge of the deal - it has been agreed - the regulatory fun begins.

The Professor understands the deal will be very similar in appearance (to the customer) as the AF/KL with the retention of brands and coordinated activity. However since AF/KL was a takeover - the process of protracted approvals will be long and complicated.

It is not quite a merger of equals. I believe it is a 55%45% split in favor of the former British Carrier.

However the harmonization of rules particularly union contracts will take years to accomplish. Regulatory approval is another matter with the 4 way atlantic alliance still not agreed. BA will have to give up some slots at LHR and IB some at MAD.

With no viable local Spanish Carrier (Air Europa perhaps) able to pick these up in MAD then it becomes a little harder to work out. Virgin is of course going to make a lot of noise about things at LHR.

So let the fun begin!

Cheers

BAAABI - Finally A Reality This Week?

So BA, IB and AA should find out whether or not their regulatory path has been cleared and they can proceed to create the third and presumably last Transatlantic Alliance Program. With Skyteam's program (AF/KL + DL/NW) already a reality and A Plus (CO, UA, LH and AC coming on stream - it would be logical to assume that it would be a simple approval with some minor tweaks.

The EC earlier this month filed legal papers to object. The three airlines received so-called 'statements of objections' against their planned agreement on coordinating operations and marketing on trans-Atlantic routes, the European Commission, the EU’s antitrust authority, said in an e-mail today.

The Brussels-based commission said the deal may be a “breach of European rules on restrictive business practices.”

However the EC has proved so far to be a reasonably affable player in this regard and given that the only sanction has been the surrender of slots at the hub airports of the major carriers involved. So that can be a given. However the economic value of a slot at LHR is probably worth a lot more than at Madrid or even CDG. So that the 3 players will have to surrender a few slots at LHR will make their life a little difficult and lessen the value of the alliance. The three airlines currently have about 44% of all the slots at LHR. So giving up 10% would be an expected requirement. Interestingly there could be a knock on effect. If BA tried to buy some or all of BMI it is likely that further slots would need to be relinquished. BA is steadfastly holding to the position that surrender of slots is completely unnecessary as the Transatlantic routes are effectively deregulated and therefore a surrender of its slots would be unnecessary.

The City of London - currently in a somewhat less than forgiving mood with BA has made its position clear with regard to a merger of BMI assets and BA. There is also an expectation of loss of assets at LHR by the merger carriers. But only BA has ordered a large enough aircraft to compensate for the loss of slots if they are to keep up the pax numbers.

BA's own position seems to be somewhat weak. It faces strike action at Christmas time with the Cabin Crew (represented by UNITE) calling for a strike ballot today. Needless to say BA faces a long uphill struggle at a time when it can least afford it.

Cheers

EC To Rule Soon on BA/AA

The European Commission is due to rule some time in the next few weeks on the British Airways and American Airlines (oh yes don't forget Iberia) Transatlantic Alliance.

I find it curious that so far the regulatory bodies have not taken too hard a look at this. Well maybe they just might.

With US Congress seemingly leaving this as unfinished business - and therefore tacitly approving the arrangement - it may all be up to the Commission to make a stand on the subject.

However it would not be a done deal. In April this year the Commission announced that it was going to investigate Transatlantic Alliances. So even if they rule this week - as we have seen with the issues of Lufthansa and their various expansionist moves, they can go back and do more investigation.

Frankly I would be really surprised if the Commission allows the arrangement to go through without a further extension of their investigation.

So let's see what happens next... it could be interesting.

Cheers

BA AA IB - last chance? Maybe, Maybe Not...

The guns are drawn the submissions are in and the old protagonists are lined up ready for the great shoot out at the Heathrow Coral.
Could this be the last chance for the BAAABI alliance to get its long sought anti-trust alliance approval?
In my humble opinion - there is no certainty one way or the other.

So lets do a quick review.

BA+IB. This has gone nowhere lately due to the GFC and the impact on the premium business market especially LHR-NYC. IB is feeling the pain but perhaps to a lesser extent that BA how is publicly wearing its hair shirt with Willie Walsh being surprisingly open about the extent of the impact on the former UK Flag Carrier. With the pound's fall against the Euro the value proposition would be hard to make in pure financial terms. Therefore I believe that this part of the deal is dead for now.

The Star and DL/AF alliances have powered ahead and built a considerable legal and commercial framework for Transatlantic service. While the product doesn't match the commercial model yet - and it will take some time to do so - these make a compelling case for equal consideration for BA and AA.

Virgin's unaligned status is perhaps the biggest fly in the ointment for the proposed tie up. Sir Richard is vociferous in his opposition. He knows full well that should the alliance be approved then his position as an independent will become almost if not actually untenable.

On the regulatory front - the Regulators have bowed to airline pressure and suspended some key anti-competitive measures such as the use it or lose it rule at major EU airports.

So will it happen?

My personal opinion is that judging from recent approvals under the current incumbent of the EC's Transportation Czar that their will be tacit approval. However not so fast. The EC has launched investigations into the LH dominance while at the same time approving LH's acquisition of BD. There is no rush on anyone's part at the moment. The sea of red ink - with IATA screaming BASTA - will likely be $9 billion this year. There really is no urgency to get this done. The impatience of BA and AA even if Transportation gives them approval will have to wait for significant anti competitive investigation that frankly could take years.

Like I said at the beginning - this has yet to run its course and while another battle with the old gunslingers shooting at each other doesn't mean the end is in sight.

I think we can rest easy in our beds knowing that there will not be any major casualties and even if someone does get wounded - they are going to get up and fight another day. Wyatt Arpy and Doc Walsh are not going to be the heroes, not today anyway.

Cheers

BAAABI All But Dead in Its Current Form

The now stalled negotiations between British Airways, Iberia and American Airlines to form a true joint venture are all but dead in their current form after BA's leader Willie Walsh told a Spanish Newspaper that “These negotiations aren’t a distraction for our management team,” he said. “BA and Iberia know each other very well, so I don’t feel under any calendar pressure.”

Perhaps not so for him - but in March his opposite number at the former Spanish National Carrier indicated that a decision was both imminent and would indeed be made at the end of March. Well that came and went with no public announcement. So pretty much that puts paid to the possibility of a BA+IB merger in the short term.

So this leaves the proposed BA+AA+IB (BAAABI to you and me) JV in limbo. American might just start to get impatient with their European cousins.

In my opinion the IB+BA merger has lost its luster and wont regain it for some time. Willie has many more urgent issues on his plate. When he says this topic "isn't a distraction for our management team" that is somewhat of an understatement. BA has many pressing issues on its plate that far outweigh the merger. Not least of which of course is the current situation with its traffic numbers. March is likely to be awful at the very time when the US market is actually showing some signs of life. Whereas total US travel agency transaction numbers were off by a lesser amount in March that the disastrous numbers in Jan and Feb, International yields went into the toilet.

So does the transatlantic JV make sense in this environment? Specifically booking numbers for March show that international transaction numbers were off by 8% vs the total transactions off by 11%. However when the value of all US agency issued tickets is counted the proportion was reversed 27% vs 25%. I guess those Wall Street Types have either stopped traveling or are slumming in Coach - or more likely on domestic airlines. Anecdotally we are hearing that many recipients of US government bailouts are quietly instituting a buy American policy. The logic is that the US public would be really outraged if they thought that their tax dollars were being used to fly in business or first on a foreign airline when their own carriers are hurting so badly. Thus BA is clearly hurting badly and their numbers show it. BA's profile on the Transatlantic that represents such a large part of its business right now just stinks.

However with Continental getting its Star anti-Trust immunity nod this week - AA at least must be thinking that things are looking up. Not so fast quickdraw. AA+IB+BA's share of traffic at LHR is not dropping - actually it has climbed. With AA closing LGW and STN last year all their eggs in the Southeast of England are now concentrated at LHR. The dominant position that the triumvirate comprise at Fortress LHR is not likely to change any time soon either. Thus the dominant position they would exert on the Transatlantic market remains a threat to any competitor.

QED I think my supposition is that BAAABI is still dead.

Let's hope that they can come up with something magical to revive this.

Cheers

Cathay to BA - Go Away!

Rebuffing any thought of a possible tie up between the declining valued BA and the greater value but smaller Cathay Pacific - its CEO - Tony Tyler wasted no time is telling Willie, Martin and the boys (via the article in the Telegraph)that they were welcome as OneWorlders but no more than that at Cathay City.

In a battle of the top dogs, Cathay Pacific chief executive Tony Tyler - a Swire man - said his airline has no intention of merging with British Airways, which is worth half as much as the Hong Kong-based carrier. In an interview in the Telegraph , he said he does not agree with BA chairman Martin Broughton who stated in early January that the Oneworld alliance will fall apart if the BA tie-up with American Airlines fails. while Cathay has been hit by the recession and has cut capacity growth for 2009 from 6-7% to broadly flat, it is seen as being more profitable than its London based Alliance partner.

British Airways hopes for a partnership now seem to be looking a tad thin. The Iberia merger is all but dead - killed by the free fall in the pound and the poor British Carrier's performance, Qantas and BA never made it past the first date despite having been engaged and almost married successfully before. With the new Obama Administration in power - the prospects for a tighter alignment between AA and BA don't look quite so good unless Gordon and Barack want to make nice and Fly Mandy wants it.

Here is the full article - worth a read.

http://www.telegraph.co.uk/finance/newsbysector/transport/4402441/Tony-Tyler-plane-speaking-from-a-merger-sceptic.html

Cheers

BA take another dive - Walsh facing music

BA has finally issued the long awaited profits warning.

This has a ripple out impact that will likely see the Iberia merger killed off. Actually the situation of the collapse of the pound vs the Dollar and Euro has seen Iberia now worth more than BA.

The escalating costs and the reduction of premium traffic is now acknowledged as hurting the UK former national carrier.

Walsh needs to step up and start looking hard at some more action to address some of these issues.

On the positive side - a return to their corners of BA and IB will make it harder to make the really larger BAAABI deal work. My prediction is that IB and BA will walk away from a marriage but will continue to push the BAAABI idea for now. Given the other arrangements in Star and Skyteam - this makes more sense. Not sure that Virgin however will agree.

Cheers

Spanish Fly Anyone?

Consolidation comes to Spain.

The formula which is somewhat complex is.. Vueling + Clickair = Nueva Vueling which then becomes IB2 or Iberia’s LCC.
The EU has approved the merger on certain undertakings from Iberia. Which will mean that there is open access to the Spanish Market (if such a thing really exists).
Iberia will in time assume control of the airline once the merger has taken place. Effectively this closes the market for the mainline markets. Of course the incursions by LCC giants Ryanair, Easyjet and even (in Palma) Air Berlin will continue. Anyone want to buy Spanair? This is a limited time option before the carrier either finds a new way to operate or it may itself be swallowed into the Nueva Vueling combine. And then of course there is the BAABI story....

Cheers

BABI deal hits a snag

Meanwhile back at the ranch - in London and Madrid the BABI (remember them? AA is off to one side for now) the British Airways and Iberia deal has hit a Pension Snag.

Iberia appointed pension consultants, Mercer, to review British Airways’ pension scheme, which is up to GBP1.7 billion in deficit (abtn.co.uk, 30-Dec-08). A report on the pension scheme will be issued in Jan-09.

Hmmm trouble in Paradise... but wait don't order yet... see the following blog entry on Go.

Cheers

Tears for BA?

British Airways seems to be struggling with its attempts to sleep with its family members.

The Qantas proposal seems to be highest on the agenda but the big hidden question is whether the Oz Government will allow the merger to go ahead without a concession on the Transpac routes. If they do - then you can be sure that the WTO would have something to say about that and for sure Emirates and Singapore Airlines will be screaming blue murder.

New Qantas CEO Joyce (another Irishman running an Anglo speaking Carrier) is pouring a little cold water on the BA story. However he is throwing buckets on a 3 way. There is no way - in his opinion that the Kangeroo is looking to consummate anything with the Spanish. So Iberia is getting even more PO'd waiting. It will probably end in tears.

In all of this AA is remarkably quiet. Perhaps to counter the other noise AA should put out a counter slogan to Virgin Atlantic's famous "BA-AA No Way" paint job with one like this: "AA-BA Some Way Please"

Cheers

Rumour of the Day - QF+BA again

OK so who is smoking the bad stuff, yesterday's rumour from the weekend was Etihad buying Emirates. Today its a marriage of Qantas and BA.

There is no way that the Oz regulators would ever allow this. Why? Because the first casualty will be to open the Pacific routes that SQ and EK covet so greatly. However there might be something in the back story - IE that the IB-BA engagement is having troubles.

QF and BA already get the synergies that they want from their prior liaison and the OneWorld Alliance.

Hey give me some of this stuff - it must be good!

Far Out Man..............

Maybe Monday's are better - News Roundup

I thought I liked Fridays. Well this Monday is full of stories. So I will condense for the assembled masses with some commentary along the way.

1. Thomas Cook pulls out of German consolidation talks. So along with the patent's decision (or rather indecision) on its future the formation of a 3rd force in Germany looks set for the round file for a while. This in turn gives Air Berlin some breathing space to get its house in order. I shall be flying long haul on AB in 2 weeks - I will let you know what its like.

2. India - $1.5 billion market loss predicted by IATA out of $5.2 billion loss globally predicted for 2008. Bisignani is predicting a bloodbath for India unless a new regulator steps in. He could well be right. Already the premium paid for fuel in India is approximately 50%. The market is now experiencing negative growth (down 7.5% for the second half). This will impact not just the airlines but also the 4 major Online players in the market.

3. Kelleher calls for development of cheap 110-125 seater. Exhorting his "children" - Herb was waxing lyrically on two major topics. One was the regulation of ATC and the development of better processes and control in Europe. The other was the development of a low cost single aisle aircraft. Neither Boeing nor Airbus are keen to do this at the moment. More on this later when I have thought about it.

4. Low Cost Congress in London. Lots of news going on there - I hope to do a recap by the end of this week.

5. On Airline Bankruptcies... ABTN was calling for the CAA to learn how to be an Undertaker after the ludicrous handling of the XL failure. BTW Paddy says FlyGlobespan is next to go. Easing odds on Alitalia who has a respite until October 15th. I believe the CAA should be reformed and some of its functions divested. However I do agree with Malcolm that there needs to be a better handling of processes with regards to addressing big failures. The UK has not seen such a failure since the Court Line crash in the 1970s.

6. Pilot Charged with Mooning. A TransStates/United Express pilot was charged with being drunk and indecent behavior after he mooned traffic. The pilot told police officers he had an early morning flight, and he hoped the officers were happy because "50 people's flight would be delayed because of (Officer Dustin Cook, the arresting officer)," according to the news report. Makes you think carefully about flying on an RJ.

7. One of the big losers in the Wamu failure of course was TPG who saw their $1.5 billion investment wiped out. Looks like TPG will have a much harder time in raising capital for any major project. That means they will be sitting out on the sidelines for the foreseeable future. The impact on the BA -IB match up is yet to be determined.

There is more... but for now digest this lot!

Cheers

EC Starts Anti-Trust Investigation Into BAAABI

And rightly so.

I have already made my case that this is not a good thing.

Check here for my logic - read this post again:

BAAABI's argument for immunity at LHR - not so fast boys

The lawyers must love this stuff

Cheers

BAAABI's argument for immunity at LHR - not so fast boys

The filing of anti-trust immunity by British Airways, American Airlines and Iberia is based on a number of factors. Not least of which is the argument that the world has changed since 2002 when the immunity between BA and AA was disapproved by the regulators.

So I thought I would go back and look at the slot situation at LHR and see what teh difference was between the last time they filed and the situation today.

Using official BAA statistics and based on the summer 2002 schedule vs the summer 2008 schedule at LHR here are the stats for the 3 airlines.

2002 2008 % Change
BA 37.90% 41.50% 9.50%
AA 2.30% 2.60% 13.04%
IB 2.30% 2.10% -8.70%
Total 42.50% 46.20% 8.71%

So in fact there has been an INCREASE in the share that the OneWorld Alliance has at LHR further cementing the dominance of the incumbents.

Given that there has been a concentration in the number of holders of slots into Alliances, the argument for allowing this form of dominant concentration goes against all the usual benchmarks of competition both in Europe and in the UK itself.

So Branson has a point.

For the record VS and BD shares are as follows:

2002 2008 % Change
BD 13.10% 11.40% -12.98%
VS 2.40% 3.40% 41.67%

BAAABI it's warm inside. The Alliance of Champions?

So the news was not exactly unexpected that the BAAABI alliance would finally come to fruition.

So replicating the DLAFKL structure of a formal JV - the partners think they can get around any of those silly objections from the regulators. And it looks like it works.

Now in context the Alliance across the Atlantic has some winners and losers. Clearly people like Virgin Atlantic and BMI will be none too happy. And of course the beasts are going to start creating two tiers in the Alliances. So Finnair and other lesser mortals in One World will suffer somewhat. But this will go a long way to reducing the footprint and competition across the Pond. Is that good?

I will go out on a limb and say probably not.

Unless of course that the BAAABI Alliance has to give up both slots and routes/frequencies to make this happen - then it could be interesting. But who can this benefit?

I can't see others jumping in quickly. Here is the text of the email sent to BA's premium traffic members

Cheers

Timothy

Dear Mr O'Neil-Dunne,

I am writing to you to ensure that you are one of the first to hear about the latest news from British Airways. Today we have reached agreement with American Airlines and Iberia to form a joint business, which if approved, will enable us to co-operate on flights from the UK and Continental Europe to the US, Canada and Mexico.

We plan to file for worldwide anti-trust immunity from the US Department of Transportation. The European Commission will also review the deal. If successful, we will be able to form a closer working relationship providing significant benefits for customers. All three airlines will continue to operate under our separate brands.

Closer working will create opportunities to enhance customer benefits. It will enable us to better align schedules giving more access to destinations and improving connections through key airports. Other benefits for customers include greater opportunities to earn and use frequent flyer miles on the other airlines' transatlantic network along with enhanced frequent flyer tier features. Our Executive Club members will continue to be able to enjoy lounge access with British Airways and its oneworld partners as they do today.

Our overall aim is to continue to deliver an upgraded travel experience to you. Financial efficiencies that the joint business agreement will give British Airways will help us to continue to invest further in our products and services, despite the demanding economic environment that the airline industry faces.

It is both a challenging and exciting time for British Airways and I will ensure that you are updated on developments as the proposed venture nears completion.


Warm regards,

Woody Harford
Senior Vice President, Commercial, Americas