20 Feb how american’s and alaska’s alliance impacts west coast competition
by David Kaplan FEBRUARY 19, 2020
This article originally appeared on Kambr Media – check out this link and more for the latest news on the intersection of commercial aviation and tech.
“By doing this West Coast International partnership with Alaska Airlines, we really create opportunities for our customers that no other airline alliance can. We are able to offer 70 cities with one-stop service to Bangalore. India and Bangalore, specifically, is the number one request from our corporate customers,” says American Airlines’ Vasu Raja.
Alaska Airlines’ and American Airlines’ agreement to broaden their 40-year partnership offers significant advantages for both carriers and represents a shift in competitive pressures on the West Coast air travel market.
The deal goes way beyond the existing codeshare agreement that was set to expire in March. As part of the agreement, Alaska will seek entry into the oneworld alliance, which represents 13 airlines, including American, British Airways, Qantas, Japan Airlines, as well as Chile’s LATAM, which remains a member five months after its joint venture with Delta Air Lines.
If Alaska Airlines’ bid to join oneworld is granted the necessary approvals, it promises to connect the carrier’s customers to more than 1,200 destinations worldwide when its membership would go into effect in 2021.
The alliance with Alaska comes with notable benefits for American. It paves the way for American’s first service from Seattle (SEA) to Bangalore, India (BLR) beginning October 2020. A new American route from SEA to London Heathrow (LHR) is set to begin in March 2021.
The outstanding question is what American’s and Alaska’s new partnership will mean for Delta, which has steadily been building its presence in Seattle for years.
“We believe that the deal with American and the decision to join oneworld next summer is a way to increase ALK’s utility to corporate travelers,” Helane Becker, managing director and senior research analyst at Cowen, told Kambr Media. “We believe that Delta’s international capability out of Seattle was a major benefit to corporates. American’s decision to fly to London and Bangalore benefits ALKs major corporate accounts. Bangalore is a top three market for Amazon, for example, and getting there now from Seattle involves one or two stops. London is the third daily for oneworld with British Airways two. We expect Delta to probably think about poking American in another market, like continuing to grow in Miami.”
The American/Alaska codeshare will also expand to include international routes from Los Angeles (LAX) and SEA.
But it’s the opening of the SEA to BLR route, with the promise of connecting business travelers in those two cities’ tech sectors, that looks like a breakthrough for American.
“By doing this West Coast International partnership with Alaska Airlines, we really create opportunities for our customers that no other airline alliance can,” Vasu Raja, American senior vice president of network strategy, told Kambr Media. “We are able to offer 70 cities with one-stop service to Bangalore. India and Bangalore, specifically, is the number one request from our corporate customers. There are so many companies that have large operations in Bangalore and being able to provide that one-stop connectivity is significant.”
As for the new Seattle to London’s Healthrow Airport service, we asked where American intended to get the slots and whether it involved abandoning any service American currently offers to London.
“We already have the slot and are not changing any existing service to LHR,” Raja responded.
American didn’t provide any further details about how it acquired the slot.
American/Alaska vs. Delta: What Does It Mean?
Alaska’s move to join oneworld is noteworthy for the airline’s own vaunted independence. It’s also noteworthy for how it directly alters the competitive landscape in Seattle with Delta.
We asked Alaska if the competition with Delta was a factor that drove it into the arms of oneworld as well as into a deeper relationship with American.
“We anticipate that American’s launch of new international flights out of Seattle will drive an increased demand on Alaska’s domestic network, and lead to growth for us,” an Alaska representative told us. “The relationship with American gives our guests more choice when they fly internationally, and as more and more of our guests fly on Alaska to connect in Seattle to international flights on American, we’ll be able to add domestic frequencies on existing routes and eventually add new routes to our network that we previously weren’t able to serve. This will also increase utility for our Mileage Plan customers, contributing to this greater demand.”
In the short term, the pact between American and Alaska should not be expected to hurt Delta, since it’s made such progress in such a short amount of time, noted Chris Anthony, co-founder of Kambr Inc. and head of its Advisory unit [Full Disclosure: Kambr Media and Kambr Advisory are independent units operating under Kambr Inc.].
“Nobody’s going to throw in the towel here; everybody’s just going to double down,” Anthony said. “It’s probably going to cause an acceleration of additional international routes out of Seattle, especially as they expand the terminal—the new International Arrivals Facility—which will more than double international passenger capacity.”
For instance, Delta’s operating a significant amount of Asian flights out of Seattle. American adding one market, like Bangalore, is not going to change that, Anthony noted. Therefore, American would have to add a lot more to truly challenge Delta in the higher yield end of the market, Anthony said.
“American is going to have to look for niche markets, which is why they’re adding India,” Anthony said. “They’re effectively saying, ‘Here’s a route Delta doesn’t even fly.’ The other reason to pick London is to extend dominance in a pivotal intercontinental market operated daily by Delta’s JV partner, Virgin Atlantic. Combined with BA’s average 11 weekly departures, American’s daily London service could put pressure on Delta, because now that’s going to be 18 oneworld frequencies a week against SkyTeam’s seven.”
The Value Of Alliances
While Alaska has avoided joining alliance networks like SkyTeam and oneworld, the carrier has been open to partnering with other airlines over the years. After Alaska acquired Virgin America in 2016, it refused a deeper partnership with Delta that precipitated an end to the collaboration with Delta deciding to go its own way as it focused on building a hub in Seattle, which is where Alaska’s offices are headquartered, said Anthony.
“To some extent, I believe Alaska thought, ‘We can get by with our existing agreements with other carriers in SkyTeam and oneworld and maintain our market share,” Anthony said.
“Since then, Alaska’s seen that market share erode. As the day came closer to a deal ending the arrangement with American, there was then pressure to come closer to American. I suspect it’s more on American’s terms than it would’ve been before.”
This addition of Alaska to oneworld also represents a win for American in its recent battles with Delta. As we alluded to earlier, in September, American was rejected its bid to form a strategic partnership with another decades-long partner, LATAM, when the Chilean carrier accepted Delta’s $2.25 billion JV offer. That deal helped Delta displace American as LATAM’s partner within the Americas, despite the fact that the Chilean airline is still listed as a oneworld member.
As this case shows, the relationships airlines have with alliances can be complicated.
Around the time Delta’s JV with LATAM was being finalized, Delta CEO Ed Bastian appeared to be dismissive of the oneworld rival SkyTeam. In an interview with Bloomberg News the week before the LATAM deal was announced, Bastian hinted at a potentially different direction for LATAM and alliances when he suggested SkyTeam’s value to the airline was not as great as he’d like it to be. In that interview, Bastian said that operational efficiencies that were the original promise of network alliances have not been realized by member airlines.
Whereas Bastian has called the traditional alliance concept into question, American is embracing it wholeheartedly.
“Partnerships, and our oneworld alliance, is incredibly valuable to American and our customers,” Raja said, when asked about American’s views of the value of alliances. “Our global partnerships, such as our recent codeshare agreement with GOL, result in growth of our company, enhance our network and provide more destinations for our customers.”
“The value of membership to a global alliance is directly related to that airline’s perspective on what their guests get out of the alliance,” Alaska’s representative added. “For Alaska, oneworld provides a tremendous amount of value: connectivity, elite benefits, international codeshare, and a global reach that we would not be able to quickly build on our own.”