Delta taking over AA - impact on OneWorld ? [speculation]
 

This one, which has reached the well-informed pages of the Financial Times, must be giving Willie Walsh over at IAG a few points to ponder.

http://www.ft.com/cms/s/0/c3d612be-4...#axzz1jjmL878j

For those without FT access, another "similar" story:

http://finance.fortune.cnn.com/2012/...rlines-merger/

It's posturing/PR in a quiet news period. The chances of DL getting regulatory clearance to takeover AA are slim.

Even if there was a successful bid, Oneworld has plenty of attractions for a combined AA/DL (BA at LHR, JAL and LATAM).

I would have thought this has a long way to go before any serious takeover was likely, as well as the possible regulatory hurdles that would become apparent.

I'm surprised by the FT running such a piece. The very good and well regarded Boyd Group analysis of AA basically says the long term prospects for the business are sound. I would have thought the IAG link-up was also a good prospect.

Of course, if it wasn't for ownership rules, I imagine WW and IAG would have been plotting a buy-out...you never know, the ownership rules for US airlines might be relaxed in our lifetime.

I wouldn't put it passed Sir RB making a offer just to wind-up WW!

Why? As it stands I can't see DL being able to effectively acquire either AA's ATI with IAG or JAL, but if you cancel those and make some concessions on things LGA & DCA slots, maybe some changes to the AS & B6 codeshares etc. I think it's perfectly possible for DL to get regulatory approval. I suspect as far as the TATL routes are concerned the effective transfer of AA from OneWorld to SkyTeam would be a positive rather than a negative step.

If that were to happen it would leave IAG without an effective US partner, with them presumably reverting to US who I assume would transfer from Star Alliance to One World. It would certainly be something of an upheaval, though it just might be better rather than worse for consumers.

I doubt it's something IAG want to see, but there are certainly regulatory limits that would impede their ability to challenge this kind of change.

Overall I suspect that while possible it's still got a fairly small chance of coming to fruition.

I'm not quite certain what benefit AA's membership of OneWorld brings to BA. In my experience people travelling from London to (say) Oklahoma City or Jacksonville typically route on AA throughout.

Every AA hub in the USA which would offer connection opportunities to smaller cities, the Caribbean, etc, also has a parallel American service from London, which AA would doubtless prefer to offer one-carrier connections on rather than let BA do the long haul, so they will price (and set transfer prices to BA) accordingly. It is not lke, for example, Cathay coming in to the USA, where AA don't serve Hong Kong so are more amenable to the connecting traffic.

Because you're only looking on that side of the Atlantic. AA travellers in Europe are probably going to choose a OneWorld carrier if they can so they can collect the miles.

BAH

This assumes that the combined DL/AA would find its partnership with AF/KL/AZ more lucrative than a potential partnership with BA, a rather big assumption to make, don't you think?

I'm assuming that the chance of DL joining the AA / BA / IB JBA, OneWorld and the existing AA / JAL ATI agreement is slim - that would seem to lock up one heck of a lot of the North Atlantic & North Pacific traffic which seems sure to raise objections.

Taking AA into SkyTeam seems a lot more likely to be approved. Whether the DL managers could make enough of a business case to be able to fund the acquisition is a different matter - it depends on how much of the case is based on these routes compared with domestic services to international routes to, for example, South America.

The evidence so far from the joint business doesn't bear this out at all. There's been a huge increase of traffic on BA metal to AA's main hub at DFW. MIA, another AA hub, is to get another BA frequency next summer, which I doubt would have happened without the JBA. Ditto for JFK. BA has also picked up a lot of traffic from AA FFs at SFO.

Also, remember under the JBA AA and BA metal are treated equally by each carrier for the purposes of distribution. Plus the joint scheduling of jointly operated routes vastly increases connectivity opportunities.

Six of one, half dozen of the other. Sure, you could gut AA in order to push the deal through, but what of value to DL is left? Other than the Latin America network, there wouldn't be much of value left if you made all the above concessions.

I think Ian001 makes some fair points. Also, I think quite a lot of passengers travel on their preferred carrier (be that BA or AA) across the Atlantic, to then transfer to the other one for short haul connections. For AA and BA passengers that was in fact ingrained behaviour until the JBA, because you couldn't earn miles/points on the other one.

However, the JBA makes the whole thing metal-neutral, and all partners now sell much more code shares on each other. It has also led to some great new sale fares in the latest BA sale for (BA) off line points in South America. BA simply routes you onto IB or AA as appropriate.

Janking AA out of oneworld would obviously be a great coup for Delta. It would seriously weaken OW, and it would probably fall apart, leaving ST and *A to fight over the spoils.
US is not a believable alternative to AA, with a much weaker US network than AA - PHX, CLT and PHL are not the same as JFK, ORD, DFW and MIA, and not much use to the OW partner airlines - only BA flies to PHX and PHL, none of the other OW members fly to any US hub.

US taking over AA and then leaving Star for oneworld would be better in terms of balance between the alliances.

In the end I think though that while not impossible , it is unlikely for either DL or US to take over AA.

How? BA have substituted a 744 for a 772, which is a net gain of about 70 seats a day IIRC.

My sense, and I have no figures to back this up, is we've actually seen a shift from AA to BA operated flights, but the overall TATL capacity probably hasn't changed a great deal. In a few cases, for example IAH, BA seems to have switched capacity to focus on DFW which I assume to be part of the strategy, while at the same time AA seems to have trimmed at least as much service from JFK, BOS & ORD as BA has added.

I assume that's all part of the strategy, and it may well be that revenues are creeping up with the change in focus, but I haven't seen any market share numbers that suggest ATI has delivered any big gains.


Empirically it hasn't increased anything on "my" routes, in fact AA cutting the AUS-JFK service and reducing AUS-ORD from MD80's to CR7's would point in the opposite direction on my very limited sample. I'm now actually more likely to take Southwest or JetBlue to connect to an international service than ever before.

I think the point is at first glance DL has figured they won't have to gut AA to get the deal done, so it's worth a serious look. As an example I assume they almost certainly wouldn't have to dispose of any of AA's LHR slots if the AA / IAG JBA is broken up. Yes, AA may not be as effective without the BA partnership, but it might still be a deal worth doing. Similarly, even with the portfolio acquired with NW, they might not have to relinquish too much at NRT.

Overall though I agree with BlackBerryAddict; it's not impossible, but it isn't likely either.

Somehow I get the feeling this discussion will remain a hypothetical one. Will be shocked to be proved wrong!