The Future of Continental and Skyteam
 

Been giving some thought to this...

With the expected bankrupcy filings of DL and NW this week...and the real possibility a 100% leveraged Delta will be unable to recover, it seems the two other flagship partners of this alliance are in no shape to compare with CO

Also, most of us can agree that CO's total product is leagues ahead of what DL and NW currently offer - in my opinion, there appears to be a mismatch

I am concerned that CO's continued association with Skyteam is akin to remaining onboard a sinking ship. None of the other member carriers are renowned for their product offerings or financial health (except possibly AF)

Here is my provocative thought: little mention has been made recently of the previously rumored takeover of UA by CO. Folding both carriers into a master holding company.

In my opinion, Star Alliance seems like a much better fit for CO, given its global presence, partners and partner quality standards. Assuming SA and UA give US the boot after its merger with America West, it might be the perfect opportunity for CO to join Star Alliance instead, and possibly set the stage for an easier integration with UA, should those merger rumors come true.

I would hate to see the other two key members of Skyteam collapse around CO and leave that alliance in shambles when better opportunities might be available elsewhere.

I see only two US International carriers:
- AA with NW (NW hold on CO goes away)
- CO with UA + some of DL's international routes

DL gets eaten up by the LCC's.
Resulting AA and CO both have LHR access and both get 744's.

International capacity goes down, and fares go up. Thus less mileage run weekend trips to Europe.
Domestic flights feed International and compete on price (as loss leaders) against the LCC bullfight.

Don't forget about AWA/US. This would give three majors on the US playing field.

As others have pointed out UA and CO are very different airlines (equipment, engines, product offerings, etc.) I could see a strong alliance between the two but a total integration promises to be messy. Yet, if an alliance were founded, it certainly would be interesting! Both AA/NW and CO/UA would have access to LHR (as mentioned above), and NRT 5th freedom rights. Exclusive to the CO/UA side there would be hubs in EWR/IAD, CLE/ORD, IAH, SFO, DEN; SYD flights along with other Pacific routes.

Plus, it sure would be nice if a PC membership got you into the RCC! :D

I do not see US/HP being a major, but rather a LCC with a few international routes. I could see other LCC's getting into the major tourist international routes - like LGW, CDG, FRA, etc.

These alliances work better for the airlines than they do for the customer. Most frequent flyers want upgrades, and that seems to be where the biggest inconsistencies occur. Before SkyTeam, there was the CO/NW linkup, with KLM thrown in for good measure. Born of necessity, that combination was the best I have ever seen, right down to Club reciprocity. As for the spate of bankruptcies, there is a big difference in taking that route because of employee groups who won't take a cut, versus having no business. That said, there will be combinations of large carriers, but it will never solve the overcapacity problem in an industry where there is always somebody else who thinks they can make it where the other guy didn't. The most interesting comment is on Heathrow access. Carriers have to be rethinking that one. Most cheap intra European flgihts are now using Stansted and Luton, hardly convenient to Heathrow connectors, and the number of nonstop routes to interior UK cities continues to grow, adding Belfast, Birmingham, Bristol, Edinburgh, Glasgow, and next year, Newcastle, to LHR, LGW, and MAN. As well, Thai, Singapore, and Emirates are overflying Europe completely, and India is starting to see nonstops from N. America to secondary markets like Bangalore. Would be connectors at Heathrow must have a death wish anyway, especially if said connect involves a change of Terminal.

Actually, I suspect that US/HP might end up dropping international... except leisure carribean type work.

Assuming that DL kicks the bucket (yay), and NW, in severe distress, aligns or merges with AA, I can see the following:
AA/NW: the mega fleet of DC9/MD80... with hubs in DFW, ORD, DTW, MSP, LHR and NRT.
CO/UA: 777's of fun: SFO,LAX,EWR/JFK, DEN mini, IAH, CLE and IAD, NRT and LHR. CO takes DL's 777's and 764's and the newer 763s.
The entire A320 fleet/domestic UA 757 fleet becomes Ted's Song.

Don't forget the AA hub at JFK.

I guess I struggle a bit with the bennefits of AA/NW, particularly with their hub locations. They'll have a really large concentration of hubs in the Midwest (ORD, DTW, MSP) + DFW in the center. They seem thick in the middle, but thin on the coasts.

Sure, there's Seattle, LAX, Miami, JFK and don't forget Memphis (the first hub to be eliminated), but what will they need to trim in the midwest? And can they? AA has much invested in ORD. MSP and DTW are pure NW. To me, they should cut back at ORD, keep MSP and DTW. Beef up one of the West Coast Hubs and probably JFK (didn't they just remodel?). Then, they'll have the best coverage in the US. Maybe they'll retire the oldest planes in the fleet the NW DC-9's. I've seen a few with birthdates before mine.

CO/UA seems a better marriage, because the hubs are more strategically located with less redundancy. But then the missmatched fleet could be an issue. I'd really hate to see an expansion of SONG at the sacrifice of CO domestic flights (I like my upgrades - the few I still get!)

If you see a NW/AA hookup, you can kiss MSP and DTW goodbye. Why would AA need them, given their desire to dominate the Chicago market and put the DTW and MSP traffic right into ORD. There are regulations that might prevent that, but AA always seems to get around them.

As for a potential DL liquidation, so be it. Twenty years ago, they were the best of the best. Now they're not even equal to the rest. I can't say I would be sorry to see them go, because it would cut down a hell of a lot of excess capacity.

I know that CO extended its code-sharing alliance with NW on a 25 year contract back when NW gave up its preferred stock position but retained some veto power over different transactions. CO could easily get that provision thrown out in a NWA bankruptcy.

This is going to get very interesting...

Equally interesting is the fact that UA can tell US to get lost...

I don't think CO's product is "miles apart" from either DL or NW. "Miles apart" would be MH-like service and more seat pitch.

I also think the failure of a single US major would "clear the air" significantly.

I think CO is best off with Skyteam as an alliance.

I believe that UA will not sell off the LHR slots until the very end, and bluntly, UA doesn't need CO. UA will either survive, or grind into the ground, but there's no way they would be interested in CO. What does CO bring, really?

Steve

If these hypotheticals take place here are my thoughts.

An AA/NW merger would result in MSP scaling back to a focus city, DTW would be at most a secondary hub but probably scaled back to a focus city as well. MEM would be a goner due to its proximity to DFW and for that matter MIA. There is no way AA would close up shop at ORD and leave that lucrative market to a UA/CO carrier. AA is only 8% points behind UA in terms of market share and AA actually garners more revenue per passenger than UA. AA could retire NWs fleet of DC9s. As for the A319 and 20s they would have to find something to do with them. AA does not want that many fleet types. They would probably be forced to keep the A330s for NRT due to the fact they have no other aircraft that could fly those routes.

UA/CO would result in IAD being scaled back. You could probably kiss CLE goodbye as a large hub due to its proximity to ORD and the large international presence of UA at ORD. And again I don't see UA/CO leaving AA as the carte blanche carrier of choice at ORD, a very lucrative airport for both. I agree with the ascertian that DEN would be a mini hub at best considering the presence of UA on the left coast. I think a UA/CO hook up would mean Ted would be spun off from the company totally because of the fleet compatability issue. I don't see CO mgmt wanting to deal with a totally seperate fleet of aircraft.

Just my two cents.

I don't know if any of this at all will happen but we will wait and see.

There would be a significant downsizing for sure, but both MSP and DTW have huge O/D bases as well, and there's no way ORD could handle that excess capacity.

Continental would bring significant domestic and international network synergies to United and the Star Alliance, far more than US could ever bring to the table. Specifically, CO offers United a renewed presence in the NYC-area, new markets in the South & Southwest, and stellar access to Latin America and within the Mid Pacific. CO, for its part, would receive expanded access to the Midwest, West Coast, Asia, and Australia, to say nothing of codeshare possibilities with Star Alliance members (e.g., SQ on EWR-SIN, LH on EWR-DUS).

Mergers between airlines are always MESSY. Continental was still in battles with former Eastern Pilots only up until a few years ago.

Alliances make this work nice and easy for airlines, and make things minorly easy for customers.

To that end, with Delta potentially not emegring as anything of its former self, and assuming NW will emgere much stronger, that leaves Sky Team with two strong US carriers, and one so so one. I dont see Continental leaving SkyTeam so quicky. Moving around alliances is not just like calling up AF/DL and saying "We're leaving" and calling up UA/SQ and saying "we'd like to fill out the form to join" They require significant planning and logisictics.

Considering Continental has just joined SkyTeam - even with the impending doom looming over DL/NW (which SkyTeam members had to know about or had a good clue about - to think otherwise would be just plain ignorant), it is unlikely they were planning on joining up, then leaving to join someone else.

BK will allow NW and DL to slash costs [the ability to nullify contracts and etc is always help], which is what will end up saving them, when they come out of BK they will be stronger and more formidable carriers for competition. I highly doubt NW will end up going to AA. DL selling of assests is no surprise - if anyone wants to take them.

-Vincent