Aer Lingus plans to leave oneworld
 

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I doubt there will be much impact since they are the smallest airline in the alliance. Wish there will be some even better airlines joining oneworld.

Thoughts?

I am surprised that OneWorld has not KICKED them OUT !
They certainly have no place in any alliance as a LCC.

I am not that happy about it. I think OW needs to grow! I (unlike) many think Aer Lingus is a good carrier and gives OW good access to Europe. I can see where they are coming from in that most people would fly with BA and Aer Lingus may not be getting the benefit they could from OW. People have been saying they will leave OW and get into bed with VS and Emirates i guess we will wait and see.

EI was less than 3% of OW's ASM so it really is insignicant (by contrast, adding JL/MA/RJ will increase OW by 20%). Having a hub at DUB was completely useless for intra-Europe flights and awful for trans-Atlantic (shorter flight = less sleep). And there wasn't a single city that EI flew to which wasn't served by BA (on a shorter flight). So there was never a reason to fly EI except for price. Their service varies from quite good to incredibly dreadful, but with MA entering OW as a lower-cost carrier and with a mid-Europe hub, there really wasn't much left for EI. BA blackballed LX for much the same reason (didn't want a better hub and airline competing for the same business), but apparently EI doesn't quite have the same clout as BA and couldn't prevent MA from joining.

I imagine this has been covered, but why did BA allow MA to join then? Because they aren't a "better" airline and don't stand to steal much business traffic?

Probably more because they need a Central/Eastern European hub, and MA is one of the better airlines in Eastern Europe. *A already has LOT plus a range of airlines in Central Europe, while ST has Czech in Central Europe, Aeroflot in the East and Aitalia in the Southeastern end. (hmm did i get my bearings right?)

Oneworld has got to let another strong EU carrier in, but since all the best slices of the pie has been taken there really isn't anyone left. Not everyone likes going through LHR and on BA to their final destination.. LHR is in fact very Third World for transfers.

SO who do we have left that serves Africa, Middle East from Europe that isn't in Star or Skyteam already? .. OYLMPIC? :eek:

Sabena will cover Africa and Royal Jordanian should cover the middle east well enough until one of the far middle east carriers join.

All the OW hubs are on the edges of Europe (HEL, MAD, LHR and DUB), which is good for travel betweeen continents but bad for intra-Europe routings.

MA joining OW is a bit complicated, as it is a government owned airline that is trying to privatize, at a government owned airport which is also privatizing. So the deal seems to be that BAA was allowed to buy Ferihegy airport in a very lucrative deal, and BA in turn allowed MA to join Oneworld. MA doesn't have the longhaul routes that LX had (and was desperate to keep), also MA doesn't strive for a luxury product. Instead it is a good solid airline. Plus it opens up a low cost maintenance and catering base for Oneworld use, the next time BA management needs to negotiate at LHR/LGW.

I think EI should leave OW they just seem to make no sense being in the alliance. OW is generally made up of large intercontinental airlines, where does a intra european LCC with a few services to North America fit into the picture? and I would not consider DUB a hub especially as it is so close to LHR. MA makes more sense and will definatley give OW better reach within Central/Eastern Europe, and they service BKK which certainly makes them a viable option for pax travelling to from the far east.

With Olympic the question would be what comes first: bankruptcy due to repayment of illegal subsidies to the EU or integration into OW compatibility ?

I would bet on the former...

For AA awards, you couldn't fly on BA across the Atlantic. Aer Lingus was the only alternative to AA. Now there will be none. Right?

Wrong, :) forgot about IB.

Yeah, I guess. But not too convenient for travel to London, I believe. Is THAT correct?

You're looking at it from your local (BOS/PVG)) perspective.

From a lot of the rest of the country, EI was not much of an alternative either (it required endless changes, then poorer service in recent years).

Two points:

1. As the BA issue explains, alliances aren't everything.

2. EI has said that it will maintain some BILATERAL partnerships. It remains to be seen whether that will include AA or not. If it does, what's the difference? (Perhaps no EQMs?)

What's the big problem with flying AA to Europe (if that's who you collect miles with)? Please do not say "fares", because if so, that's EXACTLY why EI is leaving OW!

No, OW will have 6 carriers flying trans-Atlantic in 2007, after EI leaves (possibly 7 if CX gets route authority for JFK-LHR, as negotiated by the UK but not honoured). So there are 5 alternative airlines to BA. Only BA and AA serve LHR from the US and that won't change (look how hard CX is being fought to prevent serving JFK-LHR).

EI has stated that it will keep codeshare arrangements with AA and BA. Almost all of EI's interaction with OW was with those 2 airlines (perhaps not too surprisingly). The straw that broke the camel's back for EI was the 2 million euro cost for updating the EI computer systems to be compatible with JL -- an airline that EI will have zero business with. An interesting statistic is that only 6% of EI pax had any other OW airline on their ticket; so EI wasn't getting a lot of feed from this alliance. With the codesharing on AA/BA, it will be almost the same as EI being in Oneworld, even the EQM might be provided by AA (as AA does for AS, for example).

At the time I was recently booking flights through London to JNB, AA did not have any award seats. That left only Aer Lingus. Thus I went with Aer Lingus. As it turned out, AA finally loaded some award seats on the flight I originally wanted. So, I agree taking AA when using AA aawards makes sense if possible. Now, from what the above posters say, it seems I would still be able to use my awards on Aer Lingus. As far as the five or six other carriers available for crossing the pond, they don't fly from Boston and/or they don't go to LHR. Am I right about THIS?

This article is interesting. The unionized labor force is a constituency that EI has to placate, but does it really make sense for the carrier to take itself off the auction block? AF/KL looks to have strong financials right now; I could certainly imagine this group seeking to merge into EI.

Why? What would be in it for them? Ireland is a minor market, with low margins on point-to-point thanks to FR, and AF own Cityjet, an Irish airline, which runs 7 daily DUB-CDG flights for them (and a few other secondary routes). I really can't see what interest they might have in EI. It is not like the odd SNN-CDG flight is going to bring in millions in AF coffers.

EI runs many more flights that just DUB/CDG ;) It depends on what EI wants to do as a company. There was some discussion of the issue on another thread.

EI is in good shape. It's financials are reasonable. I like its long-haul market. It's not a major player, but is does have a complementary route structure. So far, the AF/KL merger seems to have worked well. It won't be the last. The European industry is too fractious--and has too much government involvement. There will be more mergers; IMHO EI will be a target. If the Irish government became agnostic on this issue, I would expect it to happen in the next 12 to 24 months.

Of course, but this one (and DUB-AMS) are the only ones of strategic interest to AF/KL. And EI is not enough of a competitor to AF/KL to justify absorbing it to eliminate it. EI would also be extremely difficult to integrate into AF/KL and would probably have to remain as a distinct airline operating under a distinct LCC-ish model, allowing for no synergies. Why on earth would AF want to saddle itself with a relatively risky investment, given the FR threat at DUB? EI have a number of valuable slots at LHR, but I don't think that either AF or KL need those slots themselves.
So the only reason for acquisition would have to be a purely financial one. But if I had the spare cash to put in a financial investment, I don't think that EI, or indeed any airline, would be my first choice.
I would imagine that if AF were to acquire a flag carrier, it would be OK before Ei, whenever OK comes up for sale.

I have to agree with NickB.
EI is a small airline serving an equally small country, granted it has quite good coverage of the United States, but without any flights to Asia, I would not call it a serious long-haul contender. As for AF/KL absorbing it, I don't understand why they would bother with such a DUB focussed airline that cannot provide any feeder for it onto its own network? As a point to point airline, I think was previously mentioned that only 6% of EI pax are continuing on another OW airline, there really would be no benefit for AF/KL to buy it.

Hold on there, I don't think you're taking the optimal perspective on this issue.

First off, as part of a larger group, there are inherent economies of scale--lower costs for a variety of things. If I were sitting in the corner office of AF/KL, I'd value EI on its FCF including savings that the new entity may garner from being part of a larger group.


On the face of it, there's nothing wrong with that idea. Get a good price and reap a dividend in the form of the FCF.


I wouldn't either, unless I already owned an airline.

The fact that there is currently little overlap between or among the companies is actually a good thing; as I said somewhere else, the systems are pretty complementary.

EI has gained tacit knowledge in what it takes to (a) compete with a cut-throat discounter and (b) deal with erstwhile militant unions. To the extent that any or all of these skills are transferable, the knowledge is useful to any company in today's world of aviation where the pace of competition will undoubtedly quicken with the onset of an open skies.

Neither EI nor AF/KL is a static entity. I think you allude to the following, but in a combined entity, what's to stop AF from buying more equipment to EI and picking off lucrative US/EU routes? EI offering service from, say, Dallas to Madrid seems strange, but the day is coming fast when we'll see things like that happen.

I love you LCC-ish comment, because that's what EI has got. Sure they've pulled costs out, and to some extent they market on price; however, the carrier is sitting on the fence right now. It has benefited from competition with FR--more than, IMHO, any carrier in Europe. It looks to be in a reasonably strong position right now.


There are a number of carriers that could make sense. If AF/KL can get merge with them on favorable terms. However, it looks like there's no way that the major shareholder, the Irish government, would let the sale go through. :(

FCF is all well and good but what about ROE for the merged entity? I think the shareholders would be more worried about a dilution in ROE rather than free-cash post aquisition. And buying EI would require a fairly decent sized equity issue, or debt issue. I'm not upto speed on AF/KL financial position, but I would guess that like most airlines they are not swimming in cash.
Anyway this thread is becoming very OT, and starting to remind me of my days at uni :D

I am actually suggesting a merger, not an acquisition. I think going the route of pooling of interest is the way to go.

Which shareholders: EI or AF/KL? I'd focus on EI, since the impact on the AF/KL may not be as large. I think the ROE may improve. I mean, the only two things that would impact ROE are shareholders equity and earnings. Changes in goodwill may mess things up a little. I have played around with the numbers on a spreadsheet; of course, it's hard to predict what would happen in an actual merger! Ultimately, the shareholders of EI would expect a return on their investment to part with shares.

AF/KL is sitting with $3 billion in cash and $3 b in receivables; the total current assets totals out at $10 billion. Operating and net income are growing nicely, as is cash flow. It seems to be in good shape!

The Irish government has stated that it will keep a controlling interest in EI when EI is privatized. Precisely to prevent any such transactions occuring in the future. They canceled the privatization in 2004 in part because of these concerns (along with catching the former management with their hands in the cookie jar, deliberately running down the airline in order to reduce the valuation so they could buy it on the cheap). There is a rich history of machinations at EI involving all 3 parties (management, labour and government).

I am well aware of what the government position on foreign ownership is; however, I don't know if it necessarily means anything. I believe the true reason that this policy was adopted was to placate one of the stakeholder groups of the company: employees.


I have flown EI a few times and am well aware of the militancy of some its labor. The last time I flew the carrier was in 1985 on business to Ireland. I arrived at the airport and discovered that there was a 24-hour lightning strike by pilots. It was a mess and seemed to catch the GA by surprised, but they eventually sorted it out. I admire EI today, but haven't flown with the company in 21 years. I never thought of this incident until you brought up the 'machination' comment, but somewhere in my subconscious that incident has found a home!

I have been reading a lot about the carrier recently. People have definitely been 'naughty'! Perhaps the government in Ireland is different ( ;) ), but in the US, I have noticed that politicians don't always have a strong commitment to past statements.