Thinking Airline Future? Think Alliances, Not Mergers

I'm a sucker for Mike Boyd's grouchy but always incisive weekly commentary at the Web site of his airline forecasting company, Boyd Group International.


Today, Boyd points out something that pilots and even travelers are seeing more of. Airlines branded by international alliance, rather than airline company. If you've looked out an airplane window and seen a widebody on the apron with livery that says oneworld, rather than an actual airline name, that's what I'm talking about.

From the Boyd commentary today:

"It seems every law firm and one-man consulting shop in America is now confidently pontificating on the outcomes of the Continental/United merger.

The combined entity will cut capacity by 5%. Or was it 8%? Or was it none? The merged carriers have too many hubs. Or, not enough. We only need three US airlines, is the new mantra. Low cost carriers will find a bonanza in the routes that the new merged airline will drop. Regional airlines - a term defined differently by various sources, sometimes dumping SkyWest and Southwest in the same category - will see a resurgence. Or, maybe a financial Waterloo. Or, they're all headed for the 'loo. Fares will go up. Or, was that down?

... For example, back in the day, [Boyd Group told Pittsburgh International Airport] that if US Airways pulled its hub, it would drop to under 40 nonstop destinations. Nonsense! was the response from the usual suspects. It'll never happen... other carriers will rush in to fill the gap. Today, it's about 36 nonstop destinations. And all those airlines that were supposed to rush in and replace the US Airways hub never arrived.

So in regard to mergers, here's a bit of heresy: tomorrow's airline context will not be anywhere near what we have today. Fact: in the long run (roughly five to seven years out) it may not mean diddly if carrier A gets merged into carrier B.

More Anathema Thinking: Ignore the Peanut Gallery mantras. US Airways, for example, isn't "left at the altar." American isn't the Ugly Betty of the industry, replete with corporate zits and unable to get a date. They don't need partners, because they may be filling a very different market role from that of today. As for the latest merger, it could ultimately be consumer-neutral - whether the combined new entity is named "United" or "Continental" or "Air Fred" may not make any difference.

One word, Benjamin: Alliances. Read the AA/BA/IB Joint Business Agreement (or at least skim it - it's lethally boring). What comes out are buzz-terms like "metal neutrality" and "brand indifference" - all of which indicates that individual airline brand will increasingly be subordinated to the global alliance system identity. It may well gravitate to the point where AA, UA, US, et al are lift providers to their respective global (note: not US) alliances.

This is part of a global airline trend - in ten years, it may not make much difference whether it's UA or AA flying the airplane - it will be competition between Star, oneworld, or SkyTeam. So, if UA and CO combine, all it ultimately may mean is that there is one less corporate lift provider to the Star Alliance. In today's context, it would be like a merger between Pinnacle and Mesaba. The corporation would change, but to the consumer, they'd still be booking on Delta. That's the future for independent international carriers - just on a global scale. Consumers book on Star, and the airplane might be operated by (depending on how the system develops) United, or US Airways, or for international travel, Lufthansa or China Eastern.

It's a global business world. And it's going to be connected by global alliance systems, not individual international airlines. So, for the long term, prognostications on how to deal with the UA/CO merger are the equivalent of planning arrival festivities for the Titanic. ..."

Thanks to Mike Boyd for looking beyond Wall Street baloney and the usual knee-jerking about mergers.

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