The British Airways (BA) arm of IAG is under strain. Having seen its lucrative Qantas JV fade into history all eyes are now turning to its relationship with American Airlines (AA).
Emirates has made no secret that it has been trying for some considerable time to partner with AA. Tim Clark is now openly stating that talks with AA are close to fruition. It is true to say that Emirates is on its own becoming a fourth global alliance. The airline has 14 code shares in place and is seemingly, if we look at Qantas share prices over the past two weeks, able to lift the fortunes of airlines just through a JV. Maybe AA wants some of the same. At the moment Emirates movements are affecting the Oneworld alliance more than anything else. The Qantas deal showed the frailty of the Oneworld global network due to the lack of airline spread in its membership. If AA were to go the same way as Qantas then IAG would have to question its stance on Oneworld as it would be the Star Alliance airlines of SIA and United that would give it back its connectivity. The market is moving very quickly and the centre of the action in 2012 remains tied to the talks surrounding AA management and the various offers they have on their desk.
Meanwhile on a regional scale there is another problem for IAG…
bmibaby failed and both Lufthansa and BA could not sell the airline off as a going concern. The weight of regulation/taxation and declining passenger numbers all took their toll on the UK regional airline. So why, one wonders, is Virgin Atlantic so keen on getting into the UK regional market?
As a brand Virgin has always taken care to avoid any damaging entanglements from environmentalists but as a regional airline operation the brand will no longer be able to lay claim to green credentials with flights between London and Manchester in the UK. However it is interesting to note that the traffic between the two UK cities has jumped since the BBC moved operations to the Manchester area and the BBC are in a habit of transporting people in limos between the cities, thus flights would be cheaper. A deal with the BBC could be a good option for Virgin and Richard Branson is just the sort of man to be able to pull it off. Virgin Atlantic is moving into Flybe, Ryanair and Easyjet territory without a low-cost base. Every airline that has gone up against the low cost majors to date has had a very rough time of it. Virgin will be counting on the brand to pull them through and it can, but the new operations must have a low-cost base.
The battle on the Heathrow Edinburgh/Aberdeen routes will be a blow to IAG and its current monopoly. Virgin’s interest in Scotland stems from the opportunity left by IAG being forced to relinquish 14 slot pairs at Heathrow in order to trim its market share at the hub following the BMI acquisition. Competition RX, the company monitoring the slot auction, says at least seven of those slots must be used for Edinburgh or Aberdeen flights. Virgin is bidding for 12 of the slots with the remaining two earmarked for Transaero's Moscow route.
As written here before: The UK market is moving towards local airports servicing a single large airline that is connecting the local population with multiple destinations. The larger airfields such as Manchester have had this same plan put into action on long-haul routes through Emirates and the like with huge success. Virgin’s plans for feeder flights that do not directly connect the local population with new holiday or business destinations seem rather outdated when considering this UK market shift. Virgin is counting on the power of Heathrow connections just as the same is being spun out to regional airfields that are able to have passengers off of the runway and in a car home within 15 minutes. Maybe Virgin should be lobbying to become the major player at a rebuilt and newly connected Northolt airfield in London. From there they can connect passengers and be a dominant player in a region of the UK that has a higher population within 10 miles than the whole of Scotland. Now that would be forward thinking.
IAG pressures from market movements
