I was surprised to read that one of the new British Airways/Iberia/American Airlines triumvirate had stated that the market can expect combined corporate deals within the coming few months. Astonishing really considering alliances have been finding reasons ranging from anti trust to market difference to avoid doing such a thing in the past. However, if they now go ahead it has the potential to impact the market as significantly as direct connect.
Let us assume such deals are going to come on the market. What will they look like? What benefits or otherwise will they deliver? What value (if any) will they bring? And was it worth globalising ones travel programme for? Here are some of my thoughts which I must emphasise are my own and not shaped by what anyone else has said on the subject.
There will be a clear set of obstacles for the airlines, not the least of which will be coming to some mutual consensus. None of them will want to dilute existing yield particularly in their own market and they all have their own regulatory rules to abide by. For example BA and Iberia cannot fall foul of European competition law and AA has to live with its own US legislation. There is also an imbalance in that Iberia is based in a much smaller and less corporately mature market than the other two with less to contribute in key business areas.
The biggest obstacle is that of desire/willingness to combine commercial strategies particularly between AA and BA who are still deadly rivals for the same customers. Admittedly they will be very interested in being favoured with onward traveller connections but the core routes (and yields therein) are equally vital to both. However they will be interested in marrying their main services and ancillary connections together to best economic effect hence you can understand why Virgin and others tried to stop this happening.
If they are really serious about coming up with joint corporate deals (which I still doubt) what will they look like? I think they will follow the models used by some alliances with TMCs. I explained a bit about this in my blog in June last year under the heading ‘Global Travel Programmes – Delivering? Here it is again:
a) Initial deals will not be very different to now except there will be a bonus if you have arrangements with the others too.
b) An overall separate umbrella deal will be introduced over and above individual ones. This will be linked to growth.
c) The above will then start being modified so that you only earn if you achieve certain targets on all participating airlines.
d) The overall deal will be tightened to the extent that you have to put all participating carriers in your programme whether you wish to or not.
Eventually you may get one complete deal but it will be riddled with conditions and caveats as they all really do operate differently in different markets and different cultures and customers. You will not say get the same deal with BA as you get with AA and then both of those will be different to Iberia. And you wouldn’t want to either.
Call me an old cynic but I have said it before and will no doubt say it again. These airlines are not coming together to offer better financial packages to customers. Why should they? They are combining to win more customers and greater economies through linking services, connections and cost. The customer should get a better overall package but not necessarily a cheaper price. This is really just a much improved version of code sharing or alliances and you will soon see service harmonisation and rationalising happen.
In saying all this I believe it to be just the start of a journey towards meaningful global deals. Airlines saw commission reductions, net pricing and unbundling as ways to improve profit and look where that got them. If market pressures grow they will have to broaden their commercial offering in the future.
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