Last night, I attended the launch of Iberia’s new flight from LA to Madrid. This has been hailed as a product of the joint venture between British Airways/Iberia (now under the same ownership) and American Airlines. Is that really true? Yes and no, I think. It’s confusing.
One of the things that bothers me about joint ventures in general is that they are given a lot more credit than they’re actually due. The basic joint venture idea is that airlines come together to create a single business where all decisions are made to benefit the greater good and information flows freely. The participating airlines pool the money and then split it up, so it doesn’t matter which airline is actually flying the passenger. With rules against foreign ownership in place in the US, this kind of cooperation is the closest that US airlines can get to merging with a foreign airline.
In this case, we see the airlines saying that the joint venture has “increased the travel options available to clients of all three airlines, with more frequencies and more destinations, as well as better connections across all three networks.” But how much of this is achievable without a joint venture from a customer perspective?
Airlines can and do codeshare without a joint venture all the time, as you all well know. So the connectivity aspect isn’t something that requires a joint venture. Similarly, frequent flier cooperation has nothing to do with the joint venture. Some people believe that American and British Airways were not able to offer miles on each other’s Transatlantic flights because the feds wouldn’t approve the joint venture for a long time. They might have wanted you to believe that, but it’s not true. It was a business decision. So what exactly does a joint venture do?
Most importantly, it allows for schedule and fare coordination. Before, Iberia could start the flight to LAX, but it wouldn’t be able to strategize with American about which markets had the best connecting opportunities and adjust schedules accordingly. Now, since they share all information, American might find that it’s worth it to shift a flight to, say San Diego by half an hour because there are a ton of people flying that route and the airlines might be losing out to competitors with better schedules.
It has also allowed the airlines to cooperate on routes where they previously competed. Look at the New York to London market and its “shuttle” service. The two airlines have now aligned their flight times so that they complement each other instead of compete. Granted, they still operate from different terminals at JFK, so it’s not an easy shuttle service as you would hope, but it’s a step. And it’s a step that’s only really going to happen because of the joint venture.
Fares can also be discussed at will. So there can be much better route analyses in order to determine where the best place is to put that A340 Iberia is now sending to LA. Maybe Iberia with its own data would have decided that another flight to Chicago made sense. But after looking at the data, the combined information showed that everyone in the joint venture would be better off with the flight to LA. I don’t know if that’s true at all, but it shows how it could work.
So for the airlines, it’s all about the pseudo-merger over the Atlantic. They can now look at the data as one, though with some of the large cultural differences, it’s hard to get everyone on the same page when it comes to taking action. Still, the possibility is there and it can be good in terms of better schedules and more flights.
Can it be bad? Of course. Before, you still had BA, Iberia, and American competing for passengers over the water. Sure, they codeshared with each other, but the airline that flew the passenger got the money so there was incentive. Now, there are fewer competitors in the market since BA/Iberia/American act as one (as do Delta/Air France/KLM and Lufthansa/United/Air Canada.) In the end, the belief is that this will still be better for consumers, at least, that’s why the feds decided to approve it.
What do you think?
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