Iberia Launches LAX Flight, But Can We Really Thank American and British Airways?

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?

View the original article here

American and Expedia Make Up as the Reservation System Model Crumbles

This hasn’t received a lot of attention amidst all the holes in airplanes and smoke in cockpits, but there was a huge development in American’s fight with the third party reservation system providers (aka the GDSes) yesterday. In my eyes, American has won a huge battle and the GDSes are going to be scrambling. For the customer, it should be a good thing.

American announced that it had reached a deal with Expedia to start displaying fares and selling tickets from the airline again. That’s good news for Expedia, the airline, and for customers. What was announced in the second paragraph, however, is not good news in the short term for the GDSes by any stretch. But they’re the only losers here.

Expedia said it plans to access American’s fares, schedules, and customized travel products and services via American’s direct connect link by using aggregation technology provided by a GDS.

Wow. One of the big online travel agents has now decided to go with American’s direct connect model. That alone is a big deal. Priceline had agreed before, and that was big, but getting Expedia is a bigger deal, by far. If American can get Expedia to go along, then this could be like dominoes for other airlines in their dealings with Expedia. The ones that have the capability will be knocking at Expedia’s door as soon as the contract is up asking for a similar thing to help bring costs down. That crack in the door is going to grow quickly.

But what’s really interesting is that a GDS is going to provide the aggregation technology. Today, it’s the GDSes that provide the link between the online travel agent (actually, any travel agent) and the airlines. Each GDS charges the airline a big chunk of change when a booking is made, and that’s been the bread and butter of the GDS industry. But now, American is taking back much of the control.

The booking will be done with American via the direct connection, but Expedia won’t be dealing with this itself as Priceline did. Instead, it is going to have a third party handle the connection and then deliver it in a properly formatted way to Expedia. Companies like Farelogix have built systems to aggregate like this, but Expedia is going with a GDS to do it. So Expedia can link to that one GDS and that GDS will do the work to integrate American and presumably, eventually, other airlines. It’s a big win in the long term for the GDSes because it means that they will still have a place in the purchase flow, whereas I’m not convinced they would if they continued to push back on change. But in the short term it will mean pain.

It wasn’t announced which GDS was involved, but it couldn’t have been Worldspan or Galileo. Those two are owned by the same company that owns Orbitz and are generally believed to be behind the fight between American and Orbitz. Had one of those GDSes decided to become this aggregator, then we probably would have heard about a deal with Orbitz as well. That means it’s either Sabre or Amadeus. Amadeus has been working on this technology so it wouldn’t surprise me if they were the ones behind it. But Sabre would be a very interesting possibility as well.

Now, despite the lobbying you’ve heard from a lot of different groups out there, this should be a good thing for you the customer. If anything, the airlines will now be able to show you more info about fees and charges to make it a better purchase experience. (That will be up to Expedia but they will now be able to offer it in ways they couldn’t before.) You also again have the option to buy tickets for American on Expedia, so that’s good as well. For Expedia, it gets American back. For that one GDS that did the deal, it’s the beginning of a big change. It’s good to see one of these companies stepping up to participate in the future as opposed to fighting it so vehemently as many have done so far.

View the original article here