Virgin Atlantic - DL tie up?

[WorldTraveler]

Yes, but what an absolutely asinine distinction. UA/CO are ONE airline now.

Perhaps you would also find it interesting that US will have more seats from PHL-CDG this summer than DL will on its own metal from both DTW and JFK combined? True, absolutely. Utterly meaningless, you bet.

I've read your posts on this forum as well as others and I think in general you provide a great analysis of what is happening in the industry. But if you wonder why people doubt your analysis, you don't have to look far - it's because at every opportunity you downplay an OA advantage (vs DL) and up-play every last DL advantage (vs OA), even to the point where it means citing meaningless statistics like this or conveniently leaving behind or not telling half the story. It's unfortunate that is the case because, like I said, I think you provide excellent analysis on the whole and I believe that DL is very well positioned for the future, which is why I don't really see the need for these extraneous "facts."

once again in your zeal to try and discredit what has been posted, you MISS the relevance which is that UA's operation ON ITS OWN METAL at LHR is the sum total of the operation it acquired from Pan Am 20 years and has nurtured or not for the past 2 decades.

I don't really care if UA and CO are one company - because THAT IS NOT MY POINT. I also said nothing about revenue which is the basis for a combination of UA and CO's operations at LHR. UA and CO operate as two separate airlines for the purposes of the US-UK bilateral, FAA oversight and licenses and ad nauseum. The only thing merged about UA/CO is the bank accounts and legal structure in the US. UA has not integrated any of its foreign licenses or operating rights.

The only point that can be made about UA and CO is that UA had to find a merger partner in order to keep an airline that wasn't even at LHR 3 years ago from overtaking them as the #2 US airline.

THAT IS THE POINT and it has nothing to do with CO or UA's acqusiition of them.

If UA and CO were swapping metal between UA/CO gateways then I couldn't accurately make the comparison between DL and UA operated metal - because it wouldn't reflect the UA owned LHR assets that are now 20 plus years old.

But, once again, CO is not flying any former UA LHR routes and vice versa and as such what UA flies with its own metal is completely reflective of what UA has done with its LHR operation.

Further, it is complete fabrication when I specifically disclose the methodology I use (that is UA only metal) to conduct a calcuation. If you don't agree with my methodology, that is fine..... but you cannot argue that I am being deceptive or presenting half truths.

May I suggest you develop your own ability to critically think and analyze the issues of the industry instead of borrowing the thought process which someone else bothered to identify.

Once again, it is apparent that you REALLY don't like the news that I deliver and the only way you know how to counter it is to shoot the messenger - as if that will change the reality.

 

[FWAAA]

Not only do I see 17 daily flights to LHR on AA metal, but I see about 34 other daily LHR flights with AA flight numbers operated by BA, and since AA and BA are pooling revenues and expenses in their JBA, those 51 daily flights might as well be AA flights. Of those 51, 20 of them originate in UACO hubs. 22 of those 51 originate in DL's LHR gateways. I see an immunized JBA that has more market share to LHR than any of its competitors. WT has posted that the market leader generally sets the fares (not sure I agree with that one) and that the market leader generally prevails. If WT is correct, then DL and UACO have their work cut out for them at LHR.

 

[WorldTraveler]

And I agree with you completely, FWA

I didn't even try to make a comparison between DL and AA other than to specifically note the size of their own metal operations, while noting that AA has indeed grown significantly because of the oneworld JBA.

By the same token, though, we can look at other parts of Europe and see that the oneworld JBA is the smallest of the 3 alliance aligned JBAs... and Europe is carved up pretty cleanly between the 3 alliances - which I have noted before.

It is also true that the Skyteam JV has operations into major UA/AA hubs as does Star into DL/AA etc.....
BA is the largest single carrier across the Atlantic from the Europe side and does touch alot of cities; conversely, DL and UA both overly LHR and MAD/BCN to alot of cities where AA/BA/IB is not strong.... each carrier/allaince will vigorously compete for traffic even in their "disadvantaged" markets.

The significance of the potential VS transaction for DL is that it has the potential to take what has been a non-allied carrier and move it into at least the allied camp and perhaps allow DL to tap into the UK local market (including beyond LHR to Asia/Africa etc where VS flies but no US carrier does).

The entire thesis of JBAs is that it does give the JBA participants the size advantage on a revenue basis w/o the "mess" of the labor and cost integration.

As AA/BA/IB develop their JBA, there is NO DOUBT that they will do what they have to do protect their markets and try to make up for the time they lost while Skyteam and Star had their own JVs.

If VS changes its role in the market, though, it is hard to argue that even AA/BA are exempt from those changes, esp. since the argument about AA/BA being able to operate in Star/Skyteam gateways is put on its head.

 

[FutureUScapt]

once again in your zeal to try and discredit what has been posted, you MISS the relevance which is that UA's operation ON ITS OWN METAL at LHR is the sum total of the operation it acquired from Pan Am 20 years and has nurtured or not for the past 2 decades.

I don't really care if UA and CO are one company - because THAT IS NOT MY POINT. I also said nothing about revenue which is the basis for a combination of UA and CO's operations at LHR. UA and CO operate as two separate airlines for the purposes of the US-UK bilateral, FAA oversight and licenses and ad nauseum. The only thing merged about UA/CO is the bank accounts and legal structure in the US. UA has not integrated any of its foreign licenses or operating rights.

The only point that can be made about UA and CO is that UA had to find a merger partner in order to keep an airline that wasn't even at LHR 3 years ago from overtaking them as the #2 US airline.

THAT IS THE POINT and it has nothing to do with CO or UA's acqusiition of them.

If UA and CO were swapping metal between UA/CO gateways then I couldn't accurately make the comparison between DL and UA operated metal - because it wouldn't reflect the UA owned LHR assets that are now 20 plus years old.

But, once again, CO is not flying any former UA LHR routes and vice versa and as such what UA flies with its own metal is completely reflective of what UA has done with its LHR operation.

But it is an inaccurate depiction of reality, and here's why:

In S10, UA operated 10 flights/day at an average of 240 seats/dept at LHR while DL operated 5 flights/day at an average of 246 seats/dept.

Then, in late August DL applied for 3 additional slots that became available as part of the conditions for the AA/BA ATI approval, increasing its total to eight. They obviously picked up 2 more somewhere, but I can't recall off the top of my head where (I'm sure you can add that info), so that they now had a total of 10 slots come S11.

At the EXACT same time that DL applied for those 3 slots, the merger between UA/CO was approved, which among other things, increased UA's portfolio of LHR slots from 10 to 17.

So it all boils down to this: In the past year, both UA and DL took steps to acquire more LHR slots. UA did so via a merger. DL did so through other methods, because that was the ONLY option they had (Note: I am in no way saying that is a bad thing, it was simply the reality of the situation at hand). In the absence of the UA/CO merger, who knows what, if anything, UA would have done to increase its LHR presence. Perhaps, they would have sought some of the slots that DL did. Unlikely, probably; possible, yes.



I don't understand why (in your latest post) you are trying to portray the merger in a bad way, as if it was a last ditch effort of some sort. I'm really left speechless in that regards. Furthermore, going back to 2008, why would you expect an airline like UA to go out and acquire slots at LHR like DL did? The 11th slot that UA would use would almost certainly be more marginal than the first several for DL, yet they would end up paying the same price for it, and the same would be true if the inverse was true. It all comes back to the best use of cash and limited resources. For DL and any new entrant, LHR routes were without a doubt at the top of the list; for established carriers like AA and UA, much less so.

You simply can't argue that DL has increased its presence at LHR, without acknowledging that UA, too, has. They just did so via different methods. In fact, that's likely a key part of why you see DL interested in wooing VS - because they know that if they want to attempt to level the playing field with UA and AA (to the extent that they can), that they will have to search out opportunities like this and I find it wise of them to do so.

Further, it is complete fabrication when I specifically disclose the methodology I use (that is UA only metal) to conduct a calcuation. If you don't agree with my methodology, that is fine..... but you cannot argue that I am being deceptive or presenting half truths.

A fine line, perhaps. I won't surmise that you are trying to intentionally mislead people but the way some of it is written makes it very very easy for someone to misinterpret it and draw false conclusions - I am simply trying to clear up any potential confusion before it gets out of hand.

May I suggest you develop your own ability to critically think and analyze the issues of the industry instead of borrowing the thought process which someone else bothered to identify.

Once again, it is apparent that you REALLY don't like the news that I deliver and the only way you know how to counter it is to shoot the messenger - as if that will change the reality.

Actually, I was able to easily identify that without having to view subsequent posts. Unfortunately, I don't have the free time to continuously monitor this forum/thread 24/7. Sorry, I'll try to be better about it next time.

 

[FWAAA]

Didn't PMDL squander various opportunities in Asia? IIRC, DL previously served ICN, HKG, NRT, etc from PDX. DL eventually discontinued all flights to Asia except ATL-NRT. Finally, after years of trailing every US-based airline (except for US) in Asia, DL married NW to regain an Asian presence - an impressive one at that. Every legacy airline has squandered opportunities over the years. UA and AA are not alone in failing to take advantage of profitable opportunities and each has taken steps to improve their networks.

 

[WorldTraveler]

Yes, DL and AA both had much larger operations in Asia including their own west coast hubs which they folded up.

My point is not about the fact that DL acquired access to Asia thru a merger or to say that UA was somehow being less than fair by acquiring CO and thus improving its position at LHR.

Again, the point is that UA's size at LHR has not improved on its own merits (internal growth or use of its own aircraft) but rather through a merger - at a time when CO, DL, NW, and US joined the market and have grown significantly. Given that, once again, the size of the new CO/UA at LHR has grown is SOLELY because of the efforts of CO. My point is that UA- which has been in the LHR market for 20 years - has allowed an airline - who cares if it is DL - to grow to a larger size based on capacity in just 3 years.

Even though AA and BA are just now forning their alliance, AA grew to the larger airline - and I believe UA acquired PA's LHR rights before AA acquired TW's (correct me if I'm wrong).

Do you realize that UA has spent most of the past decade DOWNSIZING at LHR, reducing 7 flts/day? During the same period, AA has grown its LHR size on a continuous basis until this year when it apparently is taking the bigger hit (between AA and BA) for funding the slots which AA/BA had to provide to DL as part of the BOS/MIA case?

The same point exists with Latin America where UA, completely on its own effotts, pulled down its Latin network allowing both CO and DL to pass them down.

I make the same point about Asia where DL, because of its own internal growth, once again has more capacity in East Asia EVEN IF you consider UA and CO as one airline.

Future,
I appreciate your more constructive mode of discussion. I don't expect anyone to buy what I say without carefully evaluating it for themselves; I do the same thing w/ what I hear and I wouldn't hold anyone else to a lesser standard. All I ask is that people engage in a productive discussion of the issues. I am not above being told I am wrong - or admitting it wheh I am... but I generally do my homework well enough that I know what kind of ground I am standing on before I go down a path.

 

[eolesen]

Even though AA and BA are just now forning their alliance, AA grew to the larger airline - and I believe UA acquired PA's LHR rights before AA acquired TW's (correct me if I'm wrong).

Do you realize that UA has spent most of the past decade DOWNSIZING at LHR, reducing 7 flts/day? During the same period, AA has grown its LHR size on a continuous basis until this year when it apparently is taking the bigger hit (between AA and BA) for funding the slots which AA/BA had to provide to DL as part of the BOS/MIA case?

WT, I have a summary of the UA & AA transactions @ http://www.olesen.com/2001/06/london.html

UA's deal closed first because Pan Am was in far worse shape, and there was also the debate over TW keeping PHL/BWI/STL, which delayed AA getting schedules published.

 

[WorldTraveler]

E,
good history lesson and a reminder that we sometimes forget the difficulties involved in tihngs once a little time passes; the PA/TW -AA/UA transaction was difficult and lengthy,.... far more cumbersome than PA/UA was on the Pacific - and I remember some hoops had ot be jumpted through there.

Also serves a reminder that UA did not buy established LHR-ORD service but had to develop it. AA has remained the dominant airline in that market despite it being UA's home... also a reminder to me that UA is likely going to do its best to help close that advantages AA has in CHI.
Again, despite getting into LHR after PA, AA has done a better job than UA... and remember also that UA dropped JFK-LHR, one of the largest int'l markets in the world, in the midst of their LHR cutbacks over the past decade. In many respects, they are simply replacing what they had on their own with CO - and adding a little more capacity - but not a whole lot compared to what they once flew.

Not a bad push for your blog either.

There is another element of this DL-VS transaction that bears consideration.
VS fought strongly against the AA/BA hookup and while most of its efforts were focused on BA, there is no doubt that they don't mind targeting AA to make their point.
If the decision is between DL/Skyteam and any Middle East airline, it would seem that DL/Skyteam are far better positioned to help VS grow its market and to aggressively compete against BA/AA as is happening in BOS and MIA-LHR
I would also say that I think DL's successes in taking revenue from AA in numerous cities including BOS, NYC, MIA, BNA, RDU, STL etc certainly help to convince VS that DL can do what VS needs.

It's also worth noting that DL is developing relationships with multiple Virgin airlines around the world and while they are independent there is some level of investment or at least franchising connection between all of them. Even in the US, DL's moves including giving up its gates on concourse L (a given as part of the merger - and likely the L gates were more expensive than the terminal 2 gates) have helped VX grow - and I believe Sir Richard does have financial ties to VX still.
More recently, DL is dropping FLL-LAX and moving its one flight to MIA-LAX which not only provides more direct competition for AA (even if it is just one flgt/day) but also gets out of VX' way in LAX-FLL.

While not acknowledging that talks are giong on w/ VS, DL has been sending some of its high profile management to London, Tokyo, and Sao Paulo, highlighting DL's desire to round out its network in those three anchor cities.

 

[eolesen]

If the decision is between DL/Skyteam and any Middle East airline, it would seem that DL/Skyteam are far better positioned to help VS grow its market and to aggressively compete against BA/AA as is happening in BOS and MIA-LHR

Disagree. If you're Richard Branson, are you out for your pound of flesh, or are you going to continue to protect your brand and the image you've spent 30 years cultivating?

When you put Emirates or Qatar side by side with Delta, there is no comparison whatsoever. DL is a two and a half cabin product. Virgin is a four cabin product.

And if Virgin really wants access to the US, they already own part of a carrier that seems to not stop growing...

 

[WorldTraveler]

Disagree. If you're Richard Branson, are you out for your pound of flesh, or are you going to continue to protect your brand and the image you've spent 30 years cultivating?

When you put Emirates or Qatar side by side with Delta, there is no comparison whatsoever. DL is a two and a half cabin product. Virgin is a four cabin product.

And if Virgin really wants access to the US, they already own part of a carrier that seems to not stop growing...

Unless Branson and SQ sell out their entire stakes in VS (and we don't know how any deal might be structured if equity is even involved), SQ is very much interested in seeing VS and VX continue to grow. Etihad cannot do that.
It also is not clear how VS would fit into the Skyteam product line but w/ all due respect, CX and AA are in completely different leagues as are SQ and UA.
Further, I would be surprised if Skyteam/DL acquire all of VS. It also seems apparent that VS is not going to dismantle part of what has made it work which is unique marketing and product.

You still underestimate one of my primary points whic his that unless Branson simply put on the whole 10 year show against BA for marketing purposes, there are real financial reasons why VS needs to continue to battle BA - and by virtue of AA's relationship with BA, AA is now on VS's list of "not a friend of mine". There are two airlines that could effectively help counter AA - UA and DL. We've already established that UA has done a pretty poor job against AA for a number of years in a number of markets while DL has been quite successful at moving into AA strength markets.
Not surprising, DL and VX are in many of those same markets - and I believe part of DL's strategy is to follow a low fare carrier into another carrier's hub market and once the network carrer has lost pricing power, DL is free to start add flights and start taking market share. Given that DL's costs are the lowest among network carriers, they are well positioned to take market share from other network carriers.
Given the size of AA, there is more than revenue for VX and DL and a whole lot of other carriers to split up... and solely based on VX and VS' network, DL has the ability to pick up a lot of revenue which the Virgin group cannot.

Again, you also miss the fact that DL is developing relationships with several Virgin airlines and DL is the only network carrier that can benefit all three.
QF - Virgin Blue's primary competitor - is allied with AA.

I know it all sounds so sinister but I think you underestimate how competitive the airline industry is; it has happened for years that airlines who were once competitors become bedfellows.

Just like everything I write, all I ask is for readers to keep an open mind to the possibility that what I write could indeed happen and then look back several years from now and see how accurate I was.

 

[eolesen]

You still underestimate one of my primary points whic his that unless Branson simply put on the whole 10 year show against BA for marketing purposes, there are real financial reasons why VS needs to continue to battle BA - and by virtue of AA's relationship with BA, AA is now on VS's list of "not a friend of mine".

Virgin benefited for years from LHR being a closed market. Open skies was something they couldn't prevent, but BA/AA stood to put them even further at a disadvantage, which is why they were so vocal.

I hadn't reviewed VS's codeshare partner list lately, and I was surprised to find that all except one was in Star Alliance. (http://www.virgin-atlantic.com/en/us/whereintheworld/codesharepartners/index.jsp)

So I take back any hint or notion that I'd see them gravitate towards Skyteam (not even sure I ever did, but just in case...). If they don't form a competing alliance with the likes of Qatar or Emirates, then I'd see Star being a more natural fit, especially since BMI and VS have such complementary networks.


As for your comment on CX & AA. Absolutely different products. I've flown both. The issue there isn't so much the service levels, but the service offering. Without digging too far into schedules, I couldn't find any US originating markets where you had a two class product on AA and a three (or four) class product on another oneworld carrier. There are cases where premium economy may be offered on BA and not on AA, but I couldn't find cases where AA only offered a JY and BA offered a FJY or FJPY.

Put DL and VS into Skyteam, and you'd have half the JFK-LHR flights on a FJPY, and the other half on a JY. And no, extra legroom doesn't constitute premium economy to me anymore than being seated in an exit row is considered premium economy...

 

[WorldTraveler]

Virgin benefited for years from LHR being a closed market. Open skies was something they couldn't prevent, but BA/AA stood to put them even further at a disadvantage, which is why they were so vocal.

I hadn't reviewed VS's codeshare partner list lately, and I was surprised to find that all except one was in Star Alliance. (http://www.virgin-atlantic.com/en/us/whereintheworld/codesharepartners/index.jsp)

So I take back any hint or notion that I'd see them gravitate towards Skyteam (not even sure I ever did, but just in case...). If they don't form a competing alliance with the likes of Qatar or Emirates, then I'd see Star being a more natural fit, especially since BMI and VS have such complementary networks.


As for your comment on CX & AA. Absolutely different products. I've flown both. The issue there isn't so much the service levels, but the service offering. Without digging too far into schedules, I couldn't find any US originating markets where you had a two class product on AA and a three (or four) class product on another oneworld carrier. There are cases where premium economy may be offered on BA and not on AA, but I couldn't find cases where AA only offered a JY and BA offered a FJY or FJPY.

Put DL and VS into Skyteam, and you'd have half the JFK-LHR flights on a FJPY, and the other half on a JY. And no, extra legroom doesn't constitute premium economy to me anymore than being seated in an exit row is considered premium economy...

Of course, VS was harmed by Open Skies and fought against it... but so was AA and BA. Most of AA's int'l profits have come from Brazil and LHR for years and now that other carriers have added so much new service, the only way AA can maintain its market presence is through a JV. Of course they and BA knew that would be the cost which is why they tried to drag their heels for so long. The rest of European airlines wanted more access to the US market and could only get that thru EU wide open skies which is why they put pressure on the Brits to open LHR.
AA and BA will both do fine in LHR - but they had to put a lot of room between them and the rest of the pack to feel comfortable.
VS also is being forced to consider a merger/acquisition in part because of the Open Skies/AA-BA JV and the impact it is having on their business - but it has been known for some time that SQ wanted to sell its stake which means VS wasn't as profitable as alot thought it was...not surprising given it is aging as an airline and is going to be disproportionately impacted by higher fuel prices given their preference (until late) for 4 holers.

DL will be a 3 class airline with its premium economy... not the same as other premium economy products but DL isn't a 2 class airline.

And as much as you want to tell us what the value of FC is, CO, DL, and NW all made the decision to abandon int'l FC and go w/ a premium business class product; in competitive markets, DL/NW/CO have consistently delivered average fares as high or higher than AA and UA w/ their 3 class cabins.
DL has thought long and hard about adding a FC int'l product esp in light of their growth at LHR and NRT and have apparenty decided not to go down that path, instead investing in a better business class product. DL is not stupid; if the money was there, they would add an FC cabin.... the fact that AA has it on a portion of its int'l fleet serving only part of its network says FC demand isn't as widespread as some think. UA will clearly have to decide whether to keep UA's FC cabin but I strongly suspect that if it exists it will be on only a small portion of UA's int'l fleet - a smaller percentage than AA's. And I wouldn't be surprised if UA ditches FC altogether. There is no reason for them to talk about removing anything until they can move to a SOC - which is potentially quite some time away and is highly dependent on labor integration.

So far as we know, there is no Star carrier bidding for VS so it really doesn't matter what alliances exist now. Further, VS has never had deep alliance type relationships with any carrier... the value they can offer to anyone is far different than the limited arrangements VS has developed up to this point. It is poor analysis to look at FF and block seat buys and say that is predictive of what is best for VS under a deeper arrangement. Further, VS' closest relationship w/ a US carrier was CO which developed the relationship in order to gain access to LHR before Open Skies- which isn't a valid reason for any carrier's potential interest now.