Atlantic battle plans
October 2007
The Euro–majors are starting to make some big moves in anticipation of next year’s US–EU open skies regime.
Air France has announced a comprehensive joint venture with Delta. Mirroring the long–established KLM/Northwest agreement, the two airlines will implement full revenue and cost sharing on all their services between their respective hubs (CDG, Orly and Lyons; Atlanta, JFK, Cincinnati and Salt Lake City), as well as the planned, from April next year, Heathrow operations.
This is only the first phase. All the main SkyTeam members have applied for extended anti–trust immunity, the main effect being that the AF/DL operation would combine with the KL/NW joint venture, generating an estimated €20–30m net benefit for the Air France Group.
The assault on Fortress Heathrow has been launched with the transfer of three daily LHR slot pairs from Air France to Delta, enabling the US carrier to fly double dailies to/from JFK plus a daily to Atlanta. Air France itself will operate from LHR to Los Angeles (and from there connect to Tahiti, which is legally part of France). AF/KL has another 22 daily slots at LHR, though not all are suitable for transfer from short to long haul operations.
How the passenger will benefit from all this consolidation is rather unclear — unlike the KL/NW agreement which rationalised numerous thin O&D city–pairs by hubbing passengers over Amsterdam and Detroit, the AF/DL alliance focuses on cooperation on thick hub–to hub routes, though it also should intensify competition on the very lucrative LHR–JFK market.
For BA this incursion means that it has become more important to get its business–orientated Atlantic subsidiary successfully off the ground. Project Lauren, as it is known, is scheduled to start up with 757s in the summer of 2008. Incidentally, just how seriously the network carriers are taking the new wave of business–class carriers may be indicated by Delta starting a JFK to Orly service in direct competition against L'Avion, while American has started Stansted to counter the impact of Maxjet and EOS.
For Lufthansa, Air France’s moves make it more likely though not inevitable that it will make an offer for bmi when the present sell option on bmi’s part turns into a buy option on Lufthansa’s part next year (see Briefing, page 14). With a consolidation trend apparently in motion, Iberia, for not particularly logical reasons, has probably become a more attractive target for BA or Lufthansa or Air France or indeed Grupo Marsans (the owner of Spanish long–haul charter Air Comet and Aerolineas Argentinas, which has just signed an MoU for 61 Airbuses including four A380s).
Observing all this is Michael O'Leary who is apparently determined to create a long–haul low cost carrier, separate from Ryanair, and dubbed Ego Air. Intensely commercial as always, he states that the right time to start up is in a recession when he can pick up equipment cheaply as opposed to today’s very strong aircraft market.
