Gaurav's Blog

Playing all sides

 

How some domestic Airlines have used their dominant presence at an important Gateway Airport to align across the board. And why must it make sense

An incredible number of International Airlines (more than a dozen), all over the world, chose to join one of the 3 large alliance groups (Star, One world and Skyteam) over the last 2-3 years. Analysts differ in exactly what has precipitated this sudden change, in a kind of second wave (the first wave was when mega carriers formed alliances) of relatively smaller carriers rushing to join a global alliance- some may have used the opportunity available due to the loosening of the anti-trust laws but most were motivated by the imminent threat from the Middle East and the desire to protect their businesses in the face of this onslaught.

However, there is also another distinct pattern emerging, either as a reaction to increased grouping of carriers or just driven by individual business model of the carrier in question. More than one carrier now uses it or a variation of it as a calculated response, an anti-strategy, to further their business interests.

Let us start with the Americas. Take Jetblue. Based out of JFK, it made a conscious decision to depart from the establish stand alone 'LCC with a good product model' to code share with International carriers. Towards this end, it underwent, what some would regard as considerable risk of changing its existing Navitaire passenger reservation system to Sabre that allowed greater flexibility in code-sharing.  Let's look at the list of International carriers that it code shares with: Lufthansa, Emirates, South African Airways, El AL, TAM & LAN. I understand they are also pretty close to signing a code share deal with Jet Airways, India. So there is no selection of carriers from any particular global Alliance. Why would it make sense for Jetblue to do so? The answer perhaps lies in Jetblue's location: It has the largest presence at the JFK Airport. JFK still is the largest gateway Airport for many non-US Airlines irrespective of the Alliance they may be part of and serves a very important catchment area that cannot be effectively served from Newark. So despite, Continental's dominant presence in Newark and it being a member of Star Alliance, a presence is required at JFK.  While Jetblue's bread and butter is in US domestic operations, it does not hurt to get International feed onto the domestic network, if it comes as a by-product of being in the dominant carrier position in the most important gateway Airport of the country. Therefore it makes perfect sense to accept feed from whichever International source it comes from, without having to chose one alliance over the other and restrict your options.

West Jet, the second largest carrier in Canada after Air Canada, does the same- using its presence at Toronto, it code shares with the likes of Emirates, KLM, Cathay and American, as it prepares to enter even more code shares.  

Take GOL, the Brazilian carrier based out of Sao Paulo. Exactly the same story with the only difference being, TAM, is the dominant carrier. But it is part of Star Alliance. Sao Paulo is the most important gateway Airport for International traffic into South America. GOL realizes that in absence of any other alternate carrier, which forms part of the other alliances such as Sky team or one –world, it can use its sizable although not dominant presence, at the Sao Paulo Airport to collect/distribute International feed. GOL therefore code shares with Delta, KLM and a number of other European carriers.

Elsewhere in the world, there are more examples- Virgin Australia, primarily an Australian domestic carrier based out of Melbourne, has recently announced its code share and partnership with Singapore Airline, a Star Alliance member to serve Asia, while in a code share agreement with Delta, a Sky team member to serve the US market.  Its chief competitor Qantas is of course a one-world member.

So the jist of the matter is this: If a carriers' primary business is domestic in a vast country like US, Canada, Brazil, Australia etc., but it happens to have a large presence at an important gateway Airport city that has a lot of international traffic, it does no harm to accept high yield code share traffic from International carriers. Additionally, at least 2 of the carriers mentioned above already had a hybrid model, with a better in flight product, & fewer seats than a typical LCC has. This helps in aligning passengers traveling on the full service international leg with the domestic product.  

So, the question is, which carrier/s in India or China, other than those that are already part of a major alliance or planning to become one soon, could take this route and use it as a strategy? I know one carrier, but I am not going to name it.