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Topic: "Metal Neutral"
Username: sierra3tango
Posted 2013-03-26 08:44:45 and read 7916 times.

This has popped up in the AA/BA/IB JV and also is mentioned in the VS/DL provisional plans

What does it actually mean practically?

Does it mean that the only way (say) DL/VS can grow is by increasing aircraft size, not numbers of flights?

Topic: RE: "Metal Neutral"
Username: LHCVG
Posted 2013-03-26 08:53:54 and read 7878 times.

Practically it simply means that they share revenue equally for all covered routes, which increases flexibility in terms of utilizing the best aircraft between them on a given route. For instance, ORD-CDG may just work best parts of the year on a 763. AF has no such plane, but DL does. Since they are in a metal-neutral TATL JV, it doesn't matter to the bottom line whether that is an AF plane or a DL one flying that route since they each get their cut regardless. This works really well for TATL JVs, because the U.S. carriers bring 757s and 767s while the European carriers bring more 747s plus 77Ws, 346s, and 380s to the table.

Topic: RE: "Metal Neutral"
Username: sierra3tango
Posted 2013-03-26 09:10:04 and read 7779 times.

Quoting LHCVG (Reply 1):

Thanks for that and appreciate the seasonality / aircraft size point however

Dreaming for a moment let us suppose halycon days return; growth is good, travel is burgeoning, loads of extra PAX (yeah OK it is dreaming) then what happens? The only way is to upsize the aircraft is it not? The smallest aircraft might be something (say) 788 sized and the largest maybe say A389 (or even 10) otherwise how do you grow?

And the other (related) thing which I cant get my head around is Boeing's way forward is P2P whilst Airbus is H&S; any such "metal neutral" arrangement seems to negate the P2P idea (which I like), does it not?

Topic: RE: "Metal Neutral"
Username: steex
Posted 2013-03-26 09:29:59 and read 7694 times.

Quoting LHCVG (Reply 1):
Practically it simply means that they share revenue equally for all covered routes, which increases flexibility in terms of utilizing the best aircraft between them on a given route. For instance, ORD-CDG may just work best parts of the year on a 763. AF has no such plane, but DL does. Since they are in a metal-neutral TATL JV, it doesn't matter to the bottom line whether that is an AF plane or a DL one flying that route since they each get their cut regardless. This works really well for TATL JVs, because the U.S. carriers bring 757s and 767s while the European carriers bring more 747s plus 77Ws, 346s, and 380s to the table.

A pretty good explanation, but just a minor clarification - revenue is shared proportionally rather than equally. If there are four member airlines in a JV, they don't strictly split the revenue into four equal 25% portions, but rather it is divided based on capacity and/or seat-miles. They often strive to divide the flying such that their capacity is approximately balanced, but it doesn't always work out that way - for example, AZ is smaller TATL than its JV partners.

Topic: RE: "Metal Neutral"
Username: LHCVG
Posted 2013-03-26 09:45:14 and read 7611 times.

Not necessarily, because each carrier still has to contend with the inherent structure of it's network in addition to the overall alliance network and hub-to-hub trunk flows. In this example of a TATL JV, the European carriers will still skew larger gauge planes, while U.S. carriers (as we are seeing now) are focusing on smaller planes, and even looking to eliminate VLAs entirely. Barring an upset, at this stage it looks like the Big 3 American carriers are going to be without 747s in a few years, focusing entirely on 77X and 350s for needs above the 787 and 330 going forward. OTOH, the European carriers are still getting 380s and/or 748s (sometimes both, in the case of LH), and that won't drastically change in the near-term as their hub structure is still going to be far more centralized than a U.S. carrier's.

To hit your point more specifically: P2P and frequency will continue to be the drivers they are today, but CASM is still a key measure for any airline. As such, there will always be a business case for them to examine whether larger frames are better in certain situations. For instance, UA went with 2x 757s on IAD-CDG last year, which was a net increase of seats plus the obvious extra section providing improved connectivity. That came at the loss of 3-class birds on the route (temporarily), but they determined this was a better fit for them at the time. OTOH, a route like SFO-FRA may still be 1x 747 for UA most of the year because that is what works for them in that scenario given the distance and traffic flows between that city pair. So in short, it's just a give and take between frequency and P2P service/overflying hubs on the one hand, and consolidating traffic on larger planes at major gateways to drive down CASM. But both will have their place even in a JV arrangement (see the above IAD-CDG example, where UA has to optimize it's competitive position vs. AF who has the upper hand for premium pax there).

To your last point about Boing and Airbus philosophies, they are each (smartly, IMHO) staking out complementary market positions, in some cases betting on the other's gamble to fail (e.g., 748i vs 380). The 787 essentially bridges the 767 to 777/330 range, hitting both reasonably well. The A350 follows in the 330's footsteps of being sized the next rung up so to speak, in order to be a more full fledged A330/77W/A340 replacement, while foregoing that 767 niche. Then you have the forthcoming 77X models, which will be 350 competitors, replacements for older 77Ws, and like the 350 replacements for some 747s. Finally you have the 748i, which is a low-cost derivative (essentially) of the 748F that Boeing can pitch as the smaller and more reasonable alternative to a 380 as it purportedly offers comparable CASM in a smaller package. Airbus would obviously counter those claims on efficiency and scalability grounds, but you get how those two planes each have their own pitch. So I don't think each is adhering strictly to the strategy you identify, but rather is staking out a product niche that they see as best for their offering. Every plane has to be centered somewhere on the scale, and they each chose a viable solution.

Topic: RE: "Metal Neutral"
Username: sierra3tango
Posted 2013-03-26 10:13:36 and read 7491 times.

Quoting LHCVG (Reply 4):

I'm a new boy here so please be patient

Really do appreciate you very detailed answer from which I understand (correct me if I'm wrong) that numbers of aircraft flights TATL are "neutral" ie if a JV has 100 flights a week TATL then its 100 flights a week whether it be P2P or H2H in the countries involved?

Quoting LHCVG (Reply 4):
To hit your point more specifically: P2P and frequency will continue to be the drivers they are today

How can frequency (or indeed P2P) be a driver if there is a maximum limit on the number of flights?

Or have I totally misunderstood does "metal neutral" mean (in simplistic terms, say) the share between a French carrier and a US carrier have to balance in number of flights??

If not the only way of growing is upscale aircraft size

Topic: RE: "Metal Neutral"
Username: steex
Posted 2013-03-26 10:29:17 and read 7410 times.

Quoting sierra3tango (Reply 5):
How can frequency (or indeed P2P) be a driver if there is a maximum limit on the number of flights?

Or have I totally misunderstood does "metal neutral" mean (in simplistic terms, say) the share between a French carrier and a US carrier have to balance in number of flights??

If not the only way of growing is upscale aircraft size

There is no cap in the number of flights - in the most simplistic terms, "metal neutral" means that it doesn't mean which carrier operates any individual flight, revenue is still split proportionally based on the overall operations of the participating carriers.

In the example of ORD-CDG, AF would never just hand a route over to DL, handing all the revenue over with it. However, with the JV, AF is just getting a proportional share of the revenue on that (and any other TATL) flight when it is the operator. Likewise, AF gets a proportional share of the revenue from any flights that one of its JV partners operates, whether it touches CDG or not.

As such, rather than looking at which AF equipment is best suited for ORD-CDG, the JV can evaluate which equipment of any JV carrier is best suited to operate the flight since everything is being split regardless. With demand being generally lower in the winter, it makes sense to deploy the smaller DL 763 seasonally, reducing overall operating costs of the trip.

Topic: RE: "Metal Neutral"
Username: sierra3tango
Posted 2013-03-26 10:44:07 and read 7346 times.

Quoting steex (Reply 6):

Thanks steex

So the conclusion is that (from memory) DL & VS have 36 slots from LHR TATL so that could become 136 slots (yeah well assuming they could obtain the slots)?

Topic: RE: "Metal Neutral"
Username: LHCVG
Posted 2013-03-26 11:02:49 and read 7266 times.

Quoting steex (Reply 3):
A pretty good explanation, but just a minor clarification - revenue is shared proportionally rather than equally. If there are four member airlines in a JV, they don't strictly split the revenue into four equal 25% portions, but rather it is divided based on capacity and/or seat-miles. They often strive to divide the flying such that their capacity is approximately balanced, but it doesn't always work out that way - for example, AZ is smaller TATL than its JV partners.

Thanks for pointing that out - a mistake on my part!

Quoting sierra3tango (Reply 5):
Really do appreciate you very detailed answer from which I understand (correct me if I'm wrong) that numbers of aircraft flights TATL are "neutral" ie if a JV has 100 flights a week TATL then its 100 flights a week whether it be P2P or H2H in the countries involved?

Yep, the metal-neutral just takes into account all the available flights under that umbrella. One way to look at it might be that it effectively increases your available flights to choose from as a customer, because there is no longer an incentive for a carrier to prioritize their own flights vs. a codeshare with a JV partner. Under a codeshare only without a JV, UA might push the flights on their own metal instead of UA codeshares flown on LH metal since they get a better cut when you fly them instead of a codeshare partner. But under a JV, they might as well just show you everything since there is no longer a specific incentive to drive you to UA vs. LH.

Quoting sierra3tango (Reply 5):
How can frequency (or indeed P2P) be a driver if there is a maximum limit on the number of flights?

Or have I totally misunderstood does "metal neutral" mean (in simplistic terms, say) the share between a French carrier and a US carrier have to balance in number of flights??

If not the only way of growing is upscale aircraft size

As Steetz notes, the JVs often have varying capacity among the members, so there is no strict requirement that carrier 1 has x and carrier 2 has y amount of the traffic, and there shouldn't be a total limit on flights unless there are limited slots or rights in a given market.

Frequency is a driver because people like the option of 2 or 3 flights if they can instead of just a single flight, and sometimes high-yielding pax will book the other guy if he offers better timing for them. To use the aforementioned example, UA is gambling that they can compete against an AF 380 on IAD-CDG by offering you the choice of two different flights at different times of day as opposed to AF's one option (there will be at least some people who want the earlier/later flight).

Another way frequency plays is that in hub-to-hub situations where both carriers fly a route. It makes sense to offer multiple times spread across several hours between the two to hit multiple connecting banks as well as those O&D pax preferring an earlier or later flight. The JV comes into play by allowing them to offer the full spread of flights between them without worrying about who is flying what, and trying to get you to book their metal on their site like they would without a JV.

Topic: RE: "Metal Neutral"
Username: steex
Posted 2013-03-26 11:27:00 and read 7145 times.

Quoting sierra3tango (Reply 7):
So the conclusion is that (from memory) DL & VS have 36 slots from LHR TATL so that could become 136 slots (yeah well assuming they could obtain the slots)?

You got it. Market realities are the limiting factor.

Topic: RE: "Metal Neutral"
Username: sierra3tango
Posted 2013-03-26 12:21:02 and read 6986 times.

Quoting steex (Reply 9):
Quoting steex (Reply 9):
You got it. Market realities are the limiting factor.

As I said I'm a new boy here, patience please

So, in conclusion, my ridiculous suggestion of the DL/VS 136 TATL flights LHR/USA each and every one could be all DL or all VS

Therefore 'metal neutral ' means regardless of the country of origin of the carrier

OK I know it wouldn't happen that way - but is this the correct conclusion?

Topic: RE: "Metal Neutral"
Username: LHCVG
Posted 2013-03-26 12:27:26 and read 6963 times.

Quoting sierra3tango (Reply 10):
OK I know it wouldn't happen that way - but is this the correct conclusion?

Pretty much - and there are a few markets where that actually is the case (where one carrier does all the lift between the two).

Topic: RE: "Metal Neutral"
Username: steex
Posted 2013-03-26 12:27:45 and read 6963 times.

Quoting sierra3tango (Reply 10):
As I said I'm a new boy here, patience please

So, in conclusion, my ridiculous suggestion of the DL/VS 136 TATL flights LHR/USA each and every one could be all DL or all VS

Therefore 'metal neutral ' means regardless of the country of origin of the carrier

OK I know it wouldn't happen that way - but is this the correct conclusion?

That is theoretically correct, though the carrier operating zero flights likely gets no revenue. If a theoretical JV between two carriers operated only one route (so stage length isn't a differentiating factor), they would split everything down the middle if they both operate 250 seats for a total of 500 daily. However, if you have one airline providing all 500 daily seats while the other carrier doesn't fly the route, they would basically get all the revenue and potentially just share some small amount if they utilize shared ground resources.

In the scenario of one airline providing all the lift, the primary benefit would be the ability to coordinate schedules to optimize connecting opportunities.

Topic: RE: "Metal Neutral"
Username: RDH3E
Posted 2013-03-26 13:49:54 and read 6701 times.

Quoting sierra3tango (Reply 2):
The only way is to upsize the aircraft is it not?
Quoting sierra3tango (Reply 5):
How can frequency (or indeed P2P) be a driver if there is a maximum limit on the number of flights?

Just to reiterate you can always add frequencies.

Quoting sierra3tango (Reply 7):
So the conclusion is that (from memory) DL & VS have 36 slots from LHR TATL so that could become 136 slots (yeah well assuming they could obtain the slots)?
Quoting sierra3tango (Reply 10):
OK I know it wouldn't happen that way - but is this the correct conclusion?
Quoting sierra3tango (Reply 10):
So, in conclusion, my ridiculous suggestion of the DL/VS 136 TATL flights LHR/USA each and every one could be all DL or all VS

It seems like you're probing for details on a possible DL/VS JV and not necessarily about a metal neutral JV more abstractly. Youre example is hard specifically because LHR is slot restricted and slots are very expensive. But more than likely it would involve a shuffling of the destinations/airplanes that fly each frequency and not necessarily any meaningful expansion.

If you want to know more about other more complex examples (which are better), you should look at the likes of the Star Alliance Trans-Atlantic (TATL for short) JV. It is often reffered to as the *A TATL A++ JV.

Topic: RE: "Metal Neutral"
Username: deltacto
Posted 2013-03-26 16:30:21 and read 6373 times.

AA and QF have a joint venture between the US and Australia / New Zealand.

How does this work when AA has no flights at all between the US and Australia / New Zealand?

http://www.theaustralian.com.au/busi...-okay/story-e6frg95x-1226072215034

Topic: RE: "Metal Neutral"
Username: AeroWesty
Posted 2013-03-26 16:46:34 and read 6322 times.

Quoting deltacto (Reply 14):

AA and QF have a joint venture between the US and Australia / New Zealand.

AA and QF have a joint business agreement, not a joint venture. They don't share revenue on these routes. They can and now do coordinate schedules and pricing, etc.

http://www.aa.com/i18n/amrcorp/newsroom/jba_aa_qantas.jsp

Topic: RE: "Metal Neutral"
Username: steex
Posted 2013-03-26 17:47:52 and read 6015 times.

Quoting AeroWesty (Reply 15):
AA and QF have a joint business agreement, not a joint venture. They don't share revenue on these routes. They can and now do coordinate schedules and pricing, etc.

I believe it technically is a JV agreement, it's just a different flavor since AA doesn't operate to Australia/New Zealand at all with its own metal (and thus, its portion of revenue for the TPAC JV is 0%). Pricing is really the biggest factor here - rather than a simple codeshare, this arrangement allows AA to essentially have full access to inventory on QF's TPAC flights for the purposes of selling tickets from the North America end. Each airline plays a notable role in the others success at LAX, so the agreement is a win for both despite not actually sharing TPAC revenue.

I suspect scheduling was a secondary concern given that QF's schedules are pretty stable, making it easy for AA to predict when QF will arrive/depart for the purpose of scheduling their domestic ops.

Topic: RE: "Metal Neutral"
Username: BA0197
Posted 2013-03-26 17:48:57 and read 5990 times.

I believe in the BA/AA/IB JBA BA gets 60%, AA gets 30% and IB gets 10% of the revenue (or loss). Don't know if that is completely accurate but it does make sense. I was told that by a person that works at Waterside.

Topic: RE: "Metal Neutral"
Username: ADent
Posted 2013-03-26 18:43:05 and read 5491 times.

Quoting steex (Reply 12):
That is theoretically correct, though the carrier operating zero flights likely gets no revenue. If a theoretical JV between two carriers operated only one route (so stage length isn't a differentiating factor), they would split everything down the middle if they both operate 250 seats for a total of 500 daily. However, if you have one airline providing all 500 daily seats while the other carrier doesn't fly the route, they would basically get all the revenue and potentially just share some small amount if they utilize shared ground resources.

That does not sound like a Metal Neutral JV. Heck even with a Code Share the zero flight airline is getting some money.



If Airline A and Airline B fly between AAA and BBB - A and B split the money from the flights between AAA and BBB based on the revenue of the passengers on the flights. So if 1/3 of the passengers are booked via airline A, they get 1/3 of the money.

I would assume they subtract the costs of flying before splitting the money.

So if A does all the flying, they get paid their costs and then they get 1/3 of the money and B gets 2/3. If B does all the flying B gets paid their costs then gets 2/3 of the money and A gets 1/3.

There fore it doesn't mater which airline flies the metal (airplane), they make the same amount of money either way. It is metal neutral.


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