77H
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US 3 Forming Airline Groups

Fri Oct 21, 2016 12:08 am

Aloha All,

I was just reading the thread about the EU3 airline groups (IAG,AF/KLM and Lufthansa Group). There have been several posts in the thread mentioning how all 3 airline conglomerates have a LCC within each group that allows them to capture a distinct sector of the market they might not be able to capture under their own branding. It got me thinking, is this something the US3 should try? Would it even be possible within the regulatory framework in the US?

At some point in United States airline history the US3 or their descendant airlines have tried the "airline-within-airline concept. While those concepts through the years had varying levels of success, each attempt was ultimately folded back into its parent airline. What I am asking about is not airline-within-airline but more akin to what Vueling or EuroWings is to IAG and LuftGroup respectively. As an example, would it be beneficial or possible for say, DL to bring NK under its corporate banner? Like Vueling to IAG, Spirit would remain a separate airline but linked to DL on a corporate level. This would allow DL to gain access to the customer base Spirit attracts while not diminishing their own brand and service level to compete and benefit from the lower internal costs NK has. Likewise UA or AA could bring an airline like B6 or F9 under their corporate banner as a similar subsidiary.

Thoughts?

Mahalo,
77H
 
Byrdluvs747
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Re: US 3 Forming Airline Groups

Fri Oct 21, 2016 12:20 am

What you are describing is just further US3 consolidation, and there's extremely little chance of receiving government approval for any US3 carrier to bring another airline under their "corporate banner". The only way that can happen is if one of the smaller carriers were in the process of liquidation. Now if AA, UA, or DL want to form another airline from scratch that would be a different story.
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usdcaguy
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Re: US 3 Forming Airline Groups

Fri Oct 21, 2016 12:34 am

77H wrote:
It got me thinking, is this something the US3 should try?


That's not going to happen. DL tried that with Song and CO tried that with Continental Lite. Their cost structures were too imposing to make money selling cheap tickets, and often times, the LCC product would cannibalize their own product. The direction now is for them to parcel out services and products so that they are able to cater to varying levels of "willingness to buy". Many people simply do not like the ULCCs in our country and are even willing to buy up to an Economy Plus product to be more comfortable in flight.
 
77H
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Re: US 3 Forming Airline Groups

Fri Oct 21, 2016 12:55 am

usdcaguy wrote:
77H wrote:
It got me thinking, is this something the US3 should try?


That's not going to happen. DL tried that with Song and CO tried that with Continental Lite. Their cost structures were too imposing to make money selling cheap tickets, and often times, the LCC product would cannibalize their own product. The direction now is for them to parcel out services and products so that they are able to cater to varying levels of "willingness to buy". Many people simply do not like the ULCCs in our country and are even willing to buy up to an Economy Plus product to be more comfortable in flight.


I understand that the airline-within-airline model has not worked whether it is Song, Ted, Shuttle By United, MetroJet, CO Lite and so-on. What I was talking about specifically is a member of the US3 forming a relationship with one of the USLCC's analogous to the relationship Vueling has with IAG.
 
Cubsrule
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Re: US 3 Forming Airline Groups

Fri Oct 21, 2016 12:59 am

The "groups" in the EU are mostly the result of regulatory and P.R. need to keep separate national identities. But for those issues, you'd probably see three very similar megacarriers to what we have in the States.
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TW870
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Re: US 3 Forming Airline Groups

Fri Oct 21, 2016 1:48 am

[quote="77H"] What I am asking about is not airline-within-airline but more akin to what Vueling or EuroWings is to IAG and LuftGroup respectively. As an example, would it be beneficial or possible for say, DL to bring NK under its corporate banner? Like Vueling to IAG, Spirit would remain a separate airline but linked to DL on a corporate level./quote]

It is unlikely for two reasons. First, the justice department would likely move against a DL-NK or UA-F9 type of alliance on anti-trust grounds, saying that such alliances constitute unlawful collusion.

Second and probably more importantly, doing so would be another major scope threat for pilots, who are already upset at all carriers - and especially at Delta - about transatlantic joint ventures cannibalizing widebody cockpit positions. If Delta's booking engine started giving me segments of trips on NK, that compromises DL pilot jobs, which would further stress labor relations in a moment of a growing pilot shortage.

You are most likely going to see the LCC part of the US3's portfolio on their own metal, not as an "airline within an airline," but rather with an economy basic product on existing flights (that already exists in many markets).
 
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usdcaguy
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Re: US 3 Forming Airline Groups

Sat Oct 22, 2016 4:40 pm

77H wrote:
usdcaguy wrote:
77H wrote:
What I was talking about specifically is a member of the US3 forming a relationship with one of the USLCC's analogous to the relationship Vueling has with IAG.


What I'm trying to figure out is why that would be of benefit to a legacy. Are you talking about codesharing, etc., like IAG does on the VY flights? Before that would happen (see labor issues above), it's possible that the legacies themselves would go back to a more generalized bare-bones product like they had before their bankruptcies once the price of fuel increases and businesses stop paying exorbitant fares for last-minute tickets (this is coming). Also, I don't see the new domestic premium products lasting for any length of time if the economy goes south against a backdrop of high fuel prices. People will not spend money for extras if they don't have it to spend (they will likely not be paying for bags or buying upgrades), and that behavior will again eat into the profits of the US3.
 
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thekorean
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Re: US 3 Forming Airline Groups

Sat Oct 22, 2016 4:47 pm

Remember, US3 have multiple hubs and probably their fleet sizes probably more or less equal the fleet size of EU airlines group.
 
777ord
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Re: US 3 Forming Airline Groups

Sat Oct 22, 2016 4:52 pm

The possibility of AA/DL/UA doing another round of mergers isn't actually off the table. It is something that HAS been discussed. But I think that's all its been is just discussion. Even if you put aside the legality of such merger(s).

Currently more interested in the merger (or lack thereof) of VX/AS....
 
sdh9
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Re: US 3 Forming Airline Groups

Sat Oct 22, 2016 6:38 pm

Running an alter-ego airline isn't allowed by the pilots' scope clause, and likely other labor groups as well. If they went down this foolish road the company would have a merged pilot group operating under one contract which would take away a lot of the cost advantage the ULCCs enjoy.
 
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FlyCaledonian
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Re: US 3 Forming Airline Groups

Sat Oct 22, 2016 6:49 pm

sdh9 wrote:
Running an alter-ego airline isn't allowed by the pilots' scope clause, and likely other labor groups as well. If they went down this foolish road the company would have a merged pilot group operating under one contract which would take away a lot of the cost advantage the ULCCs enjoy.

I get this, but (and only theoretical here) American Airlines Group were to buy Spirit, is there anything the labor groups could do? AAG would own American Airlines and Spirit Airlines, two separate subsidiaries rather than an airline within an airline.
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intotheair
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Re: US 3 Forming Airline Groups

Sat Oct 22, 2016 6:52 pm

sdh9 wrote:
Running an alter-ego airline isn't allowed by the pilots' scope clause, and likely other labor groups as well. If they went down this foolish road the company would have a merged pilot group operating under one contract which would take away a lot of the cost advantage the ULCCs enjoy.


This is key. Pilot groups would never really allow for separate pay scales within an airline. That was the main reason why Republic and Frontier eventually had to separate. It's also the reason why the airline-within-an-airline concept didn't work the same way IAG owning VY works. Sure, UA can paint a fun scheme on an A320 and stuff 10-20 more seats into one, but at the end of the day, it didn't meaningfully bring down costs as long as everything else stayed the same, and it pissed off UA customers.

If UA/AA/DL could set up separate Vueling/Eurowings/Transavia-style operations to pay their pilots less, they would do it in a heartbeat. But pilot unions would never allow a subset of mainline pilots to be paid less just because they fly on a different certificate/brand.
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sdh9
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Re: US 3 Forming Airline Groups

Sat Oct 22, 2016 9:13 pm

FlyCaledonian wrote:
I get this, but (and only theoretical here) American Airlines Group were to buy Spirit, is there anything the labor groups could do? AAG would own American Airlines and Spirit Airlines, two separate subsidiaries rather than an airline within an airline.


They would file an expedited grievance, win arbitration, and then possibly a file federal lawsuit to uphold the decision.
 
nry
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Re: US 3 Forming Airline Groups

Sat Oct 22, 2016 10:33 pm

The US3 airlines don't need to form a separate LCC/ULCC - Basic Economy is supposed to take on that role for them to compete at that price point.
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lancelot07
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Re: US 3 Forming Airline Groups

Sun Oct 23, 2016 10:13 am

intotheair wrote:
This is key. Pilot groups would never really allow for separate pay scales within an airline. That was the main reason why Republic and Frontier eventually had to separate. It's also the reason why the airline-within-an-airline concept didn't work the same way IAG owning VY works. Sure, UA can paint a fun scheme on an A320 and stuff 10-20 more seats into one, but at the end of the day, it didn't meaningfully bring down costs as long as everything else stayed the same, and it pissed off UA customers.

If UA/AA/DL could set up separate Vueling/Eurowings/Transavia-style operations to pay their pilots less, they would do it in a heartbeat. But pilot unions would never allow a subset of mainline pilots to be paid less just because they fly on a different certificate/brand.

In the EU, they do allow (grudgingly, of course), and the scheme works.
 
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atypical
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Re: US 3 Forming Airline Groups

Sun Oct 23, 2016 3:17 pm

None at all. I see three issues:

1. No structure in which it could work. The US government wouldn't approve.
2. No benefit to the major. For the LLC flying is a commodity so customer lists are not particularly valuable.
3. No benefit for the LLC. Hi Bloat, hi Blubber, glad we could meet?
 
bzcat
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Re: US 3 Forming Airline Groups

Mon Oct 24, 2016 7:33 pm

thekorean wrote:
Remember, US3 have multiple hubs and probably their fleet sizes probably more or less equal the fleet size of EU airlines group.


This is really the key answer here.

IAG has hubs in LHR, MAD, and DUB and they did it by acquiring airlines. LH group has hubs in MUC, VIE, and ZRH and they did it by acquiring airlines. AF/KLM group has hubs in CDG and AMS because of a merger. So the way the airline groups formed in Europe is fundamentally no different than in the US with our mega carriers.

But obviously, these European airlines have to keep their legacy names and legal separate corporate entities because air service agreements and authority to operate international flights outside EU are still tied to nationality of the airlines. i.e. IAG cannot operate a UK-flagged aircraft from MAD to South America or China. Plus there is marketing reasons to keep the national brand alive in regional European markets.

In the US, once the airlines merged (e.g. AA-US, UA-CO, DL-NW) there is no reason to keep separate legal entities because there is no national bi-lateral air service agreements that prevents the airlines from serving international destinations under the surviving brand. i.e. AA doesn't have to keep the US brand around just for flights out of PHL or CLT. And the regional airline brands have disappeared long ago so there is nothing valuable to keep.

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