Alaska Airlines plans to join Oneworld, forms alliance with American

It's true, the enemy of my enemy is my friend -- at least in Seattle.

Alaska Airlines and American Airlines, both facing competitive challenges from Delta Air Lines, are tying the knot with an extensive new partnership. The tie-up includes new routes between Seattle/Tacoma (SEA) and both Bangalore, India (BLR), and London Heathrow (LHR) that will be operated by American.

And if that is not enough, Seattle-based Alaska intends to join Oneworld by mid-2021. The Oneworld alliance counts American, which helped found the alliance, as one of its anchor tenants.

This is a major break from Alaska's long-standing "Swiss" partnership strategy of neutrality, one in which it preferred lots of individual airline relationships rather than joining one of the major alliances.

"We're really fired up about it," Alaska senior vice president of finance, alliances and treasury Nathaniel Pieper told TPG. "The line that’s been kicking around is ‘Alaska goes global.'”

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The rekindled Alaska-American relationship comes after the airlines looked set to go their separate ways. The carriers were due to end a number of reciprocal frequent-flyer benefits and shrink their codeshare to just a "select" number of domestic markets in the Midwest, eastern U.S. and Canada starting March 1.

The pact also comes just five months after Delta lured away American's long-time South American partner LATAM Airlines, and has started to build a focus city at American's Miami (MIA) stronghold. Alaska has battled Delta for dominance in Seattle since the latter established a hub and Asia gateway in the city in 2014.

Codeshare

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Alaska and American will cancel the planned roll back of their frequent-flyer relationship, and instead move forward with an expansive international and domestic codeshare. The partnership will include flights from both Los Angeles (LAX) and Seattle (SEA), the former a hub for both carriers and the latter a hub for Alaska, though specific routes are still in the works.

The tie-up will give American flyers access to Alaska's extensive — and growing — West Coast network. And Alaska flyers will gain access to American's broad international and domestic network, including along the East Coast where it has five hubs.

Related: Why Alaska Airlines is returning to its routes in the West

One big question is how much Alaska and American can partner domestically under the conditions of Alaska's 2016 merger with Virgin America. The Justice Department, in approving the merger, blocked Alaska from codesharing with American on routes where American and Virgin competed, as well as where Alaska was "likely to launch new service" after the merger.

The carriers do not expect this to hamper the new partnership, American senior vice president of network strategy Vasu Raja told TPG. They will be "very thoughtful" in where they codeshare so as not to run afoul of the regulator, he said, adding that they see the pact as beneficial rather than harmful to consumers.

"The circumstances have changed from the situation then compared to the situation now," said Saikat Chaudhuri, executive director of the Mack Institute for Innovation Management at Wharton who has analyzed past airline tie ups, on the potential impact of the DOJ's conditions.

"Delta is clearly the most successful [U.S.] airline and they’re building up positions everywhere," he added, citing Delta's growth in both Miami and Seattle.

The expanded domestic codeshare will be subject to government review, the Alaska and American noted.

International

International access for Alaska is a big driver of the new tie up. The carrier's fleet of Airbus A320 and Boeing 737 family jets limits its network to North America, with international connections provided by a bevy of airline partners from around the world.

Alaska has faced increasing difficulty landing travel contracts from large tech companies, like Amazon and Microsoft, who require international connectivity, said Pieper. "It’s very hard for us to compete for that," he said.

The American partnership, and Oneworld membership, give Alaska the world when it comes to landing corporate customers. Initially, this includes the two new routes:

• Daily Seattle-Bangalore service operated by American on a Boeing 787-9 will begin in October
• Daily Seattle-London Heathrow service operated by American on a Boeing 777 in March 2021; it will complement British Airways' up to twice-daily service

India will bring American back to a country it hasn't served since 2012. It's also the largest unserved international market from Seattle, the airport's senior manager of air service development Kazue Ishiwata told TPG. Bangalore and Hyderabad, in particular, attract the most corporate traffic from the Puget Sound area with many travelers today flying on either Emirates over Dubai (DXB) or Singapore Airlines over Singapore (SIN), she added.

The Alaska-American partnership is also about Los Angeles. American, despite being the largest at LAX, has struggled building a gateway to Asia there. Earlier this month, executives told analysts that it could permanently suspend flights to Beijing Capital (PEK) and Shanghai Pudong (PVG) from Los Angeles in the wake of the coronavirus outbreak.

"This partnership means that Los Angeles will be able to be more successful," Raja said. "We anticipate seeing a level of connectivity that we’ve never seen in L.A."

This could mean more long-haul routes, including potential new markets in Europe, from LAX, he added.

Related: Coronavirus could prompt American to drop ambition of Los Angeles gateway to Asia

Oneworld

Alaska's decision to join a major alliance is a major break for Oneworld. The alliance has had a rocky go things since losing LATAM, its only South American member, amid wider questions over the future of alliances.

In a December report, analysts at Cowen wrote that the combination of improved aircraft technology and consolidation among airlines in Asia and Europe are making Oneworld, SkyTeam and Star Alliance less relevant today than in the past. The big three U.S. carriers have been increasingly pivoting to joint ventures, where they can closely cooperate with a partner in a specific market, that provide greater revenue and other benefits.

Alaska seems nonplussed with this prognosis. Joining Oneworld will give its frequent flyers access to the 1,200 destinations served by the alliances' 14 airlines, a uniform set of benefits across the carriers -- six of which are already Alaska partners -- and access to their lounges, said Pieper.

"It really broadens [what is] a domestic West Coast airline so that we can be a global player," he said of both the American partnership and Oneworld membership.

Alaska, at least for the time being, plans to maintain its relationships with unaligned partners, like Emirates and Icelandair.

"This really is a great move," said Chaudhuri citing the Oneworld membership, but also referring to the larger partnership that will bring benefits to travelers on both Alaska and American.