What the American-Alaska partnership means for Delta
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The two companies were once close partners, but that ended less-than-amicably when Delta decided to grow its own presence in Alaska’s home market and end an alliance between the two. Delta has since declared Seattle a hub, putting it into direct competition with Alaska on dozens of Alaska’s most-important routes.
Now, as the two remain in a head-to-head battle over the Pacific Northwest, Alaska’s new partnership with American Airlines and move to join the American-backed Oneworld alliance has been seen as a shot across the bow for Delta — from both Alaska and American. Included in the Alaska-American pact are two new international routes from Seattle/Tacoma International Airport (SEA) on American: Bangalore, India (BLR) beginning October, and London Heathrow (LHR) starting in March 2021.
“At this point, it’s certainly not good news for Delta,” said Brett Snyder, who runs the Cranky Concierge travel service and writes the Cranky Flier blog about air travel.
The main issue for Delta is that Alaska has gained some footing with a big partner like American, something that allows it to pack a greater punch as a competitor, said Snyder. But, he added, it’s too early to tell exactly how much the partnership will affect Delta’s long-term outlook in Seattle.
“Whether it makes a dent or not, that’s what we don’t know,” Snyder said.
Alaska’s new partnership is a low-risk way for it to strengthen its offerings to passengers. While codeshares allow an airline to expand its network virtually with little cost, they are also often not large revenue drivers. For example, the now-ended Alaska-Delta partnership only generated about $235 million in revenue for Alaska — or less than 5% of total revenues — at its peak in 2013.
What the new Alaska-American tie-up does is allow Alaska to present lucrative corporate accounts, like Amazon and Microsoft, in the Puget Sound region with a broader global portfolio.
Alaska is by far the biggest carrier in Seattle, but its route network is mostly domestic with some flights to Canada, Mexico and Central America. It has international partners, but none that it works as closely with as what’s proposed in the alliance with American.
Nathaniel Pieper, senior vice president of finance, alliances and treasury at Alaska, told TPG Thursday that the big tech companies spend more than half of their travel budgets on international travel.
“It’s very hard for us to compete for that,” he said.
Delta now faces challenges from American on both coasts. In addition to the renewed Alaska-American partnership, American is expanding in Boston (BOS) and Austin (AUS) — a hub and focus city, respectively, for Delta. That continues what also appears to be a broadening front in the competition between those two airlines, something that was stoked the news that Delta would invest in long-time American partner LATAM Airlines last September. LATAM has subsequently ended its ties with American, and will leave Oneworld at the end of April.
As American steps up its competition with Delta, that could force Delta to recalibrate its approach to corporate sales, especially as its competitors come knocking with a stronger proposition.
For his part Ed Bastian, Delta’s CEO, had little to say while speaking to reporters Friday outside the airline’s Atlanta headquarters.
“We’re doing great in Seattle,” was his only comment on the matter.
The heated-up rivalries are unlikely to result in immediate changes for passengers, but better elite benefits for frequent flyers are one likely result. Alaska and American are cancelling the planned roll back of reciprocal frequent flier benefits that was scheduled for March 1, and plan to offer each carriers’ top travelers reciprocal benefits.
The plans also call for an expanded domestic codeshare among Alaska and American. However, this will roll out slower than other aspects of their partnership due to restrictions put in place by the Justice Department when Alaska acquired Virgin America in 2016.
“We’re very cognizant of the DOJ guidelines,” said Pieper, adding that the domestic codeshare will move forward with “baby steps.”
For the time being, the aviation industry will be watching what happens next in the battle for Seattle. Few domestic changes, at least in the short term, are expected. Internationally, congestion at the Seattle airport during peak times limit what Delta can do in response to American’s new routes until a new arrivals facility opens in late 2020.
But Delta is unlikely to sit idly by as two major competitors ramp up competition in a key market.
“When was the last time someone has really tried to challenge Delta where Delta had the upper hand? It’s not something we have really seen, and for that reason I think there is more uncertainty here than you otherwise might expect,” Snyder said.
Featured photo courtesy of the Port of Seattle.
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