LCC or hybrid

Well, it appears as if JetBlue is at it again. This time the LCC has inked a codeshare deal with South African Airways which will allow passengers to check in all the way to their final destination, including their luggage. This is an interesting development for the traditionally low cost carrier as it has similar arrangements in place with Aer Lingus, Lufthansa (minority owner of JetBlue), and American Airlines.

JetBlue appears to have created an open source IT system, if you will allow me to call it that, which allows easier integration with potential partners. This contrasts with the recent decision by Southwest and WestJet to part ways after a much-hyped partnership across the border. Part of the reasoning was the necessary costs to integrate the IT systems of the two North American airlines.

Is this the future development of the airline industry? My research has shown that a form of alliances are a viable option for LCCs, and possibly also for LCCs that are emulating their full-service brethren. Today we have 3 major alliances, however this does not mean that new entities can appear. The 3 major alliances do strive to offer global, seamless travel, however these come at a cost. Airlines have to integrate IT systems, coordinate back-office functions and operational aspects, and ensure commonality with the alliance. This may be a new area for LCCs to attack. It may not be necessary to establish formal alliances that are resource-heavy, but more flexible, open architecture based alliances that are more virtual in nature. One day it may be possible for passengers to travel across the globe on a handful of LCCs and one ticket, but not in a formal alliance structure that is resource and cost heavy.

It will be interesting to see how JetBlue will continue to advance these partnerships, and what impact it will have on JetBlue and other carriers. Hopefully, the tie-up with SAA will be a success, and JetBlue will hopefully experience a boost in traffic that want to go to the Southern hemisphere to see some soccer/football this summer.

Southwest's virtual linkup with Volaris

Southwest and Volaris will eventually codeshare, however to pass the time Southwest has implemented an online link to Volaris's website. This is the same as that offered to customers wishing to travel to Canada using WestJet. Click here.

Now this is just a simple link to a separate booking. No bags will be transferred, the passenger has to make sure of meeting the departure time, etc. This is the same as if I had booked two separate tickets using both Southwest and Volaris. The link-up though is the first step in a closer relationship. If yield or revenue drops then it's nice to have more passengers in the system, and the Volaris/West Jet tie-ups allow Southwest to extend its reach with little investment. No/few staff are required, no additional planes are needed, international experience is not necessary, however passengers will enter into the system. However, the complexity of the business model will increase. Southwest has to make sure that it offers attractive connection possibilities to those flying with WestJet or Volaris. Southwest does though have experience with its own networking and connections as the carrier already offers onlining.

Too bad there is all the media hype surrounding swine flu.

Segregation is slowly disappearing in the airline industry

It wasn't too long ago that large network carriers looked down upon those pesky low-cost carriers and wouldn't give them the time of day. This arrogant attitude by FSCs changed as those LCCs began to encroach on their territory and profit; it changed to one of panic. Those network carriers attempted to imitate the LCC business model but failed to really study what made a successful low-cost airline. Those high-cost carriers wrapped in LCC clothing have disappeared (Shuttle by United, TED, Song, Continental Lite, etc...). Now, it appears that these two groups have reached a consensus that both are here to stay and that it is possible to cooperate, which benefits both parties.

In the past I have spoken about how the business models of LCCs, FSCs, and regionals are converging. This will mean that we will see more and more cooperation between the different types of carriers, just as the announcement by WestJet of Canada and Air France/KLM of, well, France and the Netherlands. These "two" (two in quotations because I see Air France/KLM as one carrier, but they are still cruising around in two liveries) will enter into a code-share agreement by then end of this year or early 2010. In addition, they will look into interline agreements and FFP tie-up, technology permitting. This appears to be a strategic attempt by both carriers to capitalize on a partner's advantages. WestJet has a strong foothold in the Canadian market, which is an attractive feed to Air France/KLM who are up against Air Canada in trans-Atlantic flights. WestJet, on the other hand, can potentially get more traffic due to passengers wanting to fly to Europe. The challenge brand-wise is ensuring that passengers who hop off in Canada and transfer to a WestJet flight don't expect AF/KLM first-class service. This has always been one fear of entering into agreements between FSCs and LCCs. However, if they make this transparent to the passenger it should be acceptable. In addition, many LCCs actually have a more attractive short-haul product compared to the short-haul product on FSCs. Technology will also play an important role here. Integration of IT systems that allow a seamless and low-cost experience to the customer is vital. A tie-up that is challenged technologically and has added expense goes against the entire concept of the agreement.

This will be interesting to watch and if others will follow suit in other parts of the world. In addition, the agreement and WestJet and Southwest may have just gotten a whole lot more interesting.

First Dallas then Dryden...Canada

Gary Kelly of Southwest has stated that the grandfather of LCCs will be announcing a codeshare with a yet-to-be-announced carrier to Canada. WestJet is the first carrier that comes to mind. The LCC business model is predicated on using low-fares to both entice new travelers and steal disloyal passengers from competitors. However, as those markets dry up (there are only so many origin and destination markets that can fill a 737 and still provide a financial return) those LCCs are forced to move into the territory of full-service carriers or find new markets. Southwest has had a presence at various primary airports, Denver and San Francisco, just to name a few, where the airline battled with more traditional carriers. However, it now appears as if international expansion is on the drawing board (click here). Southwest did have a codeshare in place with ATA to Hawaii, however that arrangement fell through with the carrier's demise. Now Canada is a market that Southwest is looking at. Asia and Europe are also mentioned, however a time frame is not given and at the rate that this industry develops it's hard to say how things will develop.

Aer Lingus and JetBlue: No codeshare but still an agreement

More detailed information is seeping out regarding the partnership between Aer Lingus and JetBlue. Tickets will be put on sale in April but only on the Aer Lingus site. JetBlue visitors will be redirected to the Aer Lingus website. Currently, the system is only arranged for flights from Dublin or Shannon to JFK, but will most likely be expanded to include Boston, Orlando, and continental Europe. The interesting note is that the carriers will not exchange codes and there are no interline agreements, the carriers are compensated as a straight swap for the fares. Ticket prices will merely be the sum of the individual legs, while there will be baggage transfer. The carriers state that this will not be a problem since they are neighbors in New York. One interesting note is that JetBlue has announced that it expects to partner with up to 10 carriers! These will most likely be foreign airlines serving JFK, and may include current Star, Oneworld, Skyteam, or independents. The same holds true for Aer Lingus on the other end. The software has been developed and is ready to accept new members.

The Germans are coming!

It appears as if Lufthansa has winds in its sails, or more appropriately, a nice tailwind. The German flag carrier has announced that its partnership with NetJets will cease in mid-2008. The agreement between the carrier and the fractional ownership firm was signed in 2005 and proved that there is a market among LH's high yielding passengers for the added flexibility of executive charter. However, the agreement did not take shape according to plan. Rather than feed passengers into Frankfurt, Munich, and Zurich from outlying locations, 70% of passengers were using the agreement for intra-EU flights. This must have been eating into NetJet's own business and LH acknowledged that demand exceeded supply at times. Now the German carrier will establish its own fleet for executive charter. This is an interesting development as it deviates from the carrier's core competence and product. As a group Lufthansa has been active in nearly all forms of air travel, from scheduled services, cargo, regional flying, and now to executive charter. It is an interesting digression from Virgin's concept as a middle-man for charter services, but no fleet ownership. It will be interesting to note how this adventure will compete with the likes of the VLJ charter concept. Smaller, upstart firms may be able to provide customers with more intimate service, while Lufthansa can promote its extensive global network and entwine the offerings from various companies.

Lufthansa's accounts are booming and the carrier has also just announced an acquisition of 19% of LCC JetBlue. This is the largest investment in the US by a foreign carrier of an LCC. It should be regarded as a testament to JetBlue who straddle both the LCC and FSC borders. Although the company has been struggling operationally and financially, it does have the air of an LCC among the market, but it is attractive enough for Lufthansa to invest in the airline. It remains to be seen whether this purely a financial investment, similar to Iceland Air's acquisitions of easyJet and American Airlines shares, or it is more strategic in nature. Lufthansa already has a close relationship with United Airlines, that competes with JetBlue both with its own brand and with Ted. JetBlue, on the other hand, will soon announce a tie-up with Irish Aer Lingus. One must complement JetBlue on its innovative strategies in the industry

LCCs reach out and link up across the Atlantic

ATW is reporting that JetBlue has all intentions to tie-up with Irish Aer Lingus, initially an Internet tie-up making their respective networks available to site visitors. This confirms Neeleman's statement on January 30th that JetBlue anticipated entering into interline or codeshare agreements with one or more international carriers. Aer Lingus, on the other hand, is set to depart the oneworld alliance later this year, although it has stated its intentions to continue codeshare agreements with its previous partners.

This would not be the first agreement among LCCs. Danish Sterling and SkyEurope have had a codeshare agreement for a number of years, as well as Southwest's collaboration with ATA, or Frontier and AirTran's marketing agreement.

Network coordination and related costs have to be closely studied as it is these factors that may have inhibited previous attempts at relationships. One can only question what this deal would look like if Ryanair had been successful in its bid attempt for Aer Lingus.

Aer Lingus transported 25 000 pax between Ireland and JFK and 15 000 between Ireland and BOS. These figures will hopefully benefit from JetBlue's network.