American-U.S. Air merger would boost revival of oneworld alliance
By Rhys Jones | February 14, 2013 1:49 AM EST
Global airline alliances emerged in the late 1990s as a way for carriers to profitably extend their networks through mutually operated flights and marketing.
Sources told Reuters last week that US Airways would leave the Star Alliance and join oneworld as part of the merger with American. The move would come at time when oneworld is in the midst of a recruitment drive to plug gaping holes in its worldwide network. Securing a Chinese member is still the main priority of the alliance, which is led by American Air and British Airways.
The $11 billion US Air-American merger, expected to be announced this week, will create the world's largest airline by passenger traffic and help the two carriers better compete with rivals such as Star Alliance's United Continental
"The merger would see one of oneworld's key members becoming bigger and stronger, making oneworld the largest alliance in the U.S., the world's largest passenger market," said Brendan Sobie, chief analyst at the Centre for Asia Pacific Aviation (CAPA).
Oneworld comprises 13 carriers serving 160 countries with 9,500 departures daily. SkyTeam's 19 airlines fly to 187 countries some 15,000 times a day, while Star is formed of 27 airlines serving 194 countries with 22,000 daily departures.
Oneworld's share of global capacity stands at 11.6 percent, compared to SkyTeam's 18.3 percent and Star's 24.8 percent, according to CAPA data.
Today, the three alliances provide 45 percent of all global seat capacity, according to industry body IATA. The growth of alliances has been spurred by rigid foreign ownership controls that make it hard for airlines to merge between regions, encouraging them to look for other ways to benefit from each other's brands and traffic.
Oneworld, founded in 1999, has fallen behind SkyTeam and Star Alliance in recent years, but having a combined American-US Airways would help oneworld provide the scale to match rivals that are upgrading services and expanding international routes.
The merged airline would have a leading position on the important U.S. East Coast, specifically on key routes between New York, Washington and Boston, and would boost American's relatively weak passenger feed in the central United States.
The addition of US Airways will also help strengthen the domestic feed to American's key trans-Atlantic routes, on which it has a revenue-sharing joint venture with IAG's
"Oneworld has always been more focused on the business market than the other alliances, so the improved domestic feed and larger East Coast presence will be a help," said Peter Morris, chief economist at aviation consultancy Ascend.
US Airways' defection would be a blow for Star Alliance and would add dozens of new destinations to oneworld airlines. It would also create new opportunities for US Airways' hubs in Philadelphia, Phoenix and Charlotte, North Carolina.
If approved, the American-US Air deal would mark the third major U.S. airline merger since 2008, raising the specter of higher ticket prices and fewer choices for consumers as a handful of airlines dominate the skies.
In recent years airlines have suffered because of a toxic mix of high fuel costs, weak consumer confidence and the global economic crisis. Many have cut routes and staff to survive, while others have gone bust.
Oneworld, the smallest of the alliances, has suffered through the bankruptcy of two of its members, Mexicana in 2010 and Malev-Hungarian last year. Bankruptcy filings by AMR and Japan Airlines over the last two years also hurt the group.
Unlike Star and SkyTeam, oneworld does not yet have a standardized frequent-flyer program, and while it is well connected in the trans-Atlantic market, Europe and Japan, it has a limited presence in China and South America where its rivals are strong.
"Losing Malev and Mexicana was tough for oneworld, but it looks like SriLankan will join, and there is talk that Brazil's TAM could move over from the Star Alliance," said CAPA's Sobie.
"Adding US Airways is nice, but the priority for oneworld, which is playing catch-up with the other two, is getting a mainland Chinese carrier as a member."
SkyTeam has four Chinese members, including China Eastern <600115.SS> and China Southern <600029.SS>, while Star Alliance counts Shenzhen Airlines and Air China <601111.SS> as members.
Oneworld's comeback started in earnest last year when it became the only alliance to secure a hub in the Gulf after fast-growing Qatar Airways agreed to join. Qatar's membership will give oneworld member airlines better connectivity on routes through and within the Middle East.
Oneworld plugged a gap in its global network this month by announcing that Malaysia Airlines, Southeast Asia's second-largest carrier, would join.
"Star is unlikely to shed any tears over the loss of US Airways, given it has United Continental as a key member, but it could be the start of something for oneworld, especially if it gets TAM to join," said Ascend's Morris.
(Additional reporting by Tim Hepher in Paris; Editing by John Wallace)
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