This Is the Biggest Week of 2014 for the U.S. Airline Industry
The past few days have been momentous for the U.S. airline industry. American Airlines and US Airways have just reached another key milestone in their merger integration, as US Airways exited the Star Alliance on Sunday and joined American in the Oneworld alliance on Monday.
Additionally, on Saturday, Delta Air Lines and Virgin Atlantic began flying a new coordinated schedule as part of their transatlantic joint venture. This allows them to compete more effectively for high-yielding business traffic between the U.S. and London's Heathrow Airport.
American Airlines is well-positioned to regain corporate travel share. Source: American Airlines.
The impact of these two moves will be felt gradually over the next year or two. Together, they will change the balance of power between Delta, American, and United Continental in the U.S. airline industry. The most likely result is that Delta and American will gain ground with lucrative business travelers at United's expense.
US Airways switches sides
For several years -- ever since Continental Airlines joined Star Alliance and then merged with United Airlines -- US Airways has been overshadowed within Star by its larger partner. When US Airways began pursuing a merger with American Airlines two years ago, it was clear that US Airways would move to American's Oneworld alliance in such a scenario.
US Airways' move from Star Alliance into Oneworld is important because it means that frequent fliers in US Airways hub markets like Philadelphia, Charlotte, and Phoenix will now rely on Oneworld airlines for travel outside of the American/US Airways network.
For example, a US Airways frequent flier traveling from Charlotte to Shanghai would previously have been likely to fly to Chicago -- or perhaps San Francisco -- and connect to a United flight to Shanghai. (US Airways does not fly to any destinations in Asia.) Today, this customer would still probably fly to Chicago, but instead connect to an American Airlines flight to Shanghai there.
The loss of US Airways connecting traffic certainly won't be devastating to United's transpacific business. United enjoys a substantial lead over Delta and American in terms of flight options between the U.S. and Asia (and particularly to China). However, it will definitely hurt at the margin, while simultaneously giving American Airlines a boost in Asia -- where it currently lags United and Delta.
Delta and Virgin Atlantic step up their game
The implementation of Delta and Virgin Atlantic's first joint schedule is being upstaged by the US Airways exit from Star Alliance, but it is still very important. By combining its schedule with that of Virgin Atlantic, Delta Air Lines now has nine daily flights between the New York area and London, up from just three daily flights previously.
That still lags Oneworld's 17 daily roundtrips between New York and London on American Airlines and British Airways, but it's at least competitive. Delta also leapfrogged United (which offers five daily flights from Newark to London) when the joint venture was implemented.
As of this week, Delta and Virgin Atlantic will offer departures every half hour from New York's JFK Airport to London Heathrow during the early evening peak, and then every hour until 10:30 p.m. The two carriers have also retimed flights to some other cities in order to provide more of a spread throughout the day. Lastly, Delta is moving its JFK, Boston, and Seattle flights to Virgin Atlantic's base in Terminal 3 at Heathrow to ease connections.
American bolstered its position in New York by merging with US Airways, which formerly had a large focus city operation at LaGuardia Airport, and still operates shuttle services to Boston and Washington, D.C. that are popular with business travelers. Delta's joint venture with Virgin Atlantic is a good counter. It strengthens Delta's position on the New York-London route, which is the cornerstone of American's value proposition for New York-area business travelers.
The new order
The American-US Airways merger -- and US Airways' move from Star Alliance to Oneworld -- and Delta's new coordinated transatlantic schedule with Virgin Atlantic are shaking up the U.S. airline industry. These moves strengthen the competitive positioning of American and Delta, respectively.
Meanwhile, some of United Airlines' key competitive advantages are being chipped away. It is still the leading airline from the U.S. to Asia, but most of the volume from US Airways frequent fliers will shift to American and fellow Oneworld carriers Japan Airlines and Cathay Pacific. Furthermore, Delta and American have both dramatically improved their service in New York to compete with United's Newark hub.
So far, United's main competitive response has been to continue broadening its international network with new city pairs and additional frequencies. In the next few years, we will see whether that's enough to overcome the splashier moves being made by Delta and American.
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The article This Is the Biggest Week of 2014 for the U.S. Airline Industry originally appeared on Fool.com.Adam Levine-Weinberg is short shares of United Continental Holdings. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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