Alitalia’s struggles continue. The carrier still needs a fresh infusion of cash to pay off the bridge loan from the Italian government and some sort of long-term plan. And, for the latter, Alitalia will soon find itself forced to be more independent than it is today. Its transatlantic joint venture partners Delta Air Lines, Air France and KLM filed papers with US regulators seeking to dump Alitalia from their group and replace it with Virgin Atlantic. The JV adjustment to include Virgin Atlantic was previously intimated; dropping Alitalia was assumed at that time, but not as explicit.
Change is coming for the transatlantic market: Delta, KLM, Air France and Virgin Atlantic want a new, combine JV. And Alitalia is excluded. H/t @fozzm https://t.co/6LBeEHLLXm #avgeek #paxex pic.twitter.com/RK33cpLKok
— Seth Miller (@WandrMe) July 21, 2018
The new JV
Assuming the revised JV is approved on both sides of the Atlantic the new agreement will allow the four airlines to coordinate pricing, schedules, product, cargo and more across all routes between the US and Europe. For Delta customers the JV also covers onward travel on its European partners to Africa, India, Pakistan or the Middle East. For the European carriers the deal covers trips crossing the Atlantic to reach Northern South America or Central America.
The lack of route overlap between Virgin Atlantic and KLM/Air France, plus Virgin’s lack of a short-haul network within Europe makes it easier for the airlines to demonstrate benefits of coordination in the market. And, in particular, the group hopes to better battle British Airways and the oneworld dominance at London’s Heathrow Airport.
The filing specifically calls out BA and its IAG & JV associated airlines several times, noting that it now holds a larger share of slots at LHR than it did in 2010. The hope is that the adjusted JV allows the group to capture more of the traffic into London and the United Kingdom thanks to offering additional connections.
[T]he combination of Air France’s and KLM’s European networks with the Delta/Virgin Atlantic United Kingdom transatlantic offerings from the UK will allow the joint venture to provide a more attractive competitive alternative to British Airways and its joint venture partners in the United Kingdom, increasing their ability to compete effectively in the transatlantic markets between the UK and the United States, among others.
For passengers there are some concrete benefits around the loyalty program and passenger services. The application promises “Full reciprocity on FFP global mileage accrual and redemption, as well as metal-neutral award availability for base level award travel,” as part of the deal. Of course, availability and pricing are two different things and all the member carriers charge a cash premium for awards originating in Europe. Still, the equal access to award space holds some promise.
Then again, with shift towards multiple award tiers and more revenue-based award pricing the inventory availability might be more of a red herring. The group also calls out the reduced Medallion Qualifying Miles earnings on non-JV partners as a reason the JV benefits consumers. Of course, the MQM rates could be higher on the other partners, too, even without a JV. They were for many years.
The carriers will implement a commonly accessible ticket database to ensure that passengers traveling on multiple carriers can move seamlessly across the airlines. The tight coordination between the carriers today means this should bring a relatively minimal impact except for itineraries combining the new VS/AF/KL operations.
What about Alitalia??
As the filing is mostly about booting Alitalia from the group its future is not addressed. Some inferences can be made, however, and they are mostly negative. The revenue sharing in particular is an area where the Italians likely realized outsized benefits.
Sharing of incremental profits and losses generated by the joint venture above a certain baseline, subject to certain adjustments, which ensures that the Amended JVA Partners will be motivated to achieve shared goals and efficiencies.
Given the poor performance of Alitalia’s operation and its relatively smaller size in the transatlantic market it is likely that the money at play here is a relatively small amount. Still, the other carriers certainly would prefer to keep it – and their generally more profitable operations – closer to home where possible.
The new deal is not final yet and approval on all sides could last into 2019. Until then the existing SKyTeam JV – including Alitalia – remains in place.
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