Willie Walsh Has Plenty to Say About Alliances and Acquisitions at CAPA’s Airlines in Transiti

My time in Dublin wasn’t just spent drinking Guinness and learning about Travelport’s new merchandising platform. The main event was the Centre for Aviation’s (CAPA) Airlines in Transition conference. The gathering was an interesting one with the highlight being the dinner debate involving several airline CEOs.

Ultimately, there was a lot of industry dorkiness involved, but there was also a lot of good conversation on topics that would interest even the casual traveler. It’s always a party when IAG (parent of British Airways and Iberia) CEO Willie Walsh is around. He is never one to mince words. In particular, I thought there was a lot of good talk about the future of alliances, so I thought I’d share that here.

First off, Willie isn’t a fan of alliances at all. Wait. What? How could a founding member of an alliance not be a fan of them? It’s because he sees alliances as the best option available, even though they aren’t ideal.

The reason alliances exist is because we can’t consolidate and alliances are a poor substitute for proper consolidation.

Amen to that. Because of foreign ownership rules (no foreign entity can own more than a quarter of a US-based airline and rules are similarly restrictive in other countries), true global mergers can’t happen. And that’s a shame, because as Willie notes, mergers always trump alliances.

Alliances give you revenue synergies, but consolidation gives you cost and revenue synergies.

In general, nearly everyone at the event agreed that foreign ownership restrictions are stupid and should be abolished. But that’s not the case today, so we have to work with what we have. And that means alliances have an important place in this industry.

But what’s really interesting is seeing how different alliance members approach the idea of an alliance. An alliance like Star Alliance is incredibly strong, but you see few partnerships outside the alliance itself. Outside of regional partnerships, for example, United has just Aer Lingus and Jet Airways as minor partners.

oneworld looks at things differently. The way Willie sees it, alliances are great, but they are not exclusive. Airlines will need to go outside alliances to fill gaps. That’s why Willie supports what you might not think he would. That Qantas and Emirates tie-up that left BA out in the cold? In his eyes, the move “was clearly right for Qantas and for Emirates.” He didn’t seem fazed.

There’s a lot more happening in the gulf with oneworld carriers that seems strange from an alliance perspective. American is aligned with both Abu Dhabi-based Etihad and Bahrain-based Gulf Air. As mentioned, Qantas, which was aligned with BA for Europe service, unwound much of that relationship and instead tied up with Emirates based in Dubai (a mere 70 miles north of Abu Dhabi). While all this was going on, Qatar Airways, just a couple hundred miles west of Abu Dhabi and Dubai, joined oneworld. What a tangled web. But if it works for each individual member, then it works for the alliance; at least it works for THIS alliance.

I think Willie put this best when he quoted someone he would only identify as a member of another alliance… “Just because I’m married doesn’t mean I can’t have a mistress.”

For an airline like American, that means a whole host of partners including Air Pacific, Air Tahiti Nui, Alaska, El Al, Etihad, Gulf Air, Jet Airways, jetBlue, and WestJet. Willie thinks “it might not be necessary for American to have as many partners as it has, but there’s no reason it can’t exist.” For its part, BA has only relationships with Aer Lingus and Alaska Airlines. But its parent is more focused on consolidation right now anyway.

IAG was formed when both BA and Iberia were merged under one roof. Now there is also Iberia Express, an airline that was solely formed to operate short haul flights from Madrid at a lower cost (40 percent lower non-fuel costs, actually). This was all about lowering labor costs, and Willie readily admitted that if he could have, he wouldn’t have bothered starting Iberia Express but he had no choice to get costs down.

Now IAG is expanding again as it closes in on acquiring the piece of low cost carrier Vueling that it doesn’t already own. I find myself wondering if IAG would have bothered buying Vueling if it didn’t already own a little less than half of it. But Willie is convinced this will work (of course) and intends to keep Vueling operating as a completely separate entity.

I believe it can be done. Can a profitable full service carrier run a profitable low cost carrier? What has been happening is that an unprofitable full service carrier takes over a profitable low cost carrier and then brings it down.

The jury is most certainly still out on that one (mostly since it has never successfully occurred). But when it comes to alliances, the results are clear. They provide real benefits that can’t be achieved elsewhere until cross-border merger restrictions are lifted. But there won’t be a single approach to alliances, and oneworld seems to be keen to keep a looser rein on things than others.

[Original cheating photo via Shutterstock]

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Muscat,  Oman
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