Last night, I attended the launch of Iberia’s new flight from LA to Madrid. This has been hailed as a product of the joint venture between British Airways/Iberia (now under the same ownership) and American Airlines. Is that really true? Yes and no, I think. It’s confusing.
One of the things that bothers me about joint ventures in general is that they are given a lot more credit than they’re actually due. The basic joint venture idea is that airlines come together to create a single business where all decisions are made to benefit the greater good and information flows freely. The participating airlines pool the money and then split it up, so it doesn’t matter which airline is actually flying the passenger. With rules against foreign ownership in place in the US, this kind of cooperation is the closest that US airlines can get to merging with a foreign airline.
In this case, we see the airlines saying that the joint venture has “increased the travel options available to clients of all three airlines, with more frequencies and more destinations, as well as better connections across all three networks.” But how much of this is achievable without a joint venture from a customer perspective?
Airlines can and do codeshare without a joint venture all the time, as you all well know. So the connectivity aspect isn’t something that requires a joint venture. Similarly, frequent flier cooperation has nothing to do with the joint venture. Some people believe that American and British Airways were not able to offer miles on each other’s Transatlantic flights because the feds wouldn’t approve the joint venture for a long time. They might have wanted you to believe that, but it’s not true. It was a business decision. So what exactly does a joint venture do?
Most importantly, it allows for schedule and fare coordination. Before, Iberia could start the flight to LAX, but it wouldn’t be able to strategize with American about which markets had the best connecting opportunities and adjust schedules accordingly. Now, since they share all information, American might find that it’s worth it to shift a flight to, say San Diego by half an hour because there are a ton of people flying that route and the airlines might be losing out to competitors with better schedules.
It has also allowed the airlines to cooperate on routes where they previously competed. Look at the New York to London market and its “shuttle” service. The two airlines have now aligned their flight times so that they complement each other instead of compete. Granted, they still operate from different terminals at JFK, so it’s not an easy shuttle service as you would hope, but it’s a step. And it’s a step that’s only really going to happen because of the joint venture.
Fares can also be discussed at will. So there can be much better route analyses in order to determine where the best place is to put that A340 Iberia is now sending to LA. Maybe Iberia with its own data would have decided that another flight to Chicago made sense. But after looking at the data, the combined information showed that everyone in the joint venture would be better off with the flight to LA. I don’t know if that’s true at all, but it shows how it could work.
So for the airlines, it’s all about the pseudo-merger over the Atlantic. They can now look at the data as one, though with some of the large cultural differences, it’s hard to get everyone on the same page when it comes to taking action. Still, the possibility is there and it can be good in terms of better schedules and more flights.
Can it be bad? Of course. Before, you still had BA, Iberia, and American competing for passengers over the water. Sure, they codeshared with each other, but the airline that flew the passenger got the money so there was incentive. Now, there are fewer competitors in the market since BA/Iberia/American act as one (as do Delta/Air France/KLM and Lufthansa/United/Air Canada.) In the end, the belief is that this will still be better for consumers, at least, that’s why the feds decided to approve it.
What do you think?
My first remark, with the Delta/Air France and United/Lufthansa precedents the US government had no other option than to approve.
It is hard to see from the sidelines whether this kind of concentration will be beneficial or harmful for the passengers in the long run; positive point is that the airlines can strengthen their combined network (better travel options), a negative point is that there is less incentive to compete on price and ticket conditions. We have to hope that there will remain enough competition (also outside the big alliances) on the North Atlantic market to keep prices fair.
In my mid 90’s IB wanted LAX-MAD service but they didn’t see the customer base. Could have been they didn’t know how to market it right with their beyond MAD connection options. So look how many years have gone by since they started the service, so at least the AA part of that venture helped IB with joint coordination to feed to/from LAX.
Not that many people go to Spain as other European cities, but done correctly only IB can come out ahead because of it’s connections via MAD to other parts of the world.
During the years that IBERIA had direct LAX – MAD service I used it frequently. The passenger load on the flights I took always seemed to be at least 75% or more. So I was surprised when IBERIA chose to cancel the service. Until now it has taken longer and been more inconvenient to get from LAX to MAD. As a Consumer I and many other travelers find it great to be able to fly direct to MAD from the West Coast and avoid delays and bad weather cancellations at a connecting airport. Additionally, if one is continuing on to another European destination Heathrow (and other airports) can be avoided (along with the never ending labor problems that BA has been experiencing and the winter closures) Madrid is an excellent choice.
I too am not for the continued consolidation of airlines, which impacts competition, but if the ONE WORLD connection had anything to do with the re-start of the LAX – MAD service, I will close my eyes.
Since IBERIA is a business I hope that the current financial Depression the world has been enduring for the past four years will not cripple this new and much needed service. I wish IBERIA luck and good bookings on this renewed service to Madrid.
Brett, legally when airlines do a JV are they starting a new LLC and dropping all the associated assets into a jointly owned LLC? Or is it just an accounting construct?
I believe it’s usually just an accounting construct and not a legal entity of any sort. I assume that’s related to foreign ownership rules.
I think Iberia will have much more luck with BCN-MIA, which is starting today.
But time will tell, where these alliance partners will be stepping on each others toes, and it makes no sense for certain members to be in their current alliance. My guess would be 10 yrs down the road Singapore Airlines (and possibly Turkish Airlines) would not be in Star.
Maybe this will spawn a fourth alliance, or it might just be the alliance craze of the last 15 years will finally be replaced by something new.
BCN doesn´t have enought pax to fill a long haul flight.
Iberia is doing this fight BCN-MIA just because the local goverment pays for it.
Unfortunally IBE has become a muppet in the IAG bussines with BA, where BA is the director/owner of the show.
Too fragmented a market is generally not efficient, since operators fail to achieve sufficient scale. In that regard, competition between three strong carrier groups that run their networks at high internal efficiency (allowing them to price their product low to the benefit of the consumer) is desirable. As a constituent member of the flying public, I’m all for this. “The feds” voted with the consumer in this instance, not AA/BA/Iberia’s competitors.
I’ll be taking this service in June. I was hoping that the press event would be at the Flight Path, like others have been, and I could have gone. Being Spanish, I go to Spain frequently. It’s nice have a non-stop, but, going day to day, the fares go from somewhat expensive to ridiculous. It can be a lot cheaper flying with a stop, say, through JFK. They had this route way back when. It was very expensive, and, apparently, made no money, so it was stopped. I’m eager to see how this will turn out for all three airlines involved. Now that they have AA providing feed, I hope they can survive- but I don’t think they will, at 1700+ return in Y. I can fly AA, then IB, through MIA, JFK, or ORD, for quite a lot less, and I’ll continue doing so, unless the prices become reasonable. On another note, It’s going to be nice to see some IB tails here in LAX…
By the way, Brett- who was at the event? I don’t think the CEO would go, but maybe… Execs, LAWA people, and press I’m sure was there.
Yeah, some LAWA people and a Vice President from Iberia. It was a very small event.
We are also Spanish and have booked flights in April and in September. The April flight was under $1,000 in Economy. You must be flying another class of service. We fly back frequently and I prefer direct flights every time if the difference is not too much.
I hope that IBERIA can make this route work during this economic crisis (not to mention the current upheavals in the middle east). I think there should be enough interest.
Problem is I’m flying during peak times. Now, the price is 1300 bucks… Like I said, it changes. A few days ago, $1700, today, about 1300. let’s hope the price stays this way…
I have checked (economy) return fares for a direct flight from LAX at a local (Dutch) travel site; picked random travel (and return) dates for May and June.
Iberia offers LAX-MAD direct for (slightly under) 1000 Euro; American offers the same flights for 1050 and British for 1100.
As a comparison, fares for a direct LAX-LHR return trip (a more competitive market): Virgin Atlantic slightly under 900 Euro, New Zealand slightly over 900; BA 1050 Euro and Iberia 1100.
LAX-Amsterdam direct costs 1200 Euro, book with Delta. :-(
Can’t do DL- They’d make me fly with the UM service, as I’m 14, which I refuse to do. My options would be BA, IB, AA, and UA/EI…
ASarkiss, looking at the prices in €, I guess that the US$ 1300 is the best deal you get for the summer season… The $1000 off-season looks like a good deal too.
Kind of off topic, but just wanted to share that some airlines are generally more flexible with the rules when it comes to unaccompanied minors. (Generally not European and US airlines that are too tied to the rules)
I think some of the Indian and Southeast Asian carriers do unaccompanied for free or don’t do it if you don’t want it (e.g. AI or Jet). Obviously you’re going to Europe, so that doesn’t apply. You might be able to get a waiver from Delta or whoever, that says you’re fine without the minor service.
I tried to see if there was any way for me to not fly with the UM service on DL, but they said no. Thanks, though. Maybe I’ll try again.
Cranky, do you have any info regarding the success of the IBERIA LAX – MAD service? Do they have any wi-fi or outlets to plug devices into for power?
I don’t know, though it hasn’t been canceled so that’s probably a good sign. On power ports and individual TVs up front. In coach, no power and just overhead screens throughout the cabin. There is no wifi.
I just received notice of the cancellation of my direct flight LAX.Madrid in January 2013? No direct flights for January. Has this route been cancelled for good?
That’s odd… I’d heard that the flight was doing OK. Maybe they are going seasonal? Another possibility is operational constraints. It’s know that IB’s long-haul fleet is stretched thin. Have they said anything about an alternate?
I sure hope it is just a glitch. I take the direct flight from LAX – MAD often and it nomally is pretty full. I know that on low season they have dropped one day of service, but had kept 3 day per week flights the rest of the year> Maybe Crankk can give us the latest.
This is a great flight, especially for connecting to other European/African flights.
Just read that is becoming a seasonal flight. Resumes in March.