Joshonsteak and sundae

Japanese newspaper: JAL-Delta Tie the Knot

After weeks of back-and-forth haggling and the like, the Daily Yomiuri newspaper announced today (tomorrow?) that Japan Airlines (JAL) is leaving the Oneworld Alliance and entering into a relationship with Delta.

I'm trying to pack and get ready for a flight tomorrow, and I'm not someone who knows much about the dollars-and-cents side of the airline business. (My expertise is fast becoming airline food, not the intiricacies of route networks and code-sharing agreements.) So those two factors are keeping this from being an erudite and sophisticated analysis of the situation. But here are my initial reactions:

1. From a network perspective, this is certainly a blow to Oneworld. The alliance still has an excellent Asian airline in Cathay Pacific, and a decent number of Asia routes from AA, BA, and Qantas. But this deal leaves SkyTeam in a much better position to compete for high-revenue business travel to and from Asia. So while it doesn't totally cripple AA and Oneworld, it hurts.

2. Oneworld needs to agressively seek a major new partner, preferably one which will eventually place the alliance and its member airlines in a position to compete in China. (That, I suspect, was one reason such big numbers were being thrown around in this JAL sweepstakes.)

3. Perhaps this whole situation sets a bad precedent. An airline was a member of an alliance. Then that airline decides that it's in bad financial shape, so it basically whores out it's allegiance to the highest bidder. What's preventing the next airline that wants a billion dollar infusion of capital from doing the same thing? (Correct me if I'm missing out on something because I don't understand how the airline business works...)

4. This is a big blow to American Airlines and the Oneworld Alliance from an ego perspective. In the coming days we'll know more about how this went down, but it seems like JAL was more impressed by what Delta was offering ($1 billion, improved international routes and "efficiency" that JAL management believes will help their airline be sustainably profitable) as opposed to what AA was offering (something like $1.4 billion). But no matter what the details, it's clear that JAL basically threw AA and Oneworld to the curb.

That's a hit to AA's swagger. Oneworld was the first airline alliance. AA used to be the world's largest airline, carrying the most passengers and owning the most aircraft. That's changed (due mostly to a mergers) in the last couple of years. Having a monstrous offer like this be rejected, and losing a partner airline to a major domestic competitor has got to hit AA right where it hurts.

Update: A few minutes after I finished writing this post, Bloomberg is reporting that JAL, Delta, and American are all denying the report.

 

Comments

#1
Fozz January 16, 2010 at 11:23 am

I would say let's wait for an official announcement. This same announcement has been made at least once already in the last few weeks.

I still believe this is just DL trying to drive up the price AA has to pay.

If JL/DL were going to tie the proverbial knot, they would have substantial regulatory hurdles before them given how much of NRT they would control. The AA/JL deal is better for them to cut out the red-tape.

#2
Peter January 16, 2010 at 03:25 pm

JAL is a mess right now, it's stock price at penny stock status. If the report is true, it would be a big, big blow to OneWorld. Oneworld and Skyteam both have decent coverage in Asia, but if JAL moves, OneWorld will be greatly diminished. Cathay Pacific/Dragonair are both great, but not enough for the whole of Asia. OneWorld needs to do whatever it needs to do to keep JAL around. It wouldn't hurt to recruit China Southern either.

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