Will Delta leave Skyteam?

Delta’s CEO, Ed Bastian, struck a blow about ten days ago by telling Bloomberg that the Skyteam alliance of which the airline is a member, “has not ‘added much value to customers…[ou] to member airlines.” and that the American airline is therefore trying to create its “own international network of carriers” with Delta “as its centerpiece”.

From this, saying that Delta is likely to leave the alliance, this is a step we won’t make. Decoding.

The endless debate between alliances and partnerships

We have already talked about it here: today, airline alliances are showing their limits and many airlines prefer a more pragmatic approach by forming less restrictive and more rapidly operational partnerships.

For its part, Delta did not wait for this statement to weaving its web both inside and outside Skyteam through equity investments and joint ventures but, as we saw again last week with a 20% stake in LATAM, with a less erratic strategy than the one adopted by Etihad in its time.

An offensive strategy

What Bastian is saying is nothing more and nothing less than formalizing the strategy we mentioned above. While Delta does not intend to take complete control of all its partners, it believes that even partial financial integration allows for more synergies and cooperation between the airlines concerned.

A risky bet when we see what happened to the similar strategy adopted by Etihad in its time? Maybe not: Etihad had invested without much discernment in second-rate airlines not always in good health whereas Delta does it in airlines with which it has a long history of collaboration (Air France-KLM, Virgin Atlantic, Korean….) and which are rather “majors”. And, as we can see in the Alitalia case, Delta does not do anything at any price.

Will Delta leave Skyteam? No (or not yet)

This is the question that can legitimately be asked but nothing says that it will end this way. One might think that with stakes in the most significant members of Skyteam it could afford to do so, but this would mean cutting ties with China Eastern, which might not be a good idea.

Leaving Skyteam would totally weaken the alliance…and therefore its partners who would remain members. Unthinkable. Unless Air France-KLM and others leave at the same time? But this would pose problems of network size. We don’t believe in it.

Take stakes in the entire alliance to turn it into a de facto joint venture that would replace Skyteam? Maybe a little too ambitious.

While it’s safe to say that Delta can more easily do without Skyteam than the other way around, the separation doesn’t seem to be a good thing for anyone.

We rather see Delta setting up an “over-alliance” to have a reinforced cooperation with some major partners, the majority of which will still be (at least for the moment) in Skyteam. A bit like creating a group of 4 or 5 countries within the European Union that want to move forward more quickly and together.

That’s for the medium term…after that, once the network in question has a critical size and sufficient coverage, who knows what can happen.

When we read Ed Bastian’s statement (see below) we understand that he wants to go beyond the commercial partnership to exchange best practices, market knowledge… family secrets that are only revealed in the context of a reinforced integration, not a simple partnership or alliance.

What’s next?

In fact, the real question is what will happen in terms of acquisitions or equity investments now that the strategy has been clearly formalized. In particular, we will observe whether:

1°) The pace of equity investments will accelerate.

2°) Whether they will take place mostly in the alliance or extend outside the alliance.

Ed Bastian’s statement

“One of the things that has not been a success in the airline world is alliances. I don’t think we have brought much value to our customers, I don’t think we have brought much value to our member airlines. And we approach this issue in a very different way.

We are working on this with Delta by making bilateral investments in the most important partners. We own 49% of Virgin Atlantic and 49% of Aeromexico, the two carriers closest to us on both sides of the country. We have invested in Air France KLM. We have invested in Korean. We have invested in China Eastern. We have invested in Gol in Brazil.

So what you see is this network of influence that we have within these businesses. These businesses want to know what Delta has learned about operational efficiency, prowess and bonuses, we want to know what it takes to win in these local markets. And over time, even if we can’t own them all, we can have sufficiently large investments to create an international network of carriers that will be uniquely linked, with Delta as the cornerstone. That’s our goal.”

Photo : B747 Delta Airlines By Lerner Vadim via Shutterstock

Bertrand Duperrin
Bertrand Duperrinhttp://www.duperrin.com
Compulsive traveler, present in the French #avgeek community since the late 2000s and passionate about (long) travel since his youth, Bertrand Duperrin co-founded Travel Guys with Olivier Delestre in March 2015.

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