Continental's Bold Move Redraws the Alliance Map
David Grossman, USA TODAY, 7/14/2008 (excerpted)
While airline mergers have lost their luster, Continental Airlines recently shook up the travel world by resigning from SkyTeam to join the Star Alliance. This bold and unprecedented move will redraw the boundaries on the global alliance map and may encourage other alliance members to reevaluate their options.
Only four years after Continental joined SkyTeam, Continental and Delta now operate non-stop flights to 30 or more destinations on the other side of the Atlantic Ocean from their respective New York hubs, and they compete directly on more than half of those routes. With over 60 non-stop trans-Atlantic destinations currently served by all airlines from New York, Continental and Delta still have great potential for continued international expansion.
While the two U.S. SkyTeam members dominate trans-Atlantic service from New York, their U.S. competitor in oneworld (American Airlines) serves only a half dozen or so non-stop markets, and U.S.-based Star Alliance members United and US Airways have no flights across the Atlantic from New York.
This unbalanced scenario provides a strong impetus for Continental's desire to desert SkyTeam and join the Star Alliance. They can deliver a major share of the New York trans-Atlantic market overnight and can capture a large portion of Star Alliance trans-Atlantic traffic and feed passengers through their Newark hub.
The cataclysmic event precipitating Continental's alliance switch was the Delta-Northwest merger.
For many years Northwest has owned a minority stake in Continental with a right to block any vote by its board. That right will dissolve when the Delta-Northwest merger is completed, allowing Continental to switch allegiance. While moving to the Star Alliance might have been good for Continental all along, it could not happen until now.
By every measure, the Star Alliance is by far the largest of the three airline alliances.
Continental will most certainly benefit from the additional passenger traffic fed from a much larger airline alliance and will no longer be forced to share trans-Atlantic traffic to and from New York with Delta.
Like Delta and Northwest, Continental and United Air Lines have complementary route systems with few overlapping routes. Continental passengers will be able to take advantage of United's extensive Pacific route network and United will have a much greater presence in the New York area.
United passengers will also benefit from access to Continental's extensive Latin American route network and their Houston hub, which competes directly with United's archrival American Airlines' major Texas hub at Dallas-Fort Worth Airport. For decades United has sought to attain a stronger presence in the South. Now it will gain entry to that region without the pain of merging or investing in a new hub of its own. Continental's Houston hub and United's Chicago hub also give each airline an alternate option for rerouting passengers when inclement weather affects one of those regions.
Yet Continental's SkyTeam withdrawal may actually help Delta-Northwest too, as the combined airline will no longer have to share SkyTeam passengers with Continental and the new airline will carry all SkyTeam passengers on all domestic routes. In contrast, American Airlines will face stronger competition from a much larger merged Delta/Northwest and two more formidable competitors as its cross-state rival (Continental) and its longstanding competitor for east-west traffic (United) combine their route networks.
Though airline mergers and alliances tend to diminish competition, frequent travelers on Continental or United should benefit from a larger global route network. Continental OnePass mileage program members will most likely be able to transfer those miles to the Star Alliance, which offers more airline choices and destinations than SkyTeam.
This unusual alliance shift may trigger a rash of alliance hopping and realignment that might even spread across the globe. Continental left an alliance with three U.S. airlines, but now the alliance it joined has three U.S. members and that may be one too many. As a result of Continental's move, US Airways has already begun talks with oneworld members American Airlines and British Airways and so the game of airline alliance musical chairs has begun.