Skift Take

For the alliance to have an effective hub at Heathrow it'll need a partner that flies about two dozen routes a day out of London's busiest airport. Is this an opportunity for a carrier on the ropes to get a leg up?

Deutsche Lufthansa AG’s Star group of airlines said it needs a short-haul ally at London’s Heathrow hub to fill a gap left by the British Airways takeover of BMI, and will reach out to carriers including Aer Lingus Group Plc.

Star, which includes United Continental Holdings Inc. and Singapore Airlines Ltd., is suffering from reduced connectivity at Heathrow after Lufthansa sold unprofitable BMI to BA parent IAG in April. The Oneworld alliance member was attracted by the scarce operating slots on offer at Europe’s busiest airport.

While Star will “tighten” links between members at Heathrow Terminal 2 to improve connectivity by as much as 40 percent, it ideally needs to find a partner operating 20 or 30 European flights a day, Mark Schwab, the group’s chief executive officer, said today in an interview. Carriers seeking BA slots due to be surrendered after an antitrust ruling on the BMI deal are among candidates, and wouldn’t need to become Star members, he said.

“If we can find one or two additional short-haul carriers to be in our building with us that solves a great deal of the problems,” Schwab said. “Aer Lingus is a possibility, and other guys talking about wanting to get some of those slots from BA. We’ll have to see whether they make sense or not.”

Virgin Option
Schwab declined to comment on whether Star has approached Richard Branson’s Virgin Atlantic Airways Ltd., which lost a code-share partner when BA bought BMI and is seeking Heathrow flights from Scotland and Manchester to restore feeder traffic to its long-haul services. “We talk to everybody,” he said.

Virgin, which has also applied for flights to Moscow, is 49 percent owned by Singapore Air and has been exploring possible membership of a global alliance for the past few years.

Heathrow owner BAA Ltd., which is owned by Spanish builder Ferrovial SA, is currently rebuilding Terminal 2, the airport’s oldest building, which will be dedicated to the 27 Star members when it opens in 2014 with an initial 20-million capacity.

Terminal 1, served by Dublin-based Aer Lingus, which exited Oneworld in 2007, will then be demolished and integrated with Terminal 2 over six years to create a single complex able to handle 30 million people a year, the same as BA’s Terminal 5.

Schwab spoke after addressing the Alliances, Joint Ventures and Partnerships conference in Istanbul, where he said Star would encourage members to deepen relationships “within the family,” rather than outside. He added, though, that groups need to be “more flexible” in coping when external deals do arise.

Qantas Airways Ltd. said this month it would drop a 17-year revenue- and cost-sharing pact with British Airways in favor of a deal with Dubai-based Emirates, while staying in Oneworld.

Qatar Keen
Qatar Airways Ltd., the second-biggest Middle Eastern airline, said separately at the conference that it’s looking to join a global alliance as Gulf carriers seek partnerships that would extend the reach of their networks.

Qatar Air is contemplating membership of the Star, Oneworld or SkyTeam groups, Chief Planning Officer Michael Swiatek said.

“It’s an opportunity and we’re looking at it,” he told the meeting. “We believe we’re now a much more interesting partner.”

Qatar Air, Emirates and Etihad Airways of Abu Dhabi have established themselves among the biggest long-haul carriers by exploiting the Gulf’s position at the heart of inter-continental flight paths to build global hubs. That’s won them a higher share of lucrative business traffic and is pressuring earnings at network operators including BA, Lufthansa and Air France-KLM Group, a member of SkyTeam alongside Delta Air Lines Inc.

Latam Decision
Etihad has departed furthest from a go-it-alone strategy, taking stakes in Aer Lingus and Air Berlin Plc, striking 30-plus code-share deals and entering alliance talks with Air France.

Schwab said that Latam Airlines Group SA, the world’s top carrier by market value, is still pondering which alliance to join following its formation on June 22 from a merger of Chile’s LAN Airlines SA, a Oneworld member since 2000, and TAM SA of Brazil, which was recruited to Star in 2010.

TAM informed the Star CEO that a decision will be reached “within two or three months,” he told the Istanbul conference.

Latam’s alliances head Soledad Berrios said it’s evaluating options for keeping ties to Star, though a Chilean antitrust ruling precluding full membership of a group featuring Star’s Avianca Taca Holding SA of Colombia can’t be circumvented.

Air India’s future membership of Star is meanwhile “a question of when, not if,” though there are currently no talks on the matter, Schwab said today. The state-owned airline’s integration was put on hold after it failed to reach minimum joining conditions, the alliance said in August 2011.

Editors: Chris Jasper, Chad Thomas. To contact the reporters on this story: Alex Webb in Istanbul via [email protected]. To contact the editor responsible for this story: Chad Thomas at [email protected].


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