Delta CEO Ed Bastian told Bloomberg that the SkyTeam, of which Delta is a part, hasn’t “brought a lot of great value to customers..[or] to member airlines” and so they’re trying to create their “own international network of carriers” with Delta “as the centerpiece.”
The Atlanta-based carriers is shifting away from an alliance focus and “taking a different approach” where they use local airline brands that can operate in local markets around the world and influence those airlines to be more efficient.
There’s no indication that Delta will leave SkyTeam and his notion that it hasn’t brought value to customers or airlines is likely overstated. However it’s been clear for some time that Delta was headed away from valuing alliance partnerships to focus on ownership or other airlines.
Even as United and American have focused on joint ventures with partners, other U.S. carriers have shied away from stakes in counterparts abroad though American has just over 2% of China Southern (they’ve already written down a quarter of that investment) and United exercises influence at Avianca through loan back by equity that was defaulted upon.
Back in 2013 they eliminated elite status earning for flying on SkyTeam partner Korean as they sought to push the Seoul-based airline into a joint venture. Now they not only have their joint venture but an ownership stake they plan to grow to 10%.
Here’s Bastian’s full statement on the matter.
One of the things that has not been successful in the airline world are the alliances. We, self-critical, SkyTeam alliance I don’t think we’ve brought a lot of great value to customers, I don’t think we’ve brought a lot of great value to our member airlines. And we’re going at this thing in a very different approach.
We’re going at it through Delta making bilateral investments in the most important partners. We own 49% of Virgin Atlantic, we own 49% of Aeromexico, the two closest carriers to us on either side of the country. We’re invested in Air France KLM. We invested in Korean. We invested in China Eastern. We invested in Gol down in Brazil.
As a consequence what you see is this network of influence that we’re having within those companies. Those companies want to know what Delta has learned about operational efficiency and prowess and premium, we want to learn what it takes to win in those local markets. And over time while we can’t own them in terms of whole-owned consolidation we can have meaningful enough investment that we create an international network of carriers that will be uniquely tied where you have Delta as the centerpiece. That’s our goal.
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On the one hand the U.S. airline market is mature. There aren’t significant opportunities for major airlines to grow. They may earn profits during good times. Two years ago American’s CEO Doug Parker said his airline would never lose money again, and always spin off between $3 billion and $7 billion a year – like an annuity. But that’s not a vision for growth (indeed American says they plan to expand commensurate with GDP growth), and it’s not a vision for how to be valued like a growth stock.
Making investments in other airlines around the world whose assets can be better utilized, or where airline markets are growing faster than in the U.S. – such as potentially Mexico, Brazil, and China – is a strategy for higher rates of growth.
Etihad Airways had previously taken a similar stake in the Indian airline, plus separately in its spun off frequent flyer program, as part of its own strategy to form an alliance of owned-airlines such as also-liquidated air berlin, as well as Air Serbia (49%), Alitalia (49%), Air Seychelles (40%), and Virgin Australia (21.8%). Delta isn’t likely to fare as badly as Etihad did to say the least.