Alaska & American Plan To Expand Partnership With Revenue Sharing Deal

It’s a fascinating time for the airline industry. For one, the impact of high jet fuel prices is causing all airlines to have to take drastic action. Beyond that, in the United States there’s the general belief that if there has ever been a time for industry consolidation, this is it, with Trump in power, particularly before the midterms.

So while this doesn’t quite get to that level, and while it’s also not surprising, there’s an interesting update when it comes to the partnership between Alaska Airlines and American Airlines.

Alaska & American explore revenue sharing agreement

Bloomberg is reporting that Alaska and American are exploring expanding their partnership, to introduce revenue sharing on some flights. There’s also mention of how the two airlines briefly had discussions about the possibility of a merger, but that didn’t advance further.

For context, Alaska and American already have a partnership. Both airlines belong to the oneworld alliance, but they cooperate beyond that. They have a reciprocal frequent flyer agreement, offering upgrades and other perks for loyalty program members of both airlines.

Going back several years, American and Alaska were pursuing a partnership whereby American was building up a long haul presence in Seattle (SEA), which Alaska could feet into. The plan was for American to launch flights to Bangalore (BLR) and Shanghai (PVG), but that didn’t end up materializing. In the meantime, Alaska also acquired Hawaiian, and launched its own long haul flights.

So the suggestion is that the closer ties would come in the form of Alaska joining some of the oneworld long haul joint ventures. This includes the transpacific joint venture (with American and Japan Airlines) plus the transatlantic joint venture (with Aer Lingus, American, British Airways, Finnair, and Iberia).

With a joint venture, airlines can coordinate fares and schedules, and essentially act as one in a market. This isn’t actually a new concept, since Alaska’s interest in joining these joint ventures has been there since the airline announced plans to launch long haul flights.

Would a revenue sharing deal get government approval?

Honestly, nowadays who the heck knows what’s going on anymore, when the government is also nearing a deal to invest in Spirit Airlines, and turn that into a government owned carrier.

I think the first interesting thing to note is that it’s absolutely in American’s best interest for Alaska to join its long haul joint ventures. That might sound strange on the surface, since you typically don’t want another airline from “your” region belonging to the same joint venture, since they’re potentially cannibalizing “your” demand.

But logically, this also makes sense:

• American is the weakest of the “big three” US carriers when it comes to long haul service, and partnering with Alaska will allow it to expand the service offering somewhat, which is good; there’s also geographic upside, given American’s weakness on the West Coast, and in particular, in the Pacific Northwest
• From Alaska’s perspective, joining the long haul joint ventures would be hugely positive, given that this is where the big money is in terms of premium fares, corporate contracts, etc.

Changes to joint ventures do tend to lead to some regulatory scrutiny, since the goal is to maintain a balance between the various joint ventures. Often there have to be concessions for them to get approved, like giving up certain slots.

Alaska’s long haul growth aspirations aren’t that big — the airline wants to operate a dozen long haul routes out of Seattle by 2030, and that’s hardly huge. Then there’s Hawaiian, but I’d consider some transpacific service out of Honolulu (HNL) to be a value add for a joint venture.

When you look at the natural growth rate we’re seeing at Delta and United right now, adding Alaska to the joint venture would basically be like American just growing its long haul fleet by a couple of dozen planes, which is hardly anything major.

Bottom line

Reports suggest that Alaska and American briefly discussed the concept of a merger, but that went nowhere. However, the two airlines are pursuing a revenue sharing deal, whereby Alaska would possibly join some of American’s long haul joint ventures, including across the Atlantic and Pacific.

This has been floated in the past, but it seems like this is closer to becoming a reality. While this does require regulatory approval, and that sometimes requires concessions, I don’t see this as a huge ask, quite frankly, and I think consumers would benefit from this, given American’s weakness plus Alaska’s long haul growth.

What do you make of these revenue sharing rumors?