Partnering with other airlines has been an important part of Alaska Air's (NYSE:ALK) strategy for many years. This strategy has included working with domestic competitors, but also with a sizable collection of international carriers. Alaska Airlines' historical position as the dominant airline in Seattle made it indispensable for airlines that wanted to gather connecting traffic for long-haul flights from Seattle.
Alaska Air highlighted its international partnerships as a key source of revenue synergies when it decided to acquire its smaller rival Virgin America two years ago. However, it has been losing international partners at a steady clip since the merger was announced, mainly because of a falling out with Delta Air Lines (NYSE:DAL).
Alaska Airlines struck back this week, announcing a new interline and frequent flier agreement with Ireland's Aer Lingus. Nevertheless, Alaska needs to keep working to find new international partners to offset the loss of others that are cutting ties with the carrier.
Delta starts a partner exodus
Just five years ago, Delta Air Lines was Alaska Airlines' most important partner. Delta was looking to counter United Continental's dominance in the transpacific market by setting up an international gateway in Seattle. Delta's plan was to use its partnership with Alaska to generate the connecting traffic needed to make these new overseas routes successful.
Before long, Delta Air Lines decided that it needed to become self-sufficient in Seattle. It began adding domestic and short-haul international flights at a rapid pace, making its Alaska Airlines partnership superfluous. As a result, the two carriers announced in late 2016 that they would terminate their codeshare and frequent flier agreements as of May 1, 2017.
Since then, Delta appears to have convinced several of its own partners to stop working with Alaska Airlines. Aeromexico ended its partnership with Alaska at the end of last year, and Air France and KLM are set to do the same as of April 30.
Delta owns minority stakes in each of these airlines -- and also has joint ventures with all three. It seems likely that the Atlanta-based airline giant pressured its partners to use Delta exclusively for supplying connecting traffic in the U.S.
After these defections, Alaska Airlines will be down to 14 international airline partners. That number includes several niche carriers that probably aren't driving very much connecting traffic for Alaska.
A new airline joins the fold
On Tuesday, Alaska Airlines announced that it is forming a broad partnership with Aer Lingus. That airline already flies to Los Angeles and San Francisco -- where Alaska now has a large presence because of its Virgin America acquisition -- and it will also start flying to Seattle in May.
Aer Lingus offers connecting service through Dublin to most major European cities, adding to the value of this partnership. In fact, Dublin is a fairly convenient connection point, because it has a U.S. border pre-clearance station, allowing travelers to skip customs when they arrive in the U.S.
Aer Lingus isn't Alaska Airlines' first new partner since the Virgin America merger was announced. Finnair, Japan Airlines, and Singapore Airlines have also linked up with Alaska during the past two years. However, the additional connecting traffic from these partners will at most offset the lost traffic from Delta, Aeromexico, Air France, and KLM. (To make matters worse, Korean Air's days as an Alaska Airlines partner could be numbered, after it signed a joint venture deal with Delta last year.)
Can Alaska Air capture this big opportunity?
Next month, Alaska Air will retire the Virgin America brand and begin operating with a single reservation system. This move will give its international partners full access to the former Virgin America route network based in California. That's particularly important because Los Angeles and San Francisco have far more international flights than Seattle.
However, Alaska's expanded presence in California carries risk for some of its partnerships. American Airlines has a hub in Los Angeles, while United has hubs in both Los Angeles and San Francisco. Thus, Alaska Airlines' expanded presence in California may create a dynamic similar to what happened in Seattle with Delta -- i.e., American and United may try to exert pressure on their own partners not to work with Alaska.
Alaska Airlines will need to offer international carriers a better value proposition than its legacy carrier rivals. If it does, Alaska should be able to bring in plenty of additional international partners to help support its long-term growth plans for California.