Transportation

Deustche Lufthansa-The US Carrier Connection

One of the top three international airline carriers, Deutsche Lufthansa, just announced a four-day strike. British Airways appears set to announce the results of a strike ballot in early March and other European unions are restless. Should US investors be concerned about this? Absolutely, especially if you are invested in US airline carriers or businesses that provide services or goods to them.

Everyone needs to remember that we now belong to a global world that is interconnected. This fact is also true of the airline industry. Nowadays carriers share codes and passenger loads. The co-operation among carriers, especially the large ones, benefits the airlines as they can seamlessly offer longer trips at better prices.
Partnerships, co-operation and passenger sharing is now standard practice in the industry. The disruption caused by a top international carrier in central Europe could be immense. Passengers in Central and Northern Europe are already seeing uncertainly, cancellations and calls to check with their airlines. Yet this situation will not be confined to European travelers or airlines.

US carriers are now involved in a number of partnerships, joint ventures and alliances with European carriers (including Lufthansa). These carriers, will see any sustained travel disruption flow through their passenger loads. Just take a look at some of the large airline alliances in place.  The Star Alliance includes many of the top airlines in the world including Continental Airlines (NYSE:CAL), United Airlines (NASDAQGS: UAUA) and US Airways (NYSE:LCC). The recent Atlantic-Plus Plus joint venture arranged for joint capacity, marketing and sales between Lufthansa and carriers such as United, Continental and Air Canada. When it approved Continental’s application to join Atlantic Plus-Plus the US Department of Transportation did so on the basis of increased service and lower fares.

The current combination of worldwide debt, the recession and global competition has left many companies and governments unable to pass on pay increases and benefits on to workers. This makes for restless unions and further economic disruption. Look for tougher times for the airline industry, and include some US carriers on the short list.

Steve Gear

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