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Delta, Alaska Air to Terminate Codeshare Tie-up Next Year
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Airline heavyweights Delta Air Lines (DAL - Free Report) and Alaska Air Group Inc (ALK - Free Report) have decided mutually to call-off their codesharing partnership from May 1, 2017. Dwindling revenues from the pact have been cited as one of the reasons for ending the deal.
With revenues declining from the pact, Alaska Air expects minimal impact due to the termination. In fact, the Seattle, WA based carrier, expects to forego revenues in the range of $5 million to $10 million in 2017. Although the codesharing deal between the carriers will end, the interline agreement would still continue to exist.
The declining significance of the partnership (code sharing + interline) with the Atlanta, GA based Delta to Alaska can be made out from the fact that revenues to the latter from the tie up have come down from $235 million in 2013 to $65 million in 2016. Out of the $65 million, interline agreement has accounted for almost $50 million. No wonder, the interline agreement is still in force, while the agreement pertaining to code sharing will cease to be effective from May 1.
Apart from the declining revenues, Alaska Air’s recently completed takeover of Virgin America is also a reason behind the termination as the former aims to focus exclusively to successfully complete the integration process. The completion of the multi-billion-dollar deal, has enabled Alaska Air Group to significantly expand its presence, particularly in the West Coast, gaining greater access to key cities across the U.S. The merged entity will provide 1,200 departure options per day to 118 destinations across the U.S., Mexico, Canada, Costa Rica and Cuba. No wonder Alaska Air is confident of recovering the lost revenues from the code sharing deal.
The intense competition between Delta and Alaska Air regarding Seattle market share has also contributed to the decision to end the code sharing deal. Delta has significantly expanded its Seattle operations over the years (flights being more than tripled at its Seattle-Tacoma International Airport hub since 2013) thereby reducing the need for codeshare agreements there.
With the deal ceasing to be effective from May 1, sales of flights under DL- and AS-coded flight numbers on Alaska Air and Delta planes respectively will stop. Additionally, customers would be unable to earn and redeem Delta miles/ mileage plan miles on flights operated by the other carrier.
With Alaska Air focusing on the Virgin America integration and Delta aiming to expand customer choice at its Seattle-Tacoma International Airport hub, the decision to end the code sharing partnership will be a mutually beneficial one.
Shares of both Alaska Air and Virgin America have been performing well lately, outperforming the Zacks-categorized Transportation-Airline industry over the last three months. While Delta shares have gained 33.99%, those of Alaska Air have appreciated 37.91%. In contrast, the industry has advance only 23.61% in the period.
We note that this is the second time in a matter of few days that Alaska Air has been in the news pertaining to code share. The carrier had to trim the scope of its codesharing agreement with American Airlines Group (AAL - Free Report) as a requirement for obtaining antitrust clearance from the U.S. Department of Justice (DOJ). The DOJ approval was necessary for Alaska Air to close its takeover of Virgin America.
Zacks Rank
Both Alaska Air and Delta carry a Zacks Rank # 3 (Hold). A better-ranked stock in the airline space is Hawaiian Holdings (HA - Free Report) sporting a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate has increased 10 cents to $1.28 per share for the current quarter at Hawaiian Holdings over the last month. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Delta, Alaska Air to Terminate Codeshare Tie-up Next Year
Airline heavyweights Delta Air Lines (DAL - Free Report) and Alaska Air Group Inc (ALK - Free Report) have decided mutually to call-off their codesharing partnership from May 1, 2017. Dwindling revenues from the pact have been cited as one of the reasons for ending the deal.
With revenues declining from the pact, Alaska Air expects minimal impact due to the termination. In fact, the Seattle, WA based carrier, expects to forego revenues in the range of $5 million to $10 million in 2017. Although the codesharing deal between the carriers will end, the interline agreement would still continue to exist.
The declining significance of the partnership (code sharing + interline) with the Atlanta, GA based Delta to Alaska can be made out from the fact that revenues to the latter from the tie up have come down from $235 million in 2013 to $65 million in 2016. Out of the $65 million, interline agreement has accounted for almost $50 million. No wonder, the interline agreement is still in force, while the agreement pertaining to code sharing will cease to be effective from May 1.
Apart from the declining revenues, Alaska Air’s recently completed takeover of Virgin America is also a reason behind the termination as the former aims to focus exclusively to successfully complete the integration process. The completion of the multi-billion-dollar deal, has enabled Alaska Air Group to significantly expand its presence, particularly in the West Coast, gaining greater access to key cities across the U.S. The merged entity will provide 1,200 departure options per day to 118 destinations across the U.S., Mexico, Canada, Costa Rica and Cuba. No wonder Alaska Air is confident of recovering the lost revenues from the code sharing deal.
The intense competition between Delta and Alaska Air regarding Seattle market share has also contributed to the decision to end the code sharing deal. Delta has significantly expanded its Seattle operations over the years (flights being more than tripled at its Seattle-Tacoma International Airport hub since 2013) thereby reducing the need for codeshare agreements there.
With the deal ceasing to be effective from May 1, sales of flights under DL- and AS-coded flight numbers on Alaska Air and Delta planes respectively will stop. Additionally, customers would be unable to earn and redeem Delta miles/ mileage plan miles on flights operated by the other carrier.
With Alaska Air focusing on the Virgin America integration and Delta aiming to expand customer choice at its Seattle-Tacoma International Airport hub, the decision to end the code sharing partnership will be a mutually beneficial one.
Shares of both Alaska Air and Virgin America have been performing well lately, outperforming the Zacks-categorized Transportation-Airline industry over the last three months. While Delta shares have gained 33.99%, those of Alaska Air have appreciated 37.91%. In contrast, the industry has advance only 23.61% in the period.
We note that this is the second time in a matter of few days that Alaska Air has been in the news pertaining to code share. The carrier had to trim the scope of its codesharing agreement with American Airlines Group (AAL - Free Report) as a requirement for obtaining antitrust clearance from the U.S. Department of Justice (DOJ). The DOJ approval was necessary for Alaska Air to close its takeover of Virgin America.
Zacks Rank
Both Alaska Air and Delta carry a Zacks Rank # 3 (Hold). A better-ranked stock in the airline space is Hawaiian Holdings (HA - Free Report) sporting a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate has increased 10 cents to $1.28 per share for the current quarter at Hawaiian Holdings over the last month. You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>