A Bird's Eye View of Oneworld

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Over the past few years, we have seen extensive merger activity in the airline industry but airlines can realize synergies with partner airlines through the system of airline alliances. In this industry, the vast majority of flights take place on an airline that is a member of a major alliance with the largest three being SkyTeam, Star Alliance, and Oneworld. These three alliances comprise most of the world's largest airlines and allow them to operate codeshare flights and share sales offices. Airlines investors may be interested in the partners within the alliance their airline is in, if it is in one at all.

Members

Founded in 1999 by British Airways, Cathay Pacific, American Airlines, Canadian Airlines, and Qantas Airways, Oneworld has grown to 12 members making it the smallest of the three major airline alliances by number of member airlines. That by no means makes Oneworld a small operation though. The alliance still operates flights to more than 800 destinations in 150 countries according to its website.

On the European side of the Atlantic, International Consolidated Airlines Group (NASDAQOTH: ICAGY) (LSE: IAG) is the alliance's biggest player. Formed by a merger of British Airways and Iberia, the airline is worth around $6 billion and controls a large percentage of the valuable London Heathrow airport slots. With these slots, the alliance is able to maintain a decent share of the transatlantic market which is critical for business travel, especially on the highly popular New York to London routes.

On the American side, American Airlines is working its way through bankruptcy and is being publicly courted by US Airways (NYSE: LCC) in an attempt at a merger. In the event of a merger, American's creditors would control the majority of the combined airline and the combined entity would almost certainly become a Oneworld member due to the size of American Airlines compared to US Airways. Through this merger, Oneworld would be able to poach a major carrier from Star Alliance and become home to the world's largest airline.

In addition to the activity surrounding US Airways, it is important to mention founding member Canadian Airlines is no longer with the alliance. In a battle pitting American Airlines against Air Canada (TSX: AC.A) (TSX: AC.B), Air Canada raised the necessary funds to acquire Canadian Airlines and moved its operations into the Star Alliance. This has diminished Oneworld's role in the Canadian market since the alliance's formation and turned over much of that market to Star Alliance which continues to have Air Canada as a member.

In addition to its American and European operations, Oneworld has operations in Asia and the Pacific through Cathay Pacific, Japan Airlines, and Australian-based Qantas. These carriers provide access to the growing Asian market for travel although they tend to focus more around developed countries than emerging markets. Nonetheless, Cathay Pacific is the flag carrier for Hong Kong and is a major shareholder in Air China. The airline's position provides access to a growing China and allows Cathay Pacific to be one of the largest cargo airlines according to Businessweek.

Potential for Growth

While there are many elements at play in Oneworld, the potential US Airways American Airlines merger is being watched closely. A successful merger could bring a $2.5 billion airline into Oneworld as part of American Airlines. This would help to expand the Oneworld network and make even better use of the numerous London Heathrow slots the alliance contains. For American investors, not many parts of the Oneworld alliance are traded in large volumes. Ironically, those confident in the Oneworld alliance may be best to buy Star Alliance member US Airways and support the merger plan.


TulipSpeculator1 owns shares of Air Canada and Delta Air Lines. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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