A Bird's Eye View of Star Alliance

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A general theme on every airline investor's mind right now is the consolidation trend in the industry. This has been brought to light again as US Airways (NYSE: LCC) continues its discussions with American Airlines about yet another airline merger. However airlines are bound together by more than mergers. Airline alliances offer some of the benefits of an airline merger, but without the risk and integration costs associated with a full fledged takeover. Here we will examine Star Alliance, the largest of the three main airline alliances by number of member airlines to hopefully provide a clearer picture on what investors in Star Alliance carriers can expect from their alliance's network.

Members

As both the largest and the oldest airline global airline alliance, Star Alliance has member airlines around the world. The formation of the alliance allows passengers to more easily book flights and transfer between various worldwide airlines. While this article cannot examine every member in depth, it is clear that the sheer size and coverage of Star Alliance give the alliance an immediate leg up on the slightly smaller alliances of SkyTeam and Oneworld.

As of now, major carriers in the North American market include Air Canada, United Continental (NYSE: UAL), and US Airways (NYSE: LCC). As the largest trading partner to the United States, the U.S.-Canadian market is a path for business and leisure travel alike. With Canada's largest airline in Star Alliance, members of the alliance have a competitive advantage over other airlines outside Star Alliance. This advantage grows even greater when one considers that Canada's second largest airline, WestJet, has declined to join any of the three major alliances.

On the American side of the border, United Continental holds the position as the world's largest airline following the merger completed in 2010. While this tie up has experienced merger challenges in everything from how to integrate reservation systems, to deciding on which type of on-board coffee to serve, many analysts expect that the combined airline will begin to realize merger synergies over the next few years. But right now, Star Alliance can take advantage of the reach of the United Continental network to serve U.S. and foreign destinations.

Speaking of foreign destinations, Star Alliance is also home to Deutsche Lufthansa (NASDAQOTH: DLAKY), Brussels Airlines, SAS Scandinavian Airlines, Croatia Airlines, Austrian, Aegean, LOT Polish Airlines, TAP Portugal, and Swiss Air adding some European flavor to the alliance's airline mix. While the other carriers provide access to numerous target markets, Lufthansa is the biggest player in this division and ranks among the world's largest airlines in market capitalization, fleet size, and passengers traveled. The inclusion of Lufthansa not only enhances the network through the enormous size of the carrier, but it also provides greater access into the German market which is widely considered to be among the strongest in Europe.

But Star Alliance has expanded its reach beyond developed nations. Entering the Central and South American market is Copa Holdings (NYSE: CPA) which has emerged as a influential carrier for that region. The growth of these markets and the potential for future growth is well reflected in Copa stock which has gained nearly 70 percent over the past twelve months. Currently valued at $4.7 billion, this carrier is worth approximately two times the value of US Airways or one half the value of United Continental. If Copa's shareholders are correct, this emerging carrier could contribute to Star Alliance in a very big way.

Flying High

In an industry where size matters, Star Alliance currently holds the crown for largest airline alliance. However, if the widely speculated US Airways American Airlines merger moves forward Star Alliance is likely to lose US Airways to Oneworld, which American Airlines calls home. Yet Star Alliance still comes out ahead in the recent airline mergers as it took Continental Airlines from SkyTeam when the United Continental merger was completed. For investors looking for opportunities both home and abroad, perhaps a member of the Star Alliance would make a good addition to their portfolio. 


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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