Shifting loyalties

btlogo1What began over a decade ago as a series of loose marketing agreements between airlines has grown today into three giant alliances known as Star, oneworld and SkyTeam, global partnerships that encompass most of the world’s major carriers. Being under the umbrella of one of these alliances brings big benefits, with member airlines able to offer passengers extensive global route networks, more opportunities for mile accrual and redemption, and a range of reciprocal perks for frequent fliers.

But along with the rest of the airline industry, the alliances are continuing to face competitive pressures and new market realities, and all three have seen significant changes over the last 12 months. “Each alliance is trying to find the right mix of airlines, and each airline is trying to find the alliance that puts it in the best competitive position,” says Henry Harteveldt, vice president and airline analyst at Forrester Research. “Everyone is jockeying for position,”

Star Alliance
Air Canada • Air China • Air New Zealand • ANA • Asiana • Austrian • BMI • Egyptair • LOT Polish Airlines • Lufthansa • SAS • Shanghai Airlines • Singapore Airlines • South African Airways • Spanair • SWISS • TAP • Thai • Turkish Airlines • United Airlines • US Airways

The big news at Star is the arrival of Continental, which announced its departure from rival SkyTeam shortly after the merger of two of its biggest members, Delta and Northwest. “We could see there would be too much overlap between their combined network and ours,” says Continental’s Dave Messing. “By coming to Star, we can fill a more clearly defined role by providing flights where the alliance hasn’t had too much coverage, New York and Latin America in particular.”

Harteveldt says the transition, which should be complete by November, will give Continental’s passengers access to United’s strong transpacific network and a roster of highly respected carriers. “Star has what are considered some of the best airlines in the world,” he says, citing Lufthansa and Singapore. “That’s good for Continental passengers.”

oneworld
American Airlines  • British Airways • Cathay Pacific • Finnair • Iberia • Japan Airlines • LAN • Malev • Qantas • Royal Jordanian

Oneworld’s two largest members, British Airways and American Airlines, are trying to win antitrust immunity for their transatlantic routes, a request that’s been blocked twice before by the Department of Justice. “They dominate the New York-London market so completely that regulators fear granting them immunity would stifle competition,” Harteveldt says. British Airways disagrees. “This strategic relationship would strengthen competition by providing consumers with easier journeys to more destinations with better schedules and frequencies,” says the airline’s Executive Vice President, Americas Simon Talling-Smith. “It would enable oneworld to compete on the same basis as the other major alliances.” Harteveldt predicts that with Heathrow open to other airlines for the first time, the DOJ will approve the request this time around.

While oneworld dominates in Latin America thanks to American, Iberia, and LAN, Harteveldt says the alliance has been “asleep at the wheel” and is struggling to catch up with its larger rivals. But oneworld doesn’t think bigger means better. “We concentrate on the quality of our members rather than quantity,” says John McCulloch, the alliance’s managing partner. “Our member airlines have some of the best brands and reputations in the industry… that’s what differentiates us from our competitors.”

SkyTeam
Aeroflot • Aeromexico • Air France • Alitalia • China Southern • Continental • Czech Airlines • Delta Airlines • KLM • Korean Air • Northwest

Despite the loss of Continental, Harteveldt says Skyteam enjoys a network that’s well balanced between North America, Europe, and Asia, and a leading position in service to Africa. And he believes the Delta/Northwest merger is a big plus for the alliance. “The diverse fleet Delta is inheriting from Northwest will give it enormous flexibility to move into and out of markets quickly,” he explains.

SkyTeam’s Managing Director Marie-Joseph Male says the merger is already paying dividends. “Members of both (frequent flier programs) can already combine miles,” he says. “And elite passengers from Delta and Northwest are enjoying complimentary upgrade reciprocity.” Looking forward, Male says SkyTeam will bring Vietnam Airlines into the fold as a full member, and is opening a new co-branded lounge at London Heathrow this summer.

And the others?
Though most of the world’s big airlines are now members of an alliance, there are a handful that still haven’t committed. Virgin Atlantic is one that’s stayed on the sidelines, but Harteveldt thinks that could change if British Airways and American win antitrust immunity. Virgin’s Director of Communications Paul Charles says if his airline were to join an alliance, it would be on its own timetable. “We keep our eyes open all the time, but so far haven’t seen the right opportunity,” he says. “And the status of the BA/AA agreement won’t impact that decision.”

One glaring hole for all three alliances is the Middle East. “With strong traffic in their home markets and what they see as a superior product, Middle Eastern carriers have no real incentive to join,” Harteveldt says. Nigel Page, Senior Vice President of Commercial Operations at Emirates, agrees that for now, the airline is better off going it alone. “Agreements with individual airlines offer us flexibility without compromising our high standards of products and services,” he says. “We feel our customers’ interests are best served by retaining independence.”

And Harteveldt points out that joining an alliance takes much more than simply pushing ticket counters together. “If my trip involves three Star Alliance airlines, I want seamless connections and a single ticket. That requires a huge investment in schedule coordination and IT.”

But for most airlines, the benefits outweigh the costs. In addition to providing passengers with a broader range of destinations and services, the alliances help fill airlines’ planes by funneling passengers onto each others flights. “These partnerships generate billions of dollars in revenue for their members,” Harteveldt says. “That’s a big deal.”

With the economy soft and the airline business more competitive than ever, money talks. Which is why while Star, SkyTeam and oneworld are sure to continue changing, they’re likely here to stay.

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