I Pledge Allegiance – The Future of Airline Alliances

Every now and then an airline will paint its jumbo jet in the livery of the alliance to which it pledges allegiance: Star, SkyTeam, or oneworld – just to remind you about all that connectivity they promise. Soon (perhaps sooner than you think) such paint schemes might be the norm, and adherence to alliance standards far more than skin-deep.

“The deal is, in ten years you won’t be calling Lufthansa, you’ll be calling Star,” asserts Mike Boyd, president Boyd Group International, a respected aviation consultancy. A decade from now he contends “there’s a very good chance” the likes of Lufthansa, United and Air Canada may be mere providers of lift “to something called ‘Star’” – in much the same way a carrier such as Pinnacle supplies seats to Delta for some of its regional jet operations.

The implications of that scenario are far-ranging, and signs are integration has already begun.

Star members Air China, Austrian, and Lufthansa just made a major buy of economy class seats for their long-haul aircraft. Star Vice President Legal and Corporate Services Jeffrey Goh says the initiative demonstrates “our member carriers can continue to offer differentiated products while at the same time working together to drive synergies.” But Boyd believes such synergies won’t necessarily stop there. “Then, you standardize galleys…you standardize other things,” all this interchangeability perhaps leading to “one standard brand.”

The public face of an airline could be such that “there might not be an ‘Air Canada,’ there might not be a ‘United.’ It might just be ‘Star.’” Boyd says that could lead to decisions as to how many seats United will fly out of Colorado Springs, for instance, ultimately residing with an executive “in some far off office in Brussels.”

But the notion that a carrier will readily relinquish the je ne sais quoi that differentiates it from the rest of its alliance buddies may be a bridge too far. Airlines may ally themselves with one another for the common good, but that doesn’t betoken “an Ozzie and Harriett kind of family,” maintains Mike Boyd. Individual members squabble over the most trivial of things, such as the size of their name and logo on a common club door. “They get down to that level,” he says. Airlines are, and will almost assuredly always be, territorial.

Exclusive Clubs, Lots of Clout

While the vast majority of airlines don’t belong to alliances those that do wield considerable clout. Consider: of the 800 or so assorted airlines that inhabit the airspace above our planet, a mere 54 of them are full-fledged alliance members – just under seven percent. But they’re the biggest, and boldest of them all, encompassing carriers such as United, Lufthansa, Delta, Air France/KLM and American (see Alliances – By the Numbers).

Indeed, few of the world’s major players are left out. DXB-based Emirates is one. But then “Dubai is a strong enough connection point that they don’t need to join an alliance,” says Josh Marks, executive director of the American Aviation Institute. Virgin Atlantic is another. Marks believes they’ll probably join an alliance “at some point.”

Kevin Mitchell agrees. He contends Virgin Atlantic Chairman Sir Richard Branson “has had a Plan C to join an alliance for quite a long time,” says the chairman of the Business Travel Coalition.

There’s power in numbers, plenty of it. Look no further than the North Atlantic to see how potent one particular species of alliance can be. Marks says 90 percent seats in that market are part ‘n parcel not just of alliances, but of anti-trust immunized joint ventures.

ATI (anti-trust immunity) means that carriers can work together to pool their revenues, pool their costs – and then divide the proceeds pegged to their relative contributions. It means they can coordinate schedules too. Central to successful ATI’s is a concept called ‘metal neutrality.’ In oneworld’s transatlantic joint venture, for example, it doesn’t matter whether the plane you fly belongs to Iberia of American, BA or AA.

Mitchell believes alliances per se bequeath airlines “about 90 percent of the benefit of a true merger.” And ATI’s? They’re “about as close as you can get to [actual] integration.”

Great for the airlines, but what about business travelers? It depends.

Seamless at Last?

Once upon a time – aside from the pioneering island that was Northwest/KLM – alliances were long on promises and comparatively short on performance when it came to “seamless service.” Stuff could fall through the cracks, and partners might be loathe to cover one another’s backs. Overall, alliances’ early days “were anything but seamless,” says Mitchell.

That’s changing, and changing fast. Co-location is king. Everybody wants their ticket counters congruent with their alliance partners. At Tokyo Haneda, Star carriers have collocated check-in and ticketing in the new International Terminal. At Narita Star members Air Canada, ANA, and Asiana recently completed tests of a quick new common-used bag drop. The sexiest service boost for Star, however, will have to wait till 2014 when a redeveloped terminal 2 opens at London Heathrow. “Being located under one roof will enable our airlines to deliver seamless alliance travel to our passengers,” says Lee Hock Lye, Star’s vice president products & services.

Late last year, SkyTeam took the wraps off a new co-located check-in facility at Beijing Capital International Airport’s Terminal 2 – 50 check-in desks, and 10 self-service kiosks.

Facilities are one thing, a smooth delivery of services to business travelers across all alliance partners can be another. To that end, SkyTeam rolled out SkyPriority earlier this year. The idea is to “align all members to a common and consistent service standard for priority service across the alliance,” according to a SkyTeam statement. The initiative is already up and running at select hubs. Over the course of the next few months it will be gradually introduced into some 800 stations. Look for more consistent priority boarding, priority baggage handling, and priority security lines.

To make sure there’s someone to catch when things fall through the cracks, oneworld’s Express Connections is up and running at its key connecting airports. The idea is to get you and your luggage from one alliance airplane to another sans strain – “particularly at times when schedules are disrupted,” according to oneworld. The aim: is to iron out “any snags in flight connections before passengers are even aware of them.”

The Competitive Context

Business travelers are far less suspect about the seamlessness of the product than they were even a couple of years ago. Alliances are shelling out substantial sums to grease the gears – and to good effect. But at what cost to the consumer? If the upside of alliances is faster, more fluid flow, is the downside increasingly curtailed competition?

American Aviation Institute’s Josh Marks says opinion is split as to whether alliances are anti-competitive. Some insist they are. He says others respond that, “alliances have fundamentally changed the ability of airlines to serve routes that would otherwise not be possible.” That in-of-itself begets considerable consumer benefits.

BTC’s Kevin Mitchell asserts, “Alliances have far more pricing power today.” Where once a corporation might have had an individual deal with alliance carrier A, and a separate one with partner airline B, “now they’re coming to you and saying, ‘Uh, uh,’” maintains Mitchell. “’You deal with us [as an alliance], or you don’t deal with us at all.’ That puts the travel manager on an unequal footing at the negotiating table.”

Marks says by consolidating point of sale for business traffic, “getting business customers on the airplane at higher fares has become easier.”

Who Wins?

If there’s a debate as to whether business travelers or carriers are the ultimate winner in the alliance game, there’s scant controversy as to which alliance dominates the game board. In terms of sheer breadth, it’s Star (See Alliances – By the Numbers). Its’ routings and interfaces spread among more than two-dozen airlines, Marks labels its connectivity options “unmatched.”

He says it’s Star’s number of carriers and depth of coverage in key regions that’s key. With multiple airlines in North America, similar status in Europe and “very deep coverage in Asia…there’s a lot of breadth.”

That said, we don’t live in a static world. Alignments change. “Right now, the one to watch is oneworld,” says Mike Boyd. Although the alliance has pieces on the board in China, they’re not as prevalent as those of Star and SkyTeam – especially in the crucial northern China arena dominated by Beijing Capital International. “Oneworld is going to get hungry for someone to give them flow into northern China,” he says. “Remember, various members of the alliances can be promiscuous” when it comes to shifting allegiances.

As for business travelers’ allegiance, they may switch brands over the years, but it’s doubtful they’re going to escape the gravitational pull exerted by alliances in aggregate. “It’s evolution,” says Boyd. “The world has changed.”

Note: This article first appeared in the July 2012 issue of Business Travel Executive magazine.