Airline Alliances Are Not What They Used To Be
Aviation Week & Space Technology Mar 19 , 2012 , p. 24
Jens Flottau

Ten years ago, airlines just had to be in. If they were not part of one of the three global alliances, they were second class, or their home market was too small and uninteresting to be considered. Alliances gave them the access to markets they needed and, as importantly, to their future merger partners.

Obviously, airline alliances are still significant in 2012. But they have lost their appeal as the one and only leitmotiv of the airline industry, partly because they have been superseded by other concepts. Carriers are demonstrating that they can go it alone, too, and avoid all the complexity and brand dilution.

Credit: ONEWORLD
The path from alliances to mergers has not been completely straight. The numerous mergers around the world have not necessarily taken alliance barriers into account. Delta Air Lines merged with Northwest Airlines (both SkyTeam) and British Airways joined forces with Iberia (both Oneworld), but United Airlines (Star Alliance) merged with Continental Airlines (ex-SkyTeam), and LAN (Oneworld) is about to get together with TAM Linhas Aereas (Star).

In fact, takeovers involving carriers in different alliances have sometimes proved to be more beneficial than those of airlines in the same one. For example, Lufthansa’s investment in Swiss International Air Lines was highly successful, but its purchase of Star partners Austrian Airlines and Brussels Airlines has been much less so. Many revenue synergies have already been generated and, at least in Europe, not much integration is taking place even after mergers.

Oneworld, SkyTeam and Star are being changed as well by joint ventures, which are quickly becoming the core groupings within the alliances. While they are a big advantage for those participating, they also create potential conflicts of interest: Joint ventures obviously take first priority when it comes to crucial decisions.

The three airline alliances will also have to accept that their membership bases will be changing more frequently, in spite of the costs involved. That is not only due to near-bankruptcies of carriers such as Spanair, Malev or Kingfisher Airlines, which affected Star and Oneworld this year. Sometimes it is simply strategies that change. Avianca-Taca is expected—but not certain—to join Star in two months, and the alliance in turn could decide to bypass the newly merged carrier to save room for its rival, the pending Latam group, which has ruled out membership in the same alliance as Avianca-Taca. Only last week, a senior Lufthansa executive said that Star had “not yet” stopped the Avianca-Taca admission process. Not yet?

It is questionable whether Latam will actually choose Star, considering the importance of connections to Oneworld member Iberia at the Madrid hub. But who says those could not be kept? There are numerous examples of pretty astonishing exceptions, such as the relationship between Cathay Pacific (Oneworld) and Air China (Star) and the code-sharing between Air France (SkyTeam) and Qantas (Oneworld).

Tactics often prevail, and alliances have lost much of their power to prevent that. As the market as a whole becomes more fragmented, so does the alliance concept.

Unlike a decade ago, some carriers are choosing to remain unaligned and doing just fine. It will be many years before the big three Persian Gulf carriers, which have kept out of alliances and are fundamentally disliked by their rivals, will be considered compliant, although code-sharing talks between Air France and Etihad Airways could be a first step toward easing the tensions. The much smaller Aer Lingus was once a Oneworld member, but it is also now staying out of the alliance game, saying participation is too expensive. In spite of all of the talk about the global scale, reach and market access provided by alliances, Aer Lingus appears to have found its market niche. And its 5% profit margin is more than most carriers are even hoping for.