The advent of the global alliance concept, such as Star Alliance, oneworld and Sky Team offered so much potential it seemed, not only for travellers but also for the survival of a number of legacy airlines.
It was my opinion at the time these alliances only had a finite life expectancy, and nothing in the past 10 years has changed my opinion on that. There are a number of valid reasons why these alliances were created in the first place and also equally good reasons why these alliances will never deliver the maximum benefits to airlines or their customers.
The airline industry is still very regulated and subject to a number of government level restrictions through Air Service Agreements (ASA’s) between nations. The very nature of the airline industry is international business and crosses the full spectrum of economic development. There are developing economies with a low cost workforce competing with high cost base first world economies with restrictive unionised work forces competing against each other; anything but a level playing field. Though having said that the largest costs, fuel and aircraft are consistent regardless of the economy, and first world nations also have access to better home market revenue.
Governments use these ASA agreements to some degree to protect their national interest in protecting their own airlines. There is a lot of emotional value attached to airline ownership and control and is very important piece of infrastructure connecting nations to the rest of the world.
The biggest problem limiting global alliance benefits comes down to ownership and control. Airlines in these alliances are answerable to their shareholders, not to the alliance. Each airline needs to maximise their own self-interest, not the interest of the total alliance, therefore sub-optimal outcomes are produced. Alliance members are competing with each other in many cases, and more recently forming separate tactical alliances with non-member airlines further undermining the value. Again this is been driven by the need for each airline in these alliances to develop their own individual airline business. For them that is absolutely the right thing to do but ultimately has the potential to bring down the global alliance concept.
I don’t believe the global alliance structure will ever overcome these fundamental disconnects. As an airline customer I find it very hard at times to even book say a single Star Alliance journey. For a start there is no “Book Star Alliance” website enabling travellers to search and only book a single alliance to maximise point value. If you try and book that journey direct with a Star Alliance member airline they will direct you to what’s best for them, not for me. I have experienced this very issue when I asked are you sure a 23 hour “connection” at NRT (Tokyo) is the best, knowing full well there was a 2 hour connection at HKG (Hong Kong) with another Star Alliance airline that I wanted to book, but gosh that was such hard work. It shouldn’t be like that, but this is simply the expected result given the structure of these alliances. So do these alliances deliver this seamless experience? At a practical level assuming you can book the flights the airport mechanisms and collection of points etc work, but that is where it stops.
If you go back to the history of alliances and why they came about, the first priority wasn’t for the benefit of the traveller. Remember most airlines have a requirement to deliver a return to their shareholders. Therefore if these alliances didn’t offer bottom line benefits to the airlines they would have never started. Of course it no secret that for one entity to gain it is typically at the expense of another. In this case the “others” would be the travellers or non-aligned airlines with a reduced competitive offering. The benefits of the alliances that have been delivered include:
- Widen the loyalty effect
- Improved access to markets
- Widen the appeal with an enhanced “virtual network” extension
- Traveller recognition across all airlines
- Improved brand recognition for some 2nd and 3rd tier airlines
But the above have come at the cost of increased complexity:
- Membership fees
- Alliance administration overhead at each airline
- Establishing and maintaining system connections between airlines
- Hasn’t been a model for growth
In the early days these global alliances were also offering the potential for a number of opportunities that never eventuated which could have provided the largest value contribution. Some of these ideas being mooted suggested the following:
- Joint procurement, especially for aircraft and fuel
- Commonality of seating and in-flight product to provide a consistent network experience and expectation
- Standardisation of aircraft specifications to enable fleet to be shared during different peak demand seasons and use of other airline technical and cabin crews
In conclusion, while airlines are answerable to shareholders and not the alliance the incentive to extract total alliance wide benefit is not there. The fact these differences haven’t been able to be overcome to date, I suggest they never will be while the ownership structure remains the same. Market specific tactical relationships are potentially more valuable to individual member airlines over the macro alliance benefits. We are seeing these tactical deals happening with increased frequency. A recent example includes QATAR joining oneworld while Qantas as a major oneworld member airline does a significant deal with QATAR’s major competitor Emirates. I’m sure there will be more of this happening soon.
The only certainty in the airline business is change and the global alliance structure is one is in need of an update. The only thing in my opinion keeping the alliances going is the lack of a viable alternative. The different strategies are interesting. The Star Alliance is growing the number of member airlines, oneworld has a much more selected membership and Sky Team is a formation of major airlines for whatever reason aren’t compatible with either Star or oneworld.