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For Business, Corporate Travel & Meeting Buyers & Arrangers

All for one

Ten years ago, there were constantly shifting alliances and partnerships: remember Atlantic Excellence Alliance? Qualiflyer? Wings? But after a certain amount of in-flight turbulence, these have shaken down to three: Star Alliance, oneworld and SkyTeam, with two-thirds of aviation capacity represented by them.

Change is still on the cards and, prompted by the recent Delta/Northwest merger, Continental Airlines left SkyTeam this October in favour of Star Alliance. In addition, should Delta Air Lines' rumoured interest in Japan Airlines (oneworld) materialise, it will change the landscape again.

Alliances have long been credited with being highly efficient and beneficial relationships - for their members. But what do they do for travel buyers and travellers? According to the protagonists, the advantages are: more efficient flight connections, increasingly via a single terminal; reciprocity of loyalty programmes and worldwide access to lounges, both dependent on the level of loyalty programme membership; one negotiating point for contracts; and, while en route, service from any member airline of the relevant alliance, regardless of the carrier flown.

Or as Charlie Pappas, managing director of alliance strategy and operation for Delta, and spokesman for SkyTeam, puts it: "Clearly, alliances are good for airlines because they are good for customers."

But managing director of Inform Logistics, Ian Flint, is not so sure. "Alliances were created for the benefits to their members: feeder business, cost reductions, sharing facilities such as lounges, and to be able to compete with airlines that had greater reach," he says.

"In the past, it has been difficult to do business with alliances because they did not have the power to negotiate throughout. Now, they nominate a local airline to be a negotiator, but the representative still has to report back to other carriers on multiple bids, and it can take a while," says Flint.

It is a point acknowledged by Star Alliance spokesman, Markus Ruediger: "Corporate buyers can negotiate with one Star Alliance airline contact to contract to fly on all 21 member airlines, and they get a better rate than if they have to sign a contract with each carrier." But, he adds: "Star is not an airline: you can seal a deal with one member carrier and it will arrange the facilities you need from others."

SkyTeam has traditionally negotiated on the same model but that is changing. "We are moving into a new, more efficient process by establishing a central office in Amsterdam, which will have dedicated staff for administering sales and contracting activities on behalf of [all member] airlines," says Charlie Pappas.

The service should be available by the end of the year.

However, the central casting works for some. Travel and expenses manager for Airbus, Geoff Allwright, says: "We have a deal with at least two of the alliances where we are primarily negotiating with one person and although I am not involved in procurement discussions, I am told it does make it a lot easier not having to deal with multiple airlines."

"For a buyer with significant spend, it is probably a good idea - not necessarily because we get a better price, but because of the ease of doing business," he says. "For example, if there is one dominant carrier, it can use its influence with some of the less prominent airlines. In some of the alliance deals, we have fares with airlines we would probably hardly ever use, but they are there if we need them."

KPMG's European category manager, travel, Sarah Makings, agrees that it is easier to negotiate with a single carrier. She negotiated with Lufthansa for a Lufthansa/SWISS contract, and with British Airways, which liaised with Qantas. "But we don't have a oneworld contract - it is a BA and Qantas contract - and we have others with Cathay Pacific and Iberia," she says. The consultancy also has an arrangement with VLM and bmi. As a buyer, Makings does not believe she gets any benefits other than talking to just one person. Looking at her deals, Star Alliance and oneworld might be more proactive in marrying up its contracts to offer a one-stop service.

Antitrust (competition) laws tend to get in the way of this type of negotiation because they disallow carriers from discussing fares, schedules and products. This applies particularly to oneworld because BA and American Airlines do not have antitrust immunity. Competition is altogether a thorny issue and one criticism frequently levelled at the alliances is that they are uncompetitive because they allow carriers to reduce the number of services on a route and operate it as a code-share, resulting in less choice for customers.

"There has been no reduction of competition on the major routes," insists Star's Ruediger. "In fact, because carriers can feed into each other's services, there has been growth rather than contraction - and that is what makes routes profitable." This can benefit the traveller. Air Canada is starting services to Barcelona and Athens because it can tap in (respectively) to Spanair's Spanish network and Aegean Airlines' flights throughout Greece.

Oneworld's Michael Blunt puts a different spin on it. "British Airways and Iberia work closely on routes to Spain. This benefits customers because the airlines can provide more market-friendly joint schedules, so instead of having the same departure times, they can spread departures throughout the day." Which, presumably, would reduce competition on routes. Blunt's response to this is that "business travellers find it more attractive to have flights over a period than only one choice of when they can fly". This again begs a question, though: surely most business travellers want options early and late in the day?

It is no secret that BA is looking for these opportunities on transatlantic routes. "American, BA/Iberia, Finnair and Royal Jordanian are applying to the US regulators for antitrust immunity, which would enable them to talk about scheduling and settling joint fares across the Atlantic," says Blunt.

Virgin Atlantic has remained steadfastly against any such arrangement and, so far, has been resolutely going it alone. Says director of communications Paul Charles: "We have expanded our business by bi-lateral relationships and have not felt an alliance is necessary to help us grow. That is not to say we won't join an alliance - there are pros and cons," he says. "Purely by chance, a lot of our bilateral deals are with Star Alliance carriers, such as Continental [which joined Star on October 27] and Singapore Airlines, which is one of our shareholders, and we also have shares in bmi. It would be a natural alliance for us to join." Charles adds that SkyTeam was "another possibility", although oneworld was not.

"Alliances can bring extra feed and can potentially give bulk buying power but they can dilute your brand because they want to be the over-arching brand," he says. "We are vehemently against BA's and AA's plans because we think that would kill competition out of Heathrow.

"Heathrow is unique in the aviation landscape and that is why we are keen for the regulators to flex their muscles. Real consumer benefits are not there." Charles also maintains there is no consistency of product across the alliances.

Yet all three groupings are at pains to point out that there are strict criteria for membership. These include IOSA safety certification, investment in the IT necessary to allow a carrier's technology to talk to that of existing members worldwide, loyalty programme reciprocity with redemption and collection capability, through check-in ability, lounge access, and more. All three alliances perform a thorough audit to ensure compliance has been achieved.

However, there can be little doubt that total global consistency is an impossibility. Star Alliance's Ruediger is realistic: "There are differences between the lounges across the globe and that is mainly due to local market conditions, which goes for the on-board product, too. There is definitely a difference between what is offered within Europe, North America and Asia, for However, Ruediger adds: "Feedback we get from customers says they appreciate the cultural diversity."

Alliances do, however, offer some outstanding benefits for travellers and co-location is one such example. As all three finally struggle into their allotted terminals at London Heathrow, transfers between member airlines will become much easier. There are similar arrangements at other major hubs around the world.

Access to lounges is also a major bonus. "It is excellent," says Airbus's Geoff Allwright. "In Sydney, for example, I used the Qantas lounge when I was travelling on BA, and that happens all over the world." The alliance-branded lounges get mixed reviews. Virgin's Paul Charles feels they are symptomatic of alliances' capacity to dilute airline brands. However, regular business traveller with South African Airways, Tony Dignam, is impressed with the new Star Alliance lounge at Heathrow's Terminal 1. "It is a considerable improvement on the former SAA facility," he says.

As an SAA gold cardholder, he sees other advantages to alliances. "I get a 20kg checked-in baggage allowance with partner carriers; gold-card level check-in, regardless of the class I am flying; and I can board when I like, rather than when my seat is called," he says.

Reciprocity of loyalty programmes means travellers can earn and redeem points on all member carriers of a particular alliance. However, using points for upgrades is still not universally available. SkyTeam offers it across the board, Star Alliance makes it available with most members, with others complying by 2010, but oneworld does not provide it.

A further advantage identified by Geoff Allwright is the availability of assistance travellers get en route. "If you are flying from Dublin with bmi and transfer at Heathrow to a Lufthansa flight to Frankfurt, and something goes wrong, you would be able to get help from bmi in Dublin with the Frankfurt sector. Before, that would have been impossible."

There is an acknowledgement from all three alliances that there are gaps in their worldwide networks: in particular, India, South America and parts of Asia. Says Star's Markus Ruediger: "In the future, we might need more coverage in different areas because this is where traffic flows are heading."

However positively it is spun, though, alliance membership is no guarantee of survival.

As chief executive of Star Alliance, Jaan Albrecht, says: "It is like a health club. You can pay membership fees but if you don't go, you don't become any fitter."

Alliances have tools that can be put at members' disposal to great advantage. ANA, for example, joined Star as a regional domestic carrier in Japan; today it is a major international airline. "It has used the advantages an alliance can provide to its benefit," says Ruediger - and consequently to the benefit of its passengers.

Alliance line-up

Star Alliance
Members: Air Canada, Air New Zealand, ANA, Asiana Airlines, Austrian, bmi, LOT Polish Airlines, Lufthansa, SAS Scandinavian Airlines, Singapore Airlines, South African Airways, Spanair, SWISS, TAP Portugal, THAI, United Airlines, US Airways, Adria Airways (Slovenia), Blue1 (Finland), Croatia Airlines, Air China, EgyptAir, Shanghai Airlines and Turkish Airlines. Pending membership: Continental Airlines and Brussels Airlines (2009); Air India, Aegean Airlines and Brazilian carrier TAM (2010).
Network: 916 destinations in 160 countries
Total annual passengers carryings: 506.6 million

Members: American Airlines, British Airways, Cathay Pacific, Finnair, Iberia, Japan Airlines, LAN Airlines, Malev Hungarian Airlines, Qantas and Royal Jordanian. Pending membership: Mexicana (2009) and S7 Airlines (Russian) (2010).
Network: 727 destinations in 142 countries
Total annual passengers carryings: 330 million

Members: Aeroflot, Aeromexico, Alitalia, Air France, China Southern, Continental Airlines, CSA Czech Airlines, Delta, KLM and Korean Air. Associates: Air Europa, Copa and Kenya Airways. Pending membership: Vietnam Airlines. Pending associate membership includes: TAROM and Middle East Airlines.
Network: 928 destinations in 174 countries
Total annual passengers carryings: 455 million