In a World of Joint Ventures, Alliances Still Matter

Alliances

Recently I found myself delving into a wonky discussion about airline alliances. The question came up – do they really matter anymore? Even considering the rise of the joint venture, which has been problematic for some alliance members who are on the outside looking in, I still think there is real value when it comes to alliances.

Airline Alliance Love

We’re approaching the 20-year anniversary of the modern alliance. When Star Alliance launched in 1997, it was a powerhouse. But 1997 was a long time ago and the world was very different. There were a lot more airlines flying in a much more restrictive environment. Creating an alliance helped to bring together some of those various airlines to help them stand out. It allowed deeper and easier connections into partner airline networks. At the time it seemed revolutionary and other airlines raced to follow. In 1999, oneworld came along with SkyTeam following a year later. The three alliances set the tone for future consolidation along partnering lines.

But the seeds for something deeper were planted back in 1992 when the US and the Netherlands signed an open skies agreement allowing carriers from each country to effectively have unrestricted access to flying between the two countries. US policy made open skies a requirement to enable further cooperation between airlines across borders, and this meant the Dutch carrier KLM had a leg up. KLM and its brother-from-another-mother Northwest were granted anti-trust immunity. By 1997 they had a joint venture effectively merging Transatlantic operations.

The benefits became clear very quickly, and other airlines looked to do the same as soon as they could get their governments to sign open skies agreements as well. United and Lufthansa signed their Atlantic+ joint venture which eventually incorporated Air Canada and the Lufthansa-owned carriers. American and British Airways fought for years but finally had theirs approved (along with Iberia) once open skies deals were signed. But it wasn’t just in Europe, and the number of joint ventures has exploded recently.

When Japan opened up, ANA and United got together as did American and Japan Airlines. Delta has locked up its virgins (that’s Virgin Australia and Atlantic) and Aeromexico. American is working on a Qantas one now, and it has announced LAN as well. United and Air New Zealand are coming together. This isn’t a trend that’s going to change until cross-border mergers are allowed. Only then will joint ventures go away… in favor of outright combinations. We’ve already seen airlines take bigger stakes in each other for strategic reasons. They wish they could do more.

With all this happening, alliances have taken somewhat of a back seat. Some members who haven’t been invited to the joint venture party talk about there being a hierarchy within the alliance. It has led some to question whether it’s still worth belonging. Questioning, however, doesn’t mean action. Very few airlines have left an alliance without planning to join another.

So is there enough value when it comes to alliances? Yes, there is. But not all alliances are created equal.

Star, for example, is so strict on membership that you’re either in or out with no real ability to partner outside the alliance (except in rare instances where the alliance can’t meet a need). But oneworld has always had a much more open concept feel to it. That’s how American can partner with Etihad even while Qatar is in the alliance. And it’s how Qantas can tie-up with Emirates. This feels like the right path to me and helps airlines do what they need most.

From my perspective, there are three big points of value in an alliance.

1) Benefits across brands for frequent flier members
For the casual traveler this just means having the ability to earn miles in their home airline’s program. But for the frequent flier it’s an entire suite of benefits ranging from priority check-in/security/boarding to increased bag allowance, lounge access, and seat assignments blocked for elites. These benefits ensure that when elites are traveling outside of their home market, they’re highly likely to stick with a partner of their home airline.

2) Help during irregular operations and schedule changes
This to me is the most important benefit of an alliance, and oneworld does it best from what I’ve seen. Why? Well, oneworld has a requirement that if someone is holding separate tickets on a single trip involving two alliance members, they are treated as a single conjuncted ticket when it comes to reaccommodation issues. That is hugely helpful and I think a very important part of the puzzle. There are also oneworld Global Support Centers (http://crankyflier.com/2013/06/27/the-awesome-but-little-known-oneworld-global-support-centers/) that help to fix those missed connections between alliance partners. This is a tremendous benefit that should be touted more, because it can help push people to use alliance partners.

3) General consistency and safety of offering
Airlines can’t just join an alliance because they feel like it. There are a whole lot of entry requirements ranging from technology to safety that have to be met. Not everyone meets them. (Just ask Air India which kept getting denied by Star Alliance before finally getting its act together.) It’s a stretch to say that experiences are consistent, but they’re far more consistent than they would be otherwise.

The key point here is that not every airline can enter into a joint venture with every other partner. So having something looser, like an alliance, is still beneficial even if it is in a less impactful way.

[Original orgy image via Shutterstock]

17 comments on “In a World of Joint Ventures, Alliances Still Matter

  1. I don’t even read your posts anymore, I’m just here for your Photoshop skills :)

    But seriously, I didn’t know there were differences how the alliances worked, thanks for explaining!

  2. You buried the lead!

    ” Air India which kept getting denied by Star Alliance before finally getting its act together”

    Never knew AI got their act together! ;)

    1. They did. More than that they have gotten it together pretty darn well. I guess the new government in India is doing wonders.

  3. Have to challenge your history here. Northwest and KLM effectively had an alliance in 1993, not 1997. Heard it sometimes called the Wings Alliance (unofficial??), although it never grew beyond two airlines. Still have an old Worldperks card with NWA/KLM logos on the top and it predates Star, Oneworld, etc.

    Did enjoy the brief life of the co-branded livery on DC-10’s with the NWA red tails and KLM baby blue fuselage.

    1. A – Maybe I wasn’t clear in the post. I said they were granted antitrust immunity but the joint venture didn’t happen until 1997. KLM’s stake in Northwest dates back to 1989, so yes the alliance between the two certainly went back much earlier. But the joint venture didn’t go into place until 1997.

  4. Cranky, agreed that Star is very restrictive but can you speak to the partnerships with UA/HA and LX/LY?

    UA has a ton of capacity from west coast to Hawaii, plus mid-continent and IAD/EWR hubs not sure what real value the alliance or in-house resources couldn’t provide.

    LX has several TLV flights as do Star partners from European hubs.

    1. Josh – Alex answered the UA/HA question. As for LX/LY, that I’m not sure about. Did this partnership pre-date Swiss joining Star in 2006? That could be it. It’s also a very limited partnership. I think the codeshare is only on the Zurich-Tel Aviv route, is that right? And you can’t earn miles in Miles & More on an El Al flight, as far as I know. So it’s pretty narrow with the specific purpose of giving better coverage on a single route, if I’m understanding this right.

  5. There are many *A members with strong partnerships outside the alliance. United has several, including Aer Lingus (which I think many thought would disappear post-CO merger) and Jet Airways (ibid). ANA partners with Etihad, Jet, Virgin Atlantic and Garuda, among others. Lufthansa still has LATAM as a partner, plus smaller, unaffiliated airlines.

    I’d also love to see a cite that oneworld airlines officially guarantee the journey protection. Last I saw AA was the only to publish that and even it has pulled the text offline, though by all accounts it is still offered.

    1. WandrMe – No question there are some partnerships that fall outside of the alliance, but it’s generally nothing close to what can be done in oneworld. And they have narrow purposes.

      For example, the Aer Lingus/United partnership, MileagePlus miles can only be earned for travel between North America and Ireland or on a handful of routes between Ireland and England. These are routes where other Star carriers can’t fill the need. I really don’t want to go through every partnership, and I’m sure there are some that fall outside these bounds. But the basic point that Star is much more restrictive still stands.

      As for oneworld treating separate tickets as one, I did receive confirmation from someone at oneworld about this years ago when I was working on another post. I assume it hasn’t changed.

      1. And the major partnerships that *A members do have with non-alliance members are cases in which the alliance doesn’t have an alternative. The main example I know of is Virgin Australia. Obviously no *A member can offer domestic Australian flights (I think NZ legally *can* due to the Australia-New Zealand aviation agreement, but it’s not likely to be economically viable), so the equity and joint venture partnerships between VA and SQ and VA and NZ make sense. Moreover, VA is a pretty minor player outside Australia; they’re not really a threat to any *A member except UA on their Australia routes, and VA’s Australia routes aren’t covered by either the SQ or NZ joint venture anyway.

  6. When is the post about Norwegian using it’s new found approval and the US airlines and their unions via well greesed connections in congress trying to reverse it coming?

  7. It still depends on the airline, I flew on AR as a ST E+ and there were so many inconsistencies on what the bag fee is for being overweight and whether the bags are to be tagged priority. I was not very thrilled with the lack of consistency for someone who is elite on the airline. After flying AR, I was happy to deal with DL’s much better service.

  8. While these alliances are great from airlines’ perspective, IRROP handling across different carriers are still iffy.

    Case in point: had a complicated, 18 segment trip plated on 001 ticket with 7 carriers involved. On the segments of ULN-(CA)-PEK-(CA)-YVR-(AC)-PDX, I was misconnected in PEK due to a 12 hour weather delay, and arrived into PEK around midnight with no helpful staff to deal with rebooking. In the morning, the CA staff:

    * Claimed that AA needs to approve the change because it was a 001 ticket [wrong]
    * Claimed that AA did not have presence in PEK [wrong, as they just started service in PEK 2 weeks prior, and I met the AA training manager on the hotel shuttle]
    * Would put me on the next flight to YVR but refused to rebook me to PDX, because the original booking class bucket on the AC flight is no longer available
    * Refused to put me on the next flight to SFO on UA (which, in hindsight, was reasonable because of weather-related delay)

    This was happening while I reminded them that I’m a *G member, which they really didn’t care. Ultimately, because the YVR flight was delayed, they put me on the SFO flight on their metal, and PDX on AS (which I had to translate to Chinese for them).

    Side note, I did watch a Lakers game at ULN. That was surreal.

    1. ptahcha – Well this is more than an alliance issue since you had an American ticket flying on two airlines it doesn’t align with other than for interline ticketing. But clearly that should have gone more smoothly as well. Either way, the point is less about execution and more about the purpose that an alliance can and should serve. If I’m running an alliance, that’s the kind of thing I’m pushing hard on to get right.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Cranky Flier