The three airline alliances are recasting the competitive scene in global aviation – and corporate travelers are the winners
After some fifteen years of existence, airline alliances are coming of age, concentrating less on recruiting new members (after all, there are fewer candidates out there) and focusing more on polishing the basics of the product.
They’re also more balanced when it comes to competitiveness. Consider the recent ascendance of oneworld. Known more for its grace than girth, oneworld perennially placed third in sheer size to Star and SkyTeam. Now, the gap has narrowed – and the competition among the three heating up nicely.
Oneworld is still third in terms of destinations, countries covered, annual passengers and fleet size. But over the past two years it’s grown like gangbusters. According to oneworld’s own numbers, Star Alliance now transports 727-million passengers annually to 1,269 destinations in 193 counties via a fleet of 4,701 aircraft. SkyTeam flies 552-million customers each year to 1,064 destinations in 178 countries on 4,467 airplanes. Closing fast is oneworld, which now transports 506-million passengers to 993 destinations in 152 countries via a fleet of 3,306 aircraft.
Only two years ago, some industry observers, while praising its service, considered oneworld “half an alliance” – at least in terms of size. Since then its number of annual passengers has soared by 74 percent, destinations by 36 percent, number of countries increased by 5, and its fleet has grown by 49 percent. Other metrics are commensurately vigorous.
Here’s the metric, however, that oneworld contends counts most: “We have 26 percent market share of the revenue stream for the Top 100 business markets,” says Michael Blunt, oneworld’s vice president of corporate communications. This in an arena, “where the alliances count for more than 80 percent of [passenger] spend.”
Star is still first in this key category, with 32 percent of the market. Oneworld has climbed to second place with its 26 percent share and SkyTeam is in third, with 22 percent.
Lest your brain be numbed by all these inside baseball statistics, consider the implications. “We have seen a realignment, where oneworld is a more powerful entity, with more diversity of networks,” asserts Josh Marks CEO of the respected commercial aviation data firm masFlight.
Darryl Jenkins, chairman of the American Aviation Institute, echoes Mark’s sentiments. “Oneworld is just starting to coalesce,” Jenkins says. “They were kind of the laggard in this group,” in terms of size, he adds.
In light of that realignment, Marks maintains, “Corporate travel buyers are definitely the winners. Because you have more powerful alliances that are competing against one another” to cut corporate deals. He says that while airfares continue to rise in general, “[Corporate] discounts are getting better. It’s not the published rates that are changing, it’s the deals that are getting cut with corporations.”
Oneworld’s Blunt says, “The market that alliances are really all after is the frequent business traveler. It’s a very specific pond that we’re all fishing in.”
Who’s Gone WhereBusiness passengers are the prime catch, and airline alliances the eager anglers. Sometimes those carriers haul down one alliance’s flag and run up another. Consider: US Airways was with Star. It’s now an affiliate of oneworld. Brazil’s TAM was also in the Star camp. It’s now a full member of oneworld, its place in Star’s South American heavens replaced by Avianca Brazil – in concert with previous Latin American members Avianca and Panama-based Copa Airlines.
Star’s shine induced Taiwan-based EVA Air to join that alliance, further solidifying the group’s Asian presence. Because of the strategic location of its Taoyuan International Airport hub, the carrier is a valuable addition. Star says, “Taiwan’s geographic location is such that it has the shortest average distance to all major cities in the Asia-Pacific region.”
To the west, Air India is in the process of entering Star as we speak. Not to be outdone on the Indian subcontinental, SriLankan Airlines joined oneworld in May of this year.
This is an increasingly Asia-centric world. The fact is further underscored by SkyTeam’s March 2014 addition of Garuda Indonesia as its 20th member – and second airline from Southeast Asia. Garuda’s membership adds Soekarno-Hatta International Airport in Jakarta as another gateway to the region.
Every alliance wants to be a major player in China, and some think what oneworld needs is a stronger Chinese presence. Star has powerhouse Air China, as well as Shenzhen Airlines. SkyTeam has coverage via China Southern and China Eastern. Oneworld’s entry in the arena is service-intensive Hong Kong-based Cathay Pacific and its subsidiary Dragonair. “I think you could look at China and question whether oneworld particularly needs [more presence],” says Josh Marks.
Powered by high-quality players Emirates, Qatar and Etihad, the Middle East is a connectivity magnet, flying in folks from the four corners of the earth and sending them hurtling on to their final destinations. Only one of the Big Three Middle Eastern airlines, however, belongs to an alliance. Qatar is a member of oneworld, perhaps the most prized catch by any alliance in the past couple of years.
Don’t look for ever-expansive Emirates to join an alliance anytime soon – perhaps ever – if their business plan continues to click with the clockwork precision it has so far.
“While there are three big alliances, there are also the non-aligned,” says airline consultant Jenkins. “At the head of that group is Emirates, which is really out there changing the world. They can increase capacity [in a given market] at will. They don’t need to join an alliance.” Marks concurs. “I don’t think they’re going to budge,” he says.
Extra-alliance ExpansionNot all cooperation among carriers, of course, is confined to alliances. The joint-venture arena is alive and well – anti-trust immunity arrangements by which airlines can coordinate flights by combining their fleets on key business routes in “metal-neutral” ventures where it doesn’t matter whose airplane you actually fly.
JV’s are nothing new. But SkyTeam member Delta imparts a bit of a twist to the technique by going outside of SkyTeam to team up with Virgin Atlantic and Virgin Australia. “We’ve seen Delta take a non-controlling interest [in Virgin Atlantic]. They exert a tremendous amount of influence over Virgin, where they’ve effectively integrated the airline into their core trans-Atlantic offering,” says Marks.
In Europe, Marks maintains, “Delta wants to control their own destiny, and is not relying on [fellow SkyTeam members] Air France/KLM to be the foundational partners they were at the beginning of the SkyTeam alliance.”
In a written response, SkyTeam replied, “The purpose of any airline alliance is to augment cooperation between its members around the world. Cooperation outside the alliance can be necessary to address specific gaps, which the alliance isn’t best positioned to address. Compared to the scope of cooperation within the alliance, such partnerships are of limited scale. We still see more growth of inter-alliance cooperation.”
Ironing Out the Rough SpotsWhile all three alliances are laying on ever more lavish perks for their top frequent fliers, it’s the blocking and tackling – the basics – that go a long way in defining the success of an airline alliance. Carriers are creatures unto themselves, possessed of individual cultures and internal rules sometimes developed over decades of operation. Getting them to work in concert can be a challenge.
“I think there are some things [they] have to do yet,” says Jenkins. Take lost luggage for instance. The aviation consultant believes “if you have a problem right now [the airlines] tend to point fingers at each other.” He says as integration proceeds apace there needs to “be somebody willing to step up and take the blame” for a problem, and be in a position to provide a ready remedy.
Ironing on the kinks in the system “is something we have been putting a lot of emphasis on over the last two years,” says Star Alliance media relations director Markus Ruediger, “looking at where the system failures that still exist are and how we can best sort those out.”
Star Alliance has invested heavily in information technology, according to Reudiger. One area IT can play a role is in the realm of frequent flier rewards and redemption. “When customers swipe their frequent flier cards, they want those miles to end up in their account and not in some sort of IT Nirvana. We understand there are still issues.”
Each alliance is looking at ways to make the connections – actual and virtual – click better. “We’re doing a bit of a root and branch review of everything we do for our consumers,” says oneworld’s Michael Blunt. “We’re looking to see if there are things we could do better.”
There’s always the danger of doing too much, too fast. Blunt says oneworld is aware of that. “We’ve just been through this huge expansion,” he says. Now the focus is on delivering the service attendant with that expansion.
One thing all the alliances are doing better is co-locating check-in facilities, putting them under one roof. At sprawling, multi-terminal international airports it can make a world of difference.
As this piece goes to press, Star is in the process of moving all 23 of its London Heathrow alliance airlines into LHR’s new Terminal 2. From there, the alliance will field over 121 flights per day to 45 destinations in 25 countries. With 23 percent of the market share at LHR, Star carriers have been scattered among three terminals at the much-in-demand airport. In the past that’s resulted in something short of truly “seamless” connections.
In written response to Business Travel Executive’s inquiries, SkyTeam touted its SkyPort concept, saying it’s focusing on “increasing co-location of airport facilities to ease the customer experience while reducing costs.”
Lounges are part of that focus. SkyTeam plans to open its own lounge next year at Dubai International Airport. The alliance says it will also open a SkyTeam-exclusive lounge at Sydney’s Kingsford Smith International towards the end of 2014. These new initiatives, SkyTeam says, coupled with existing exclusive lounges at London’s Heathrow and Istanbul’s Ataturk airports, plus joint check in counters and airport ticketing offices worldwide, are “further examples of successful airport synergies.”
Airport synergies, some re-shuffling of the alliance cards and an emphasis on getting the basics right. That’s the backdrop just now to what experts believe is the real story: three healthy alliances all vying fiercely for your favor. Corporate buyers are the real winners in this refined arena, reiterates masFlight’s Josh Marks. “Things are definitely getting better for the buyers that count.”