Although the global groupings have grabbed the headlines, bilateral deals still dominate for many
Few airline initiatives have generated as much interest as the formation of the global alliance groupings. Such is the power of their marketing presence that it is often taken as a given that the global groupings dominate co-operation agreements between the world's mainline carriers. However, the data tells a somewhat different story.
For all the visibility of the global alliances, the bulk of inter-carrier agreements continue to be on the basis of bilateral deals. For example, this year's Airline Business alliance survey counts close to 370 code-sharing arrangements. Of those, less than 20% are between global alliance members.
Less than exclusive
The survey also suggests that global alliance groupings are not so much exclusive clubs as loose marriages of convenience. If all of the 29 carriers who are members of one of the big three alliances had a codeshare with every other member of their club, then there should technically be scope for 148 such deals. Yet the 29 carriers which currently belong to one of these alliances show only 71 codeshare links with another club member, suggesting that over half of the theoretical value of the groupings is left on the table. At the same time, alliance carriers retain a host of bilaterals with non-members and there are around a dozen instances of code sharing between members of rival global alliances.
The level of codeshare activity outside the framework of the major groupings underscores the perpetual question of whether the incremental benefits of global alliance membership justify the costs involved in joining. The extent to which the global alliances dominate around the world reveals some wide variations between the regions.
Perhaps unsurprisingly, the global alliances dominate in Europe and North America, where the concept first took hold. In the USA, alliance membership is more or less a given for any carrier operating international service. US Airways, which felt burnt by its 1990s tie with British Airways, is now bound for the Star Alliance, while Continental Airlines is already allied with Northwest and Delta Airline Lines in what could lead to further intercontinental ties.
Of the western European majors, only TAP Air Portugal, Virgin Atlantic and Olympic Airways are not yet in a grouping. TAP had been a founder member of the ill-fated Qualiflyer Alliance led by Swissair. But after its demise, the Portuguese flag carrier embarked on a period of internal focus, even as its former Qualiflyer stablemates scrambled to join new groupings. Now, with its structural reform largely completed, TAP is ready to contemplate another multilateral link-up. The decision is not one that will be taken lightly.
Juan Guedes Dias, TAP vice-president for external affairs, knows only too well that groupings bring pain as well as gain. He remembers the high cost of changing reservation systems, and adds that he has "never seen an alliance effectively rationalise the combined networks". He cites Swissair's insistence on serving virtually every market, even in Brazil, where TAP had geographic and cultural advantages.
Competition concern
However, Dias also believes that market competition will be significantly less kind to those carriers not in a grouping, especially as consolidation takes place. It is this, as much as anything, he says, that will probably prompt TAP to join.
He quickly adds that the decision to re-enter the global alliance scrum should not be seen as taken against TAP's better wishes. He stresses that some of the costs involved are more accurately viewed as investments, giving the example of the Qualiflyer-led move to an Airbus fleet - that continues to pay dividends.
Dias also says that some of TAP's negative experiences in Qualiflyer will aid it in future liaisons, specifically those related to network, as the carrier will aggressively negotiate to ensure that it does not end up "surrendering itself to just feeding a larger airline's hub".
For Virgin Atlantic, with its largely point-to-point service out of London, the arguments for joining a global network have been less compelling than for most, says commercial director Willy Boulter. Yet Virgin too keeps a wary eye on the potential competitive advantage that the global groupings could begin to wield. In particular, Boulter points to the potential power of their combined offer in loyalty programmes and corporate sales. To date, he argues, neither has proved a major issue for Virgin, which has also found no problem in developing bilateral relationships. "Global alliance membership is something that we keep under review and look at periodically," concedes Boulter.
The global alliances have also been taking hold among the major players in the Asia-Pacific region, even if mainland China remains unaligned. The largest exception is Japan Airlines (JAL), which remains unconvinced that the membership benefits will outweigh the dues.
JAL says that it values the flexibility its independence brings, particularly the ability to choose codeshare partners on a case-by-case basis: "With agreements with Star, oneworld and SkyTeam carriers, we have in effect set up our own alliance, one that gives us the freedom and the flexibility to do what is best for us and our passengers."
Meanwhile, Latin America appears to be a region in flux. An initial flurry of alliance activity was led by Varig's early signing to Star, while Mexicana and Aeromexico, though jointly owned, linked with the rival Star and SkyTeam groupings, and LanChile has become a oneworld stalwart. In the last three years others have not rushed to join them.
Colombia's Alianza Summa is one example of a carrier unaligned by choice. Echoing the concerns of smaller carriers elsewhere, Summa points to the financial and manpower costs of making its IT systems compatible with other alliance members. Chief executive Juan Emilio Posada also values the freedom to select codeshare partners for particular routes. While Summa enjoys synergies from its bilateral deals with SkyTeam's Delta and Air France, it believes that other carriers might offer better help in other regions.
In contrast to regions elsewhere in the world, Africa and the Middle East have no major carrier yet aligned with one of the global groupings. South African Airways (SAA) - like most non-aligned airlines - has long championed the bilateral agreement, with 11 such deals currently in place. Indeed, so jealously guarded was its independence that SAA remained unaligned from Qualiflyer even after Swissair took a 20% stake. However, SAA has announced that it will now seek to become a fully fledged alliance member, citing the potential opportunities for cost-reduction. SAA also highlights harmonised ticket facilities - including e-ticket codesharing.
In the Middle East both Gulf Air and Qatar Airways have also stated their intention to join a grouping. Emirates, the region's largest carrier, however, remains steadfastly unaligned. Emphasising that it is one of the few airlines logging profits, the Dubai carrier also stresses the ability to act independently in explaining its decision to continue flying solo: "The benefits of joining are outweighed by staying independent. We don't have to consult anyone regarding our timetable or our fleet."
Those carriers that have remained independent of the global alliances all say that they examine the issue from time to time, but that any possible decision to join will be taken on the strict basis of dollars and cents. In the words of Emirates: "You have to have specific revenue motivations for joining a grouping, and thus far we cannot identify one."
Source: Airline Business
