Star Alliance's sheer size leaves little room for network expansion, and its large members are tending to form separate, exclusive partnerships through joint ventures and codeshare agreements. Against this backdrop, the grouping faces a stern challenge in remaining relevant for both large and small carriers.

There is no "theoretical limit" to the number of members, Star chief Mark Schwab told Flightglobal as executives gathered for a board meeting in Warsaw last month. But 18 years after its foundation, the alliance has reached a mature phase and its "focus is shifting from building a network to building value", says Schwab.

The question of whether alliance membership delivers equal value for both large and small carriers is "a good one", SAS Group chief executive Rickard Gustafson acknowledges. Alliances are especially important for small carriers as they provide access to global networks, but while such carriers represent "no downside" for large members, traffic on the "global highways" of long-haul travel is largely determined by a sub-group of airlines within Star forming individual partnerships, says Gustafson.

He still believes Star provides "significant" benefits for all members, but sees a need for the alliance to "reinvent" itself in line with the shift from establishing a global network and seamless travel for passengers to sharing more resources and data between airlines.

EgyptAir chief Sameh El-Hefny sees no conflict in having a two-tier system. Large alliance members need to have exclusive privileges, he argues, and the smaller members still gain "lots of benefits" from participating in the alliance, including access to shared facilities, such as London Heathrow's Terminal 2, and more attractive frequent-flyer programmes. In any case, joint ventures between airlines tend to reflect not carrier size but geographical location, argues El-Hefny.

For Lufthansa Group chief Carsten Spohr, joint ventures are "a further step toward consolidation" – which, he says, is "urgently" required. In Spohr's view, the future development of airline alliances will be a factor both of the number of airlines competing in the marketplace – particularly in Europe – and of differences in airlines' corporate make-up.

As there are "too many players" in the airline industry, certain carriers both within and outside Star should either go out of business or merge with others, argues Spohr. "Alliances provide no protection from consolidation," he says, albeit that "perhaps they slow it down" for small operators. Consolidation has not taken place yet because, Spohr asserts, airlines "do not adhere to the law of business economics". While some carriers compete on a purely commercial basis, others depend on state support.

Spohr accepts that joint ventures are available primarily to large carriers. But he contends that such tie-ups create neither disadvantages nor benefits for small alliance members.

Sebastian Mikosz, chief executive of Polish flag carrier LOT, takes a different view, however. He sees joint ventures as "very problematic" because they create sub-organisations with a mutually shared business that is "much closer" than is typical within an alliance framework.

Last month, LOT detailed an expansion strategy, centred on long-haul growth, to be pursued when a state-funded restructuring programme concludes at the end of 2015, freeing the carrier from European Commission-imposed capacity restrictions. Now, LOT must find an investor – or raise capital through share issuance – to fund a planned doubling of the fleet.

Mikosz says LOT benefits from access to Star's network, the alliance's terminal facilities and, crucially, its brand – which, he admits, is much more globally recognised than that of LOT. But the advantages for the carrier have so far been "at a much lower level than they should be", he adds.

He believes LOT must play "a more active role" within Star, including through efforts to build joint ventures with other members. And as LOT requires external investment to pursue its growth strategy – ideally from another airline – Mikosz supports the consolidation argument too. "We [as an industry] should consolidate," he says, as today's fragmented airline landscape "is not helpful in the long term".

Mikosz also sees a need for "a new balance" between general airline alliances and joint ventures among select members.

However, there is no indication that Star will serve as a mediator to find that balance. The alliance is concentrating on initiatives aimed at improving passenger experience and saving costs for airlines, says Schwab. But with that focus, he says, "we are as busy or busier than we have been".

The planning of Heathrow Terminal 2's passenger operations exemplifies that effort. Star carriers harmonised their check-in systems and procedures to use the available space more efficiently. This allows check-in staff to easily switch between different airlines' departure control systems and handle passengers for these carriers at the same time.

Aside from integrating the DCS software packages, the airlines had to harmonise items such as baggage tags. While six airlines would previously have used a total 127 different tags – a volume that prevents staff from handling other carriers' passengers – that number was reduced to five, says Schwab. Without these initiatives, he says, Terminal 2 would have needed to be 25% larger to handle the required passenger volume.

Similar efforts to increase capacity without terminal expansion are now under way at other airports, such as Los Angeles and Sao Paulo.

Star airlines have also pooled their ground handling requirements at Terminal 2 to reduce the number of service providers and save costs, says Schwab. With carriers having jointly bought fuel in the past – especially at airports where no alliance member was based – the grouping is now evaluating joint acquisition of spare parts.

Airlines are co-operating to harmonise IT systems so that passengers can receive flight information on personal digital devices not just for individual carriers but across the alliance's network. Functions to manage bookings – checking in online, receiving flight information, claiming frequent-flyer credits – have thus far been available for individual airlines. But greater integration of data systems also benefits the airlines as they are able to share market intelligence. Schwab says the alliance collects a "huge amount of customer data" and can monitor business trends across its network. Insight from individual airlines about any necessary improvements in their operating area can be shared with other carriers, he says.

The objective is to find ways of enhancing passenger experience, which also create efficiencies for airlines, Schwab says. But he also points out that Star's new focus on extracting more value of out of the existing network will be achieved by greater co-operation between individual airlines through codeshares and joint ventures: "You join an alliance to work together with airlines."

Source: Cirium Dashboard