The SkyTeam alliance is making the most of its tight-knit membership while seeking breadth through the establishment of a second tier of carriers
SkyTeam may have been the last of the three major global alliances to emerge, but it has not been slow to make up for lost time. It has yet to manage the geographical reach of Star and oneworld, but has made major strides in terms of depth and effectiveness.
At its launch in 2000, SkyTeam had only four members, firmly based around the link between Air France and Delta Air Lines, but with Aeromexico and Korean Airlines providing a more global feel. CSA Czech Airlines joined a year later, but after some early disappointments in attracting new members, the big coup came when Alitalia came into the group. But at six members Skyteam is still the smallest of the global groupings.
SkyTeam has been making a virtue out of necessity by developing a relatively nimble management structure and forging tight links between members. While the hunt for key strategic members is very much alive, SkyTeam is in the process of developing a second-tier level of airlines below the core membership.
This reflects a problem familiar to all alliances - how to avoid management becoming bogged down as they add numbers. Star, the largest group with 14 carriers (soon to be 17), has agreed that clusters of members can implement projects on their own. The only caveat is that they do not affect the customer experience. So, for example, frequent-flyer projects must be carried out on an alliance-wide basis, but cost-saving programmes could be implemented by smaller groups. A current example is the proposal for a common Star IT platform, which is likely to be led by Lufthansa together with a few like-minded carriers.
SkyTeam is more tightly knit, so the pressure to move at different speeds is less urgent. However, the IT link, for example, is a key issue across the Atlantic. While Air France has a stake in the Amadeus global distribution system, Delta is tied to Worldspan. So SkyTeam has developed a system along the same lines as StarNet, which allows member carriers to communicate with each other through a central translating hub.
The failure of Amadeus and Worldspan to agree a merger in the late 1990s means that moving to a common alliance IT platform is not on the agenda, says Patrick Bianquis, vice president alliances at Air France, at least while Delta remains a Worldspan shareholder.
Second tier
Meanwhile, the alliance is strengthening through the development of a second tier of carriers, an idea that has been around almost since SkyTeam's inception. Air France vice-president for international affairs and alliances Dominique Patry notes that "practically all members have links with carriers that do not have large enough networks to become full members".
This spring, the alliance will present a package to carriers that are interested in joining the second tier, with the first perhaps joining in 2004. Bianquis, at Air France, says the package will include the SkyTeam name, but will be "different", providing a distinction between the full brand and the second tier.
Interested carriers will have to meet certain operational and service criteria. "The associate concept would be open to certain carriers which complement SkyTeam in focused markets and meet our quality and service requirements," says Patry. Potential members include flybe British European, which carries out some franchise work for Air France, as well as Alitalia partner Air Malta.
But the next SkyTeam members will not necessarily be second-tier carriers. The alliance is continuing its quest to add partners in key geographical locations, such as Latin America and South-East Asia. In addition, South African Airways (SAA) is deciding whether to join SkyTeam or Star - it has ruled out oneworld because of potential conflict in the key London market.
New SkyTeam carriers could include Continental and Northwest Airlines which are pushing for approval in the USA for a grand domestic alliance with Delta. "The first priority will be to implement the alliance in the USA as quickly as possible," says Paul Matsen, Delta's senior vice-president for alliances. He adds, however, that the aim is for the two new US carriers to join the global alliance at a later stage. "We don't have a specific timetable, but depending on the Department of Transportation administrative law review, a decision could possibly be taken later this year," he says, adding, that it takes around six to nine months to complete the review process before a carrier can join a global alliance.
Potential member
Joining SkyTeam carriers in taking a keen interest in the developments of the Delta/Continental/Northwest relationship will be KLM. The Dutch flag carrier has a deep-seated relationship with Northwest, which is in SkyTeam's favour. However, KLM is also being courted by oneworld and it came close to forging a partnership with oneworld member British Airways in 2001. KLM attended SkyTeam's alliance summit in Venice in November. Patry notes: "KLM is waiting to see what happens in the USA. What's happened so far is promising." He adds that the acrimonious ending of Alitalia's virtual merger with KLM in 2000, and the subsequent court case, "is not having an influence on the discussions". In January KLM was ordered to pay Alitalia a net penalty of €150 million ($162 million). Alitalia points out that it hosted the SkyTeam meeting that KLM attended last year and that "it is clear that KLM's decision will be based on economics".
If the three carriers join SkyTeam, it will be interesting to see whether this changes the alliance's attitude to its management structure. At the moment, each of the six carriers has three people responsible for alliance activities. They report directly to the chief executive of their respective carriers. This contrasts with both Star and oneworld, which have set up standalone alliance management teams - oneworld is based in Vancouver, while Star has its headquarters in Frankfurt and satellite offices in Los Angeles and Bangkok.
SkyTeam has decided not to form a standalone management unit, at least not for the time being. "I don't see a need for a central management unit," says Matsen, although he adds, "maybe if we became 10-12 airlines we would have to re-evaluate that".
Horst Findeisen, Star vice-president commercial, argues that a standalone management team makes sense. "We believe that committing people from airlines to Star ensures there is no distinction between strategic decisions by the airlines and the alliance." He adds that in the early days, Star tried to organise itself around committees, "but this does not work". He says: "You need full-time, dedicated personnel."
In Star's case, these include one individual from each carrier who reports directly to the airline's chief executive and form what is effectively the alliance management board. They are responsible for directing the strategic management of the alliance. In addition, each carrier has an alliance director, who is effectively a liaison officer, responsible for communications with other Star carriers. This is in addition to the 70 or so employees working directly for Star.
Governance team
At SkyTeam, the various chief executives meet twice a year. Below this level, the alliance has a steering committee which meets around four to five times a year. "Nobody is a SkyTeam employee per se," Bianquis explains. "One reason for this is that we are not so numerous at the moment, but another is that we fear that the people involved would lose their links to the mother carrier," he says. There are around 50 alliance working groups, but Bianquis says that no one spends more than 50% of their time on alliance activities.
Looking forward, SkyTeam already has antitrust immunity across the Atlantic and Air France and Alitalia have a 2% cross equity partnership. Air France is planning a privatisation and CSA is expecting a part privatisation in the next year or two. This may create further opportunities for consolidation, although Delta chief executive officer Michelle Burns is cautious about the idea, at least if they involve minority investments as they do under the current bilateral system. "Passive investments are not always the best use of capital," she says, adding that if Delta was to invest in Air France, she would have to prove to shareholders that this money would not be better used investing in Delta.
Even so, Burns points to a recent joint marketing agreement with Coco-Cola and a joint alliance-wide insurance tender as examples of where co-operation is increasingly apparent. As it grows, SkyTeam may yet have to follow at least some of Star's management strategies, but for the time being it is making a virtue of its size.
REPORT BY COLIN BAKER IN LONDON
Source: Airline Business
