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Airline alliances

Airline alliances, in which companies share routes and facilities, have become a significant aspect of the aviation world. Are these pacts quasi-monopolistic cartels or ‘customer friendly’ rationalisations?

  Phuket City

November 2010

The world of airline alliances is changing rapidly, adding a new competitive edge to the companies which serve Phuket.

Air Berlin, which flies directly to the island, is set to become the first low-cost carrier to become a full alliance member. It will join the Oneworld alliance in 2012. In another development, the flamboyant British billionaire Richard Branson is looking to form a fourth global alliance, building on his Virgin Group which services Phuket with its carriers, Pacific Blue and V Australia.

Other alliances whose members operate services to Phuket include Oneworld with Aeroflot and Finnair Star Alliance with Thai Airways International and Asiana Airlines and SkyTeam with China Southern Airlines and Korean Air. Of course, this is just the tip of the iceberg. With the code-sharing system, which is a cornerstone of the airline alliance model, there are many cross linkages.

The three established alliances, Star Alliance, Oneworld and SkyTeam account for 73% of the world's airline capacity and this is growing. S7 of Russia and Kingfisher Airlines of India are due to join Oneworld. Russia and India are two emerging markets for Phuket's tourism industry. The 28-member Star Alliance will soon acquire Air India and Ethiopian Airlines. Next year, the 13-member SkyTeam alliance is expected to take in China Eastern, the country's largest airline. To give you an idea of the size of these groupings, Star Alliance carry around 627 million passengers a year and SkyTeam and Oneworld together, account for a further 720 million. The non-aligned carriers, by comparison, can only manage 489 million passengers between them.

However, the non-aligned group still includes some impressive carriers such as Virgin Atlantic Virgin America Southwest in the United States (the most successful low-cost carrier in history) Transaero (a large Russian carrier that flies directly to Phuket) and China Airlines of Taiwan. An interesting fact is that the Middle Eastern airlines sector which includes Emirates, Etihad Airways, Gulf Air, Qatar Airways, and Saudi Arabian Airways, only has two members in an alliance, Turkish Airlines and Egypt Air, both in the Star Alliance stable.

In Asia there are also still many major airlines which aren't aligned. The independent group includes Hainan Airlines, Jet Airways, Malaysia Airlines, Pakistan International and Philippine Airlines.

But how does the customer benefit from all of this alliance activity? Probably the most important for many is the ability to accrue common 'frequent flyer miles' from each alliance carrier. Alliances also have sufficient critical mass to negotiate lower prices for items such as advertising, and even fuel in certain circumstances. This helps to keep fares low. Code-sharing means that they can offer more departure times on any given route and put more destinations within easy reach. Their round-the-world packages and regional fare concessions can be great value for money.

Other benefits include priority access to alliance branded lounges with silver and gold frequent-flyer cards, and priority check-in. With all alliance airlines under one roof in the same part of a terminal, access and transfers is simplified. Seamless software means that member airlines can readily track each other's schedules and adjust them to eliminate conflicts and bottlenecks.

The reason for the growth of alliances was the advent of 'open skies' agreements, which made it easier for airlines to gain unrestricted landing rights within de-regulated zones. Anti-trust protocols still make joining an alliance difficult, particularly for American carriers, but major advances have been made to enable mega-carriers like British Airways and American Airlines of Oneworld, and United Airlines and Lufthansa of Star Alliance, to form trans-Atlantic linkages.

It is not all 'plain sailing' (should that read 'flying?) for the alliances, however: more like swings and roundabouts. They've all gained and then lost members. Star Alliance acquired Ansett Airlines of Australia in 1999 and then it folded in 2001. It also lost Mexican of Mexico and Varig of Brazil to Oneworld. SkyTeam lost Continental to Star Alliance and ejected Northwest Airlines. Oneworld had to relinquish Canadian Airlines when it was acquired by Air Canada: a Star Alliance founding member. Aer Lingus of Ireland lost eligibility when it became a low-cost carrier. Mix and match.

By Alastair Carthew, a Phuket based writer and communications advisor. Email: alastaircarthew@gmail.com
Tel: +66 (0)76 317929.

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