An airline with ambition cannot exist outside an alliance. For airlines that are not part of one of the three major global alliances, being accepted is a sign of acceptance that allows them to move on to the next level. Well, that was all before.
If the three major alliances are still there and will be there for a long time, they no longer seem to be an obligatory passage or the only way for an airline to develop.
Alone we go faster, together we go further
Airlines have adopted this proverb for a long time. It is impossible for an airline to claim to serve the whole world alone. This would of course require too many aircraft but above all aircraft that would often fly empty. Bankruptcy guaranteed.
So rather than flying dozens of half-empty planes from one point to another they have mutualized the filling by doing code sharing . Technically speaking, an airline operates a flight with one of its aircraft, its crews and its own flight number (e.g. AFxxx) but it allows partner airlines to sell seats on this flight to their customers with their own flight number. A bit like a virtual flight except that fortunately the trip will be real. This is how you can buy a ticket “marketed” by one airline and travel on another (even if for a few years this must be mentioned by the seller).
Example: flight AF256 between Paris and Singapore is operated by Air France but is also sold to customers of Delta as flight DL8492, KLM (KL2138) and Qantas (QF4222). Some flights are marketed by 5 or even 10 different airlines.
This avoids a commercial war between all these companies, but on the contrary, it allows them to pool their resources by earning a little money thanks to the passengers they send to their partners and by refocusing on the routes on which they are efficient.
Codeshare for airlines, alliances for customers
This was all very well for the airlines, not for the customers. Customers are only interested in their loyalty program. If I’m a Delta Skymiles member, I’m not too interested in traveling on an Air France flight.
The airlines therefore had to go further than codeshare by promising (among other things) the reciprocity of the benefits of the loyalty programs for the customers of the member airlines of the alliance.
Flying Blue Platinum, my status is recognized in all the airlines of the Skyteam alliance. In fact, I have been upgraded much more often in medium-haul on a Delta codeshare flight with Air France than by Air France on the same kind of flight. But that’s another topic.
Alliances, codeshare, joint venture: an inextricable mess.
A third mechanism has been added to this: the joint venture. Here it is not only planes that are shared, but also investments and revenues.
This is what has been done between Delta, Air France-KLM and Alitalia on their transatlantic routes.
Of course all these mechanisms overlap…well more or less.
Within the alliance, each airline recognizes each other’s frequent flyer programs in terms of customer benefits, and a passenger who travels on airline A can credit his or her miles to the program of airline B. But already there are limits: not all airlines credit all travel classes of the partner airlines. Example: a trip on Lufthansa in medium-haul with a discounted Business fare will not be credited by Turkish but SAS does.
Not all flights within an alliance are codeshared with all other members.
It is possible to do codeshare with airlines of a competing alliance (cf Air France and Qantas for example). This sometimes creates imbroglios on the credit of miles because all the alliances do not have the same policy on this precise point.
Alliances in the face of market consolidation and low cost.
But the air transport sector has its cyclical crises, which often end in consolidation, with the strongest companies buying out their ailing rivals. And so some airlines started to change alliances as they were bought out, making the landscape unreadable for the passenger who, in the process, sometimes lost miles and various advantages.
And then there are the low cost airlines. They proposed a new form of travel to which they brought people who did not travel or travelled little or converted passengers from traditional airlines. They excel on “point to point” while traditional airlines operate more around their hubs and attract customers who don’t care about loyalty programs (which they are not totally wrong about, but we’ll talk about that another time). The two models are of course in competition with each other but one would have to be blind not to see that they are complementary. The calls from certain low-cost airlines to the majors to offer to supply their hubs are proof of this, as is the partnership between Emirates and easyjet.
And if the framework of an alliance does not suit this type of arrangement, airlines just have to build partnerships.
Partnership, the solution to the limits of alliances
And so we have seen partnerships and solutions flourish that allow to book combinations of flights on majors and low cost or between airlines that are not part of established “schemes”.
Last week we talked about “Worldwide by easyJet” which Cathay Pacific had just joined, but the pioneer in this field is “Star Alliance Connecting Partners” launched in 2015, OneWorld Connect has just been created and we are still waiting for Skyteam’s response.
A much more flexible, less engaging approach that corresponds to the need for flexibility and responsiveness imposed by today’s market.
Yes to common-law unions, no to marriage
Others are following a different path to build an ecosystem: that of equity investment, with more than mixed success. Everyone has in mind the erratic, risky and ultimately ruinous strategy of Etihad which, after having taken stakes in many airlines, found itself obliged to sell off everything massively, leaving some airlines out in the cold. And Etihad still hasn’t recovered.
In the context of the spat with American Airlines, Qatar is reportedly considering an exit from OneWorld, saying that its stakes in IAG, LATAM and others would be a good basis for building its own ecosystem. But the value of relying on IAG in this configuration will depend on the outcome of Brexit.
The prevailing model therefore seems to be one of common-law relationships rather than more committed and rigid approaches such as entering into an alliance or taking an equity stake. Especially since it does not prohibit multiple partnerships.
Can an airline survive alone?
In any case, one thing remains certain: if the way ecosystems are organized takes on new faces, it is impossible for an airline to survive alone.
First of all, and this is obvious, everyone practices codeshare, whether it is in the framework of an alliance or a simple bilateral agreement.
There are few examples of airlines claiming to play a major role outside an alliance. Let’s look at the Gulf. Qatar is part of OneWorld. Etihad does not seem to be able to continue on its own for much longer and has two options: join an alliance (after having flirted with SkyTeam for a long time, it seems that Star Alliance is taking the lead) or marry with Emirates. As for Emirates, while it seems able to continue to do very well outside an alliance, this does not prevent it from multiplying bilateral partnerships (easyJet, Qantas yesterday, Malaysia today).
Today, there are at least three airlines with potential that are “alone”. Virgin Atlantic, which should logically join SkyTeam soon, and the very promising Oman Air and Hainan Airlines, whose choices will be watched carefully.
Alliances are not dead
From a very operational point of view, the most advantageous models for the airlines are the partnership for its flexibility and the joint venture for the development capacities it offers. As a median solution, alliances make sense especially from the point of view of the loyalty program. They are especially valued by frequent travelers and that’s why they will last. Until the airlines invent a new model?