How urgent is it for carriers to align themselves with a global alliance? The answer, especially in Asia-Pacific, will depend on whether they play in a mature market argues Chris Tarry at Commerzbank. To return to an old theme, the airline business, like any other, must eventually obey basic economic rules. As markets globalise and mature, so they must begin to concentrate around fewer players. Indeed, airline alliances are a first step and the broad view still holds that, over time, no more than three global groupings will come to dominate the world air transport market. But it is also worth remembering that not all air markets are at the same level of maturity and, therefore, not all are under the same pressure to consolidate. That distinction could provide an important point of perspective as the global alliances look to expand their geographic reach, especially into Asia.
The dominant US domestic market is generally taken as the world's most mature, despite its recent growth rates. The large and broadly deregulated intra-European market cannot be too many decades behind either. But it is the North Atlantic which stands as the grandfather of the big inter-regional routes.
It is, therefore, not surprising that the US and European industries have tended to act as a focus for most of the action on alliances and even acquisitions - a game which is far from over, and with much still to play for. But it is not a game in which everyone need be a player at this stage. For those outside of these markets, linking with a major US or European partner may not have quite the central strategic importance that many would like to believe.
Asia-Pacific is a case in point. Beyond its shores, there is often a tendency to talk about Asia as an homogeneous geographic region located at the end of routes from North America and Europe. That is far from the case, as illustrated by a glance across the passenger flows and forecasts charted by IATA (see table right). The table immediately shows that Asia-Pacific's strongest international traffic flows are between and within the different territories that make up the diverse overall Asia-Pacific region. The market within North-East Asia, which includes Japan and China, takes the lead with nearly 33 million passengers in 1999, the last full year of firm figures. The inter-regional flows between North-East and South-East Asia follows with 24 million.
Admittedly, these inter-regional passenger flows are still closely followed by the traffic volumes on routes to Europe and North America. Yet even so, it is impressive that the overall intra-Asian market has almost twice as many passengers as currently travel on the North Atlantic.
More important are the growth rates that these Asian markets are expected to achieve. The latest IATA five-year forecast suggests that the market within Northeast Asia will grow by around 7.6% per year between 2000 and 2004. In the process it will add 11 million passengers. That is slightly above the numbers due to be added on the large, but mature, North Atlantic over the same period.
By contrast, the market between North America and North-East Asia is due to average only 3.9% annual growth - lower than the 4.8% expected on the transatlantic market. To an extent this transpacific outlook must reflect continuing weakness in the performance of the main Japanese economy. However, given that markets to Europe are still forecast to grow by a more buoyant annual 5.7%, the suggestion is that the transpacific market is indeed approaching maturity. In turn that implies a concomitant need for alliance partnerships.
Of course, such statistics only give a snapshot of the way the world currently stands. In this case it's a picture of national carriers bound by bilateral route rights. Our view is that this will eventually shift towards a global hub-and-spoke system. We visualise an alliance comprising a series of regional groupings, set up rather like pyramids, with a "regional champion" sitting at the top directing operations for a number of smaller players within the region. The prize for becoming one of those region hub champions is to be able to capture and control substantial growth in international "behind and beyond" traffic.
The implication for Asia-Pacific carriers today is that their immediate focus should be on strengthening their positions in local and regional markets. It is this that will store up most value for when the inexorable consolidation comes. That does not mean that Asian carriers cannot be good alliance partners or profit out of joining a global grouping. But for them, playing in their fast-growing inter-regional markets may prove to be the more exciting prospect.
Source: Airline Business
