As part of the internal soul-searching which all carriers have conducted recently, their alliances - or lack of them - have been scrutinised carefully. In many cases, airlines have found their alliance policies to be wanting. Now that many carriers are beginning to get their own financial houses in order, they are ready to look to the future with more clarity, and to take action on the alliance front.
The result is a frenetic burst of practical activity, combined with a new realism about what airlines expect to gain from alliances.
The activity is documented throughout this issue of Airline Business. The European Quality Alliance is on the verge of collapse - SAS is likely to forge a new alliance with Lufthansa instead, and Swissair and Austrian are ready to intensify their relationship. Sabena may join the Swissair camp. American has revised its sceptical approach to alliances, and is now actively looking for strategic partners - and may poach airlines with existing alliances. Air France has yet to decide whether to proceed with planned alliances with Continental, Air Canada and Aeromexico. United has Lufthansa, but has yet to seal deals with Thai Airways Inter national and Iberia. Everybody is talking, and the rumour mill is working overtime.
There is evidence that the experience of the last few years is bearing fruit. Airlines now appear to understand the difference between the two sorts of alliance, strategic and tactical.
A strategic match is akin to a marriage. The partners give a high priority to such relationships, which form a key plank of their overall strategy. Most airlines can only manage one or two at a time, and involvement is at all levels in the company, from chief executive to baggage handler. The best example is KLM and Northwest, both of which have made the alliance central to their North Atlantic strategy.
A tactical alliance is much lower key. It is usually restricted to a single route or group of routes. It often involves codesharing, blocked space and frequent flyer programme links. It is most definitely not exclusive. Its most useful functions are usually restricting competition on a route, or taking feed traffic away from others. Confusingly, airlines often refer to tactical alliances as strategic ones. They are kidding themselves. However, tactical alliances can grow into something more significant - American's FFP link with Japan Airlines is one candidate.
As carriers prepare themselves to dive headlong into the second phase of alliance building, they would do well to bear in mind the lessons of recent successes and failures.
The first hurdle is deciding what sort of alliance it's to be. While a tactical alliance can be built on fairly flimsy foundations, when choosing a partner for life there are fundamental considerations - whether the potential partner shares the same management approach, service standards, culture, and longterm objectives, and whether the employees of both companies can be persuaded to support the alliance. Trust, a willingness to change, and a clear balance of benefits are vital, and the new deal needs to fit in with other alliances.
It is vital to be clear that an alliance cannot solve all problems. No alliance will make losses magically disappear, create harmonious relationships with employees, or repair a balance sheet. An alliance will enable a carrier to widen its global coverage, and may produce cost savings at the margins, but it cannot perform miracles. An airline needs to get its own house in order before tying the knot with another.
Having chosen a partner, the aspect that most airlines underestimate is making the alliance work. Sometimes, dozens of committees are formed, but they fail to transform activity into action. In other cases, internal problems take priority and little management effort is put into the alliance. Often, managers do not do enough to gain employee support for the alliance; employees are usually sceptical because they fear job losses. Sometimes, the cost savings are pursued vigorously, but scant attention is paid to the more challenging aspects, such as joint branding or yield management.
There is now almost universal recognition among airlines that alliances are necessary in a global marketplace. Airline chiefs should use this period of adjustment to think carefully and plan winning strategies. There may not be another opportunity: next time, the best partners will have been taken.
There is now almost universal recognition among airlines that alliances are necessary in a global marketplace. Airline chiefs should use this period of adjustment to think carefully and plan winning strategies. There may not be another opportunity: next time, the best partners will have been taken.
Source: Airline Business
