As the world’s three large alliances head towards their second decade, there is a sense that the time for major growth is over – but that’s not to say their evolution has stopped.
All three alliances have indicated they are not in a major push to add more members, but are working to add more customer-facing developments, and in some cases find ways to accommodate low-cost and hybrid carriers.
The oldest of the three, Star Alliance, is still actively looking to add one more carrier to its fold, having held discussions with Azul for some time now. Although it added Avianca Brazil as a member in 2015, it has cited a preference to have two Brazilian carriers in the alliance, having lost TAM in 2014 after its merger with LAN.
Azul, on its part, has grown closer to Star members United Airlines and TAP Portugal, suggesting a natural linkage to the alliance. Nonetheless, the carrier has remained noncommittal about joining the alliance, with chief executive David Neeleman previously stating he does not see a great need for it to become a member.
Star chief executive Mark Schwab says that, while it has a number of areas covered, it has not closed the door on further additions.
“We still remain open to adding new members to the network where the fit is right,” he says. “And of course we expect the new connecting partner model to extend the network in selected geographies.”
That model, which launched last year, has been driven by the moves of some Star members to increasingly operate their network using low-cost and hybrid affiliate carriers, such as Lufthansa’s decision to operate more European services under the Germanwings and Eurowings brands.
South African Airways’ budget unit Mango is the launch airline for the programme, and Schwab says it has been a popular topic of discussion with a range of other carriers.
“The announcement of the plan triggered considerable interest in the industry and, while I by no means see this activity dominating our strategy in the next few years, I do expect it to form an important part of the alliance’s development,” he says.
BUDGET CONNECTIONS
Star has flagged that a number of carriers in Asia are expected to join the connecting partnership, and in August, sources told FlightGlobal that Shanghai-based Juneyao Airlines was in discussions to join the programme.
At an event in Tokyo in June, Schwab confirmed that the alliance had also held talks with All Nippon Airways’ budget affiliates Vanilla Air and Peach Aviation, although he said: “I think it is too early in their lifecycle to think actively about providing connecting services.”
SkyTeam has flagged launching a similar programme, which would give low-cost and other carriers access to its technology platform.
Former chief executive Michael Wisbrun highlighted the SkyTeam Connect programme in June last year, and noted that discussions on the concept had started with Gol.
Little seems to have happened since then, however. Speaking to FlightGlobal in June, new chief executive Perry Cantarutti said the idea was “still somewhat in development”, adding: “We don’t have a fixed template yet.”
Like Star, SkyTeam has indicated that it is not in a push to enlarge its member base. “I’m not out recruiting,” Cantarutti says.
Even the likely future member Virgin Atlantic – 49% owned by alliance bedrock member Delta Air Lines – is not seen as a major priority.
“Virgin Atlantic’s need for connectivity is somewhat reduced,” says Cantarutti, but he adds that the alliance wouldn’t say “no” if the airline came knocking.
Oneworld, which at the time of writing was in between CEOs following the departure of Bruce Ashby, did not add any new members in the past year. It has integrated Malaysia Airlines, Qatar Airways and SriLankan Airlines in recent years.
“With this growth now completed, our focus has been to make the most with what we now have,” Oneworld’s vice-president of corporate communications Michael Blunt tells FlightGlobal.
Nonetheless, with IAG’s recent acquisition of Aer Lingus, the alliance expects the Irish carrier will return to its fold over the next year or so. That will deliver the alliance another key European hub in Dublin, which IAG has signalled it intends to develop over the coming years.
In the absence of new members, Oneworld has focused on developing its fare products and offering more solutions to the business travel market.
Recently, however, the alliance has come under criticism, as some carriers stopped interlining baggage for passengers connecting between member carriers on different itineraries. Blunt says, however, that this simply brings it into line with other alliances, and helps to avoid operational issues in the case of a disruption that could stop it from “delivering an alliance’s through check-in/customer support promise”.
Oneworld has also been the subject of some tensions among member carriers. Following renewed attacks from US airlines against Middle Eastern carriers, Qatar Airways group chief Akbar Al Baker at one point during last year’s Paris air show threatened to withdraw from Oneworld. No action has been taken, however.
Unlike Star and SkyTeam, Oneworld has not yet committed to looking at a partnership model that could integrate low-cost and hybrid carriers’ networks. That is despite key members such as Qantas and IAG increasingly sharing services with their budget affiliates.
Blunt says, however, that it is something the alliance could consider at a later time.
“In a fast-changing and highly competitive environment like the airline industry, you have constantly to keep abreast of all developments – at your competitors and across the industry as a whole – and consider if, how and when to adapt appropriately,” he says.
MORE OPTIONS
With air services agreements becoming more liberalised, and allowing regulators more latitude for granting anti-trust immunity, a number of joint ventures have been growing around the world – both within and outside the big three alliances.
Star appears to be the alliance with the most joint ventures among its partners. Over the past year, Singapore Airlines applied to start a new joint venture with Lufthansa on Singapore-Europe routes, while Air New Zealand started operating a similar joint business with Air China between their two home markets.
But those alliances-within-alliances create tensions, as interests clash with the wider intent of the major groupings. In a recent example, Lufthansa effectively blocked its joint venture partner ANA from codesharing on Polish carrier LOT’s Warsaw-Tokyo Narita route.
Rather than taking away from the alliance itself, joint ventures allow for “deepening ties within the Star Alliance family”, argues Schwab.
“It is notable that when an airline looks for a joint venture partner it looks first to its fellow alliance members, which are known to support the same values and with whom there is already a shared history. Many of the back-end processes that were created to enable alliances to work together are leveraged within the joint-venture activity,” he says.
But tensions remain in some quarters of the alliances. SkyTeam members Korean Air and Delta have had an ongoing love-hate relationship. Despite the two carriers already holding anti-trust immunity, Korean has been resisting Delta’s push to enter into a joint venture.
John Jackson, Korean’s vice-president of marketing and sales for North and South America, told FlightGlobal in May: “There’s a whole lot more that we agree on now than we disagree on. We just haven’t found the right solution yet, whether it’s a JV or something else… You will see us getting closer and closer.”
Those tensions have been less evident at Oneworld, at least of late. One joint venture that initially started with British Airways and Japan Airlines has been expanded over the years to include Finnair, while in June this year Iberia applied to join it as it began Madrid-Tokyo Narita services.
Cross-alliance joint ventures are also continuing to grow. Oneworld’s Qantas and SkyTeam’s China Eastern Airlines started one last year on China-Australia routes. ANA’s recent purchase of an 8.8% stake in SkyTeam carrier Vietnam Airlines will also lead to a cross-alliance partnership.
LOW-COST ALTERNATIVES
Although there are no major challenges to the established three, recent developments in Asia have led to the emergence of two new alliances focused on low-cost carriers.
HK Express, West Air, Urumqi Air and Lucky Air last year banded together to launch the U-Fly Alliance. The four airlines – linked by a common shareholder in China’s HNA Group – were joined in July by the independent South Korean budget carrier Eastar Jet.
Unlike the larger alliances, however, U-Fly is not planning to become a seamless experience for passengers, mainly so that it does not force each individual carrier to change its operating model. It has also emphasised that it expects its member carriers to continue to operate as separate low-cost carriers.
U-Fly and HK Express chief executive Andrew Cowen says that while the alliance is open to adding full-service members, it will not “contort our business to support interline”.
While U-Fly is the first pan-Asia multilateral low-cost carrier alliance, it was joined this year by another competing grouping in the Value Alliance. Launched by a range of budget carriers such as Scoot, Jeju Air, Vanilla Air and Nok Air, the common link of the alliance is an online platform that allows each member to sell tickets on the other. Underlying this is a technology solution from Air Black Box, a company partially owned by Scoot and Nok, that allows the diverse reservations systems to link up.
Like the big three, Value Alliance also has different bilateral alliances wrapped into it. Tigerair and Cebu Pacific, for instance, have an immunised joint-venture agreement that pre-dates the alliance. Similarly, Scoot and Nok are joint investors in NokScoot and also have a separate alliance.
Other members have set low expectations too. A Vanilla Air senior executive told FlightGlobal in June that the alliance allows only for joint ticket sales, and is not seeking any closer integration than that.
Moves by Etihad to launch its “equity partnership” alliance also appear to have had no bearing on the existing large alliances. Even though its mini-alliance includes existing Oneworld carrier Air Berlin and SkyTeam carrier Alitalia, there has been no suggestion that there is any conflict between the alliances.
As the alliances focus on developing and evolving to meet the changing market, they remain confident that they will continue to play a central role in global aviation.
“It is clear that customers like global alliances, and that global alliances will continue to have a leading role to play until truly global airlines emerge that can offer a comparable level of truly global network coverage,” says Blunt.
Schwab notes that the liberalising regulatory environment could allow for cross-border mergers and more integration of the industry, but only in the long term.
“Until then, alliances will definitely remain relevant to customers and airlines alike and therefore an important part of the aviation landscape.”
Source: Cirium Dashboard
