Make no mistake, it's a battle - a fight to the finish. A battle for territory, for customers, for markets, for revenue streams. A strategic war in which treaties are made with friendly powers, only to be abrogated when those powers turn out to be not quite as friendly as you thought. A gigantic game of chess where the globe is the board and pieces of it are won and lost. We could be talking about the grand empire-builders of old - the Romans, Greeks, Mongols, Egyptians, Turks, British. But of course we aren't; we're talking, as usual, about airlines, and our time frame is today.
A discussion with Gordon Bethune, chairman and chief executive of Continental Airlines, makes this very plain. As he points to a giant wall map of the world, Bethune ticks off the territories which have been claimed - Dallas, Houston, Atlanta, Frankfurt. Then he points to the current battle grounds - London, Madrid, Buenos Aires, Bogotá. Like his peers, his ambition is to lay claim to territory of strategic value in four continents, though he emphasises his desire to do so through partnership rather than domination (see page 34).
Maps of the world used to be covered with large pink areas to denote British dominance. If airline executives' maps were colour-coded to denote alliance dominance, you would see a similar phenomenon. The Star Alliance has crept ahead and can now lay claim to some significant territory, including Chicago, Frankfurt, Copenhagen, Rio, Bangkok and Toronto.
The American-BA axis remains stymied by a regulatory slow-coach, but it hopes to claim large swathes of land, including Dallas, Miami, London, Sydney, significant areas of Latin America, and a few others. Delta has added some useful European ground, like Brussels and Zürich, to its US strongholds in Atlanta, Cincinnati and Salt Lake City. Northwest and KLM hold sway over Minneapolis and Amsterdam, but will this be enough?
Bethune claims Houston and New York (conveniently ignoring some competitors in those cities), and his alliances give him footholds in Paris, Rome and London. The fight for Buenos Aires is crucial, because the winner will have a good chance of taking Madrid as well. In some parts of the world which are well worth fighting over, the real fray has yet to begin - Tokyo, Singapore, Hong Kong, Seoul.
The jockeying for position in this business has never been so intense. Now that many airlines have recovered from the recession and are turning in profits, their executives have turned their attention back to what they love - strategy games. And with good reason. If the airline world is going to be dominated by three airline groups, 'nobody wants to be number four in a three-horse race', to quote Bob Kahn of design firm Diefenbach Elkins.
This is much more than a fun game. Airlines are following the natural tendency of large firms - to monopolise as much of the market as they can get away with. Meanwhile, regulators are also following their natural tendency - trying to arrest this process and ensure a fair deal for consumers.
But modern airline mercantilism seems unstoppable. Carriers will talk about synergies like shared purchases of fuel and insurance, but do not be fooled. The real holy grail is the integrated global network, and this is beginning to look like a more realistic prospect.
The driver, of course, is customer loyalty. As startup carriers continue to eat away at the low-yield end of the market, alliances which can retain high-yield customers within the group ought to have a significant revenue advantage. These premium passengers will stay loyal only if the alliance can offer the right combination of market presence, convenient schedules, reliability, lounge access, bonus miles, and an absence of travel hassles. In this detail-obsessed business, getting the detail right is vital.
Indeed, the airline business seems to be discovering an aspect of its operations which has been neglected in recent years - its customers. Take the US, where airlines such as Continental and TWA - long thought of as basket cases - have snatched the lead in performance league-tables. The giants are fighting back, with American admitting it needs to refocus on the customer following the resolution of its pilots' dispute, and United abandoning its 'Friendly Skies' moniker because it has been forced to accept that they aren't.
Now that they have emerged from the myopia of cutting costs in order to survive, airlines are realising that their premium customers expect some value in return for paying sky-high air fares. Otherwise, they will choose another airline, or travel economy.
To steal a well-worn slogan from Boeing, 'Delivering value is the key'. As passengers take part in a flight to quality, airlines or alliances which do not deliver quality cannot win the increasingly ruthless battle for their customers' loyalty.
Source: Airline Business
