Star Alliances has added two new partner airlines, but as it met to celebrate its second birthday, it is still in search of its full identity.
Seated side by side at an informal press briefing in a Sydney hotel, Jürgen Weber and Gerald Greenwald admit they are learning as they go.
Two years after the respective chairmen of Lufthansa and United Airlines led the launch of the Star Alliance in May 1997, the pair concede that their alliance journey has only just begun.
"We do recognise that there is no history for what we're doing," says Greenwald, attending what may be his last meeting of Star chief executives, in Australia. "We are going into places where no others have gone. We don't have a blueprint for what we will become."
Just where, then, is the Star Alliance now? Eight airlines make up the grouping: Air Canada, Air New Zealand, Ansett Australia, Lufthansa, SAS, Thai Airways International, United and Varig. All Nippon Airways (ANA) will join in October and Singapore Airlines (SIA) has confirmed that it is working with members to become a full partner by the end of this year.
Frequent-flyer programmes are linked, lounges are shared at many airports around the world; members code share in some markets; schedules have been co-ordinated to provide for smoother connections; and some passengers benefit stem from advance check-in and priority standby.
But not all is clear-cut, despite the impression given by some members of Star that it is the greatest thing to happen to the industry since the dawn of the jet age. Great scepticism remains in the eyes of the passenger, while internal issues such as the impending privatisation of Thai Airways and the planned purchase of Ansett shares by Singapore Airlines, raise questions over the future of the grouping as a unified team.
The main reason for passenger scepticism has so far been the fact that the Star Alliance is a boon for its airline members. Their loose partnerships with each other have brought great benefits in efficiency and increased sales. United alone says Star accounted for around 10% of its more than $2 billion 1998 profit. Air Canada and Lufthansa talk of similar percentage gains, while Ansett's executive chairman, Rod Eddington, says he expects Star to add at least as much to the carrier's bottom line "over time".
Passengers, particularly economy class ones, have also been critical of the many restrictions on redeeming frequent flyer miles on partner airlines. Frustrating conditions continue to surround passenger privileges such as access to airport lounges.
Bruce Harris, United's director of alliances and deputy chairman of Alliance Management Board at Star, concedes that first and business class passengers have been the main focus to date, but he says there has been a "halo effect" on economy class, with frequent-flyer programme ties and priority check-ins.
"My view of alliances is that the goal is to build market share at the expense of third parties," he says. "We can only do this by providing benefits to our passengers." Harris' outgoing boss Greenwald promises that more is coming for passengers in all classes.
"We are moving closer to a time when all of the major airlines will be in one concourse, one airport terminal with seamless baggage transfers," he says. "We are striving to achieve a seamless experience without providing price increases to the passenger."
Lufthansa's Weber is also quick to point out that much-predicted negatives have yet to become issues. "Up to now we only have increases in the size of our network," he says. He adds on ticket prices: "The prices really have gone down. You should not look at one route but at the whole network."
Identity
While Star has benefitted its member airlines and a percentage of travellers, some say its loose make-up may be the thorn in its side. Greenwald speaks almost proudly of the fact that the Star Alliance has only four pages of written documentation holding it together. No common product will be offered, he says, sales offices will not be merged around the world, frequent-flyer programmes will not be combined outright and, up to now, no ownership has been necessary.
Many of these factors set it apart from the smaller Qualiflyer and KLM/Northwest groupings, which are founded on ownership ties, a common business class product, extensive joint marketing and a combined frequent-flyer programme.
While the Star airlines say these differences illustrate their desire to maintain individual identities, others say they show a lack of commitment. Some cynics say there are only four pages of guidelines because none of the members will commit to more. Without ownership in particular, they can opt out at any time but in the meantime reap the interim rewards.
Greenwald disagrees. "I don't think ownership restrictions are the only reason for these alliances," he says. "Alliances are easier in my view to develop into partnerships than ownership. There is a big issue of egos with ownership - for example, who's going to become chairman of the new companies?" Weber believes that all that matters is the consistency of product quality. "That means safety and service", he says, adding that this is not simply a question of having the same type of seat.
Air New Zealand's managing director, Jim McCrea, calls the Star Alliance "a response to progressive global deregulation" and says there is no need for members to give up individual identities. "Very clearly the idea of the Star Alliance is a system, an airline system, with a strong brand," he says. "But we don't give up our identity to that brand. None of us subordinates our own brands to the brand of Star."
Ansett's Eddington agrees and goes further by saying that his airline is not afraid of ownership ties. Indeed, Air New Zealand owns a 50% stake and SIA is trying to purchase the other half from Australia's News Corporation.
"There are those who believe that having a shareholding piece reinforces an alliance, and I would probably be one of them," Eddington says. "I think it has with Air New Zealand and Ansett. But still our individual specific brands are very important to us."
Cost saving progress
While the critics will continue to make noise, member airlines say they are not ashamed that they are saving - and making - heaps of money from their partnership. And they say more cost-saving benefits will come as joint purchasing is made a priority.
"The Star Alliance carriers' combined purchase of goods and services, aircraft not included, amounts to approximately $15 billion annually, and the potential long-term economies of scale available through joint purchasing are considerable," Star says.
Greenwald agrees that there are strong opportunities to extend the alliance benefits forward to hard cost savings: "About one-third of United's costs involve people. But the other two-thirds represent enormous opportunities for working together, for buying, purchasing and co-operating among the group."
While defending their cost-saving efforts, Star members say it is wrong to look only at how they are saving money - in fact they say the more they save, the stronger their alliance. They add that more members will also benefit the passenger as they actively work to grow the grouping.
Greenwald says the number of member airlines in Star could eventually reach 12, with the addition of up to three carriers after ANA in October. SIA is to be one of those new members. It has long been expected to confirm its plans for year-end membership, but has so far failed to do so.
British Midland too is a Star prospect given its SAS/Lufthansa links, but Greenwald says it would first have to sever ties with American Airlines, a leading member of the rival oneworld grouping. Another potential member is Taiwan's EVA Airways, but it has said that it is not yet ready to join a multilateral alliance.
Star has also been trying to convince a Chinese airline to join, but this is not expected for some time. Candidates include the country's three largest carriers, Air China, China Eastern Airlines and China Southern Airlines.
How successfully the alliance members can work together, especially given the widening cultural differences, remains to be seen. The impact of any future departures of the existing members will be interesting to watch.
State-owned Thai Airways is due to be privatised over the next 12 months and, although Star members have been promised first option on a shareholding, Thai will have to leave Star if a rival grouping such as oneworld or KLM/Northwest/Continental win a stake.
Thai privatisation
Thai Airways president, Thamnoon Wanglee, says his carrier "will give the option if at all possible to the Star Alliance members whether they want to buy shares".
"This is what our intention is," he adds, although he hesitates to state categorically that Thai sees itself as a lifelong member of Star. Lufthansa has said that it may pursue the purchase of a stake in Thai together with SIA - but only if it is an absolute necessity and "not at any cost". "It's normally the policy of Lufthansa not to invest in other airlines just to have a more intense Star Alliance," says Weber. "However, if due to reasons which mostly are on the political side there is a requirement for a capital injection, we will do so."
Thai's future is not the only Asia-Pacific issue facing Star. Another is the planned purchase of half of Ansett by SIA. Air New Zealand holds the right to match any offer and will have 30 working days to exercise those rights from the day News Corporation informs it of a formal SIA bid.
Although Air New Zealand and SIA are close partners through a separate tri-partite Asia-Pacific alliance with Ansett, the Auckland-based carrier has said that it is indeed considering exercising its rights. Air New Zealand executives are coy on their feelings towards SIA, but leave the impression that the two airlines are not the closest of friends. "We're business partners," says one Air New Zealand executive. "It doesn't mean we have to be best friends."
Ultimately time will tell whether Star will amount to a group of mere "business" partners or a true global alliance.
Greenwald, as he prepares to leave United, cautions though against looking at one particular point as the make-or-break issue for the Star Alliance. "We're testing and evolving as we go," he says. "Everyone doesn't need to have an exact footprint in terms of beliefs, structures and ideas. So 10 or 15 years from now, exactly what we will be, I don't know."
Source: Airline Business
