And then there were three. If things work out as planned - and that's a big 'if' - over 80 per cent of the US airline industry will be in the hands of three alliance groups. Globally, the situation is less clear-cut, but the industry is moving in the same direction.
Of course, there are many pitfalls along the road towards three mega-airlines. Regulatory intervention may make it impractical. The complexities of providing 'seamless' travel to millions of customers may prove to be too much. The alliances may break up due to corporate incompatibility.
All the same, mega-alliances are being planned and might happen. It therefore seems appropriate to step back from the minutiae of airline strategy and regulatory dilemma and ask some basic questions. How will the industry look in 10 years' time if all these mega-alliances happen? Is such concentration a good thing for the industry, its employees and its customers? If not, how can it be stopped?
First of all, it is important to understand what these mega-alliances are all about. They exist to create powerful global airline groups which can offer comprehensive service and dominate hubs and markets. As means of bringing this about, mergers are impractical due to traffic rights restrictions and a host of organisational issues, including staff seniority lists, fleet incompatibility and enormous operational complexity. Some major carriers claim that they will still compete with their alliance partners. If the alliance is working properly, that seems highly unlikely, to say the least. The debate should be about how effectively the alliance groups will compete with each other.
If today's major airlines achieve their objective, in 10 years' time most passenger flights will take place on one of three airline groups. Whether this is desirable for customers depends on what level of real competition they provide. If there is a multilateral traffic rights system and all three groups compete on the major city-pairs, and do so aggressively, this might be quite adequate - it's much better than the old Iata system, anyhow. If the three groups' hubs compete aggressively for transfer traffic, as they do today, once again passengers might be quite happy. Provided there is room for smaller carriers to enter markets and keep the majors honest, there may be few complaints.
On the other hand, if these groups unofficially carve up the world between them, and create spheres of influence into which competitors dare not tread, choice will be diminished, prices will rise and passengers will complain loudly. This will rebound on the industry and its employees; disgruntled passengers who cannot afford high prices will fly less frequently and the airline business will stagnate.
An important aspect of this new competitive landscape will be what these mega-groups will use to differentiate themselves in the market place.
In this concentrated world, each member of the cosy threesome will have a global network, with strong hubs in each geographical region. Each will have similar standards of aircraft, safety, cabin service and reliability. Competition will be based upon the detail. Which alliance has the smallest check-in queues at airports? Which one has the fastest Web site and the most efficient telephone booking service? Which one treats premium passengers as individuals? Which copes best with last-minute changes in itinerary, or missed connections? Which has the most comfortable lounges for business travellers and the best on-board computer games for children? Which has flight attendants who speak your language?
Some airlines are already getting ready for this new world where the subtle differences will be of paramount importance. British Airways recently announced that it will be hiring 15,000 new staff, many of them in customer service, over the next three years.
Clearly, alliances bring many benefits. An alliance is a relatively low-risk way of providing an airline with economies of scope, giving its customers a wider choice of service options and access to global loyalty programmes and lounges. Provided the alliance is organised effectively, it can make travel easier and simpler.
But extreme concentration also brings potential dangers, especially for consumers. The mega-groups may well seek to avoid too much direct competition among themselves, and smaller airlines will be reluctant to tackle the mega-alliances head-on.
The regulatory dilemma lies in how to stop this happening without reintroducing old-style regulation. Some radical thinking would help. A good start would be to create a global, multilateral open skies arena allied to tough global antitrust laws, with fast-acting complaints procedures. Come on, regulators; you need to run fast to catch up with those you are trying to regulate.
Source: Airline Business
