April 29, 2013
There has been a lot of industry talk about the end of global alliances, particularly since the high-profile tie-up of Oneworld member Qantas with unaligned Emirates and two large mergers that crossed alliance boundaries. However, while the alliances' roles and identities may be changing, the three big groups continue to expand market share in international air travel.
Alliance members account for almost 55% of seats flown and 61% of worldwide available seat kilometers (ASK), Innovata data show. Star Alliance, Oneworld and SkyTeam play an even more dominant role in the international long-haul travel market, the segment they have identified as their core business. The rest of the industry is split between low-fare airlines, independent-minded regional carriers and those that have little to offer partners.
The smallest of the three global groups, Oneworld, offers almost as much capacity in terms of ASKs as all low-cost carriers worldwide combined—without even taking into account the sizable expansion to the alliance through the addition of US Airways and TAM Airlines. For its part, the Star Alliance, the biggest of the three, operates 23% more flights than the world's LCCs jointly, according to Innovata data. Surprisingly, Star's 32% growth in seats flown over the past five years also exceeds the 26% recorded for the global LCC industry and stands out against the 2% contraction in capacity of full-service unaligned carriers.
Yet, some new developments have raised questions about whether alliances are still the dominating paradigm in air travel. Oneworld member American Airlines is about to merge with US Airways, a Star Alliance carrier. LAN Airlines and TAM and their respective affiliates and subsidiaries have merged to form the Latam Airlines Group, which will lead to TAM leaving Star and joining LAN in Oneworld. Likewise, Shanghai Airlines exited Star following its acquisition by SkyTeam member China Eastern Airlines, and Continental Airlines transitioned from SkyTeam to Star with its merger with United Airlines.
Alliance membership status apparently does not keep members from merging across the groups and leaving their former partners behind, or maybe as Mark Diamond, principal at aviation consultancy ICF SH&E notes, “in effect, the merger or acquisition was a prelude to the alliance, rather than vice versa.” Bankruptcies, such as those of Malev Hungarian Airlines and Spanair, sometimes lead to the loss of members. On the other hand, so far only one airline has exited an alliance because it found membership benefits uncompelling as it changed business models: Aer Lingus, which left Oneworld.
Officially, there was support all around for the deep bilateral partnership between Emirates and Qantas, although Qantas was forced to give up its long-standing relationship with fellow Oneworld member British Airways and left other partners, such as Cathay Pacific Airways, unhappy. But Etihad has built partnerships and equity ownership regardless of alliance affiliation, and Oneworld member Air Berlin is soon beginning to work with Air France, British Airways, Etihad and Qatar Airways all at once.
There are various joint ventures among individual airlines, too, such as Air France-KLM, Delta Air Lines and Alitalia on transatlantic routes; the Atlantic Plus Plus arrangement involving Lufthansa, United Continental, Air Canada, Swiss International Air Lines, Austrian Airlines and Brussels Airlines; or Japan Airlines and American Airlines on transpacific flights. These allow for much deeper integration, cost and revenue-sharing—and in some cases, even profit-sharing—and appear to be reaching the level of efficiency that has so far eluded the alliances.