Airline alliances

I think this article misses an important piece of context, mentioned in passing in some of the comments above. Given the archaic restrictions on ownership of airlines enforced by so many countries, it is impossible to establish a real multinational air carrier. The big EU-based groups are attempting to establish the framework for this as far as current rules allow IAG, AirFrance-KLM etc. The alliances were established explictly as merely an intermediate step to a future of internationally deregulated airline ownership. That may not happen in our life-times but it may also become less relevant.

The Middle East carriers continue to grow rapidly while completely eschewing participation in any alliances. Travellers whose routes are concentrated around the Atlantic might be missing the significance of this. Emirates is now the largest international carrier in the world and still growing rapidly. They have achieved such a scale with their network that any new additions can be assured to bring value. They have been, for some time, the largest carrier between Europe and Australia. Their direct connections to more than a dozen cities in India allow the massive Indian disapora to get exactly where they want to go bypassing India's horror-hubs in Delhi and Mumbai. They fly to more countries in Africa than any other airline by far (just think about that). Their strong presence in many European secondary cities allows flyers to bypass Europe's congested hubs. One-stop same-airline connections on countless city-pairs such as Prague-Perth, Guangzhou-Luanda, Buenos Aires-Bangkok, Karachi-Houston are only available on Emirates.

If this sounds like a commercial for Emirates well it definitely isn't. As a long-time top-tier frequent flyer with them I am not a fan of their service. Their business class, especially, is mediocre, below the levels even of many European carriers. They cram in more seats in all classes especially on their workhorse 777. Clearly their publicity and brand management are excellent as they somehow have a premium image (though just check the Skytrax reviews). Nevertheless, I am in awe of the ruthlessly efficient way that they have attained scale, leveraging a decent but matchable advantage in location near (but not at - missed opportunity Cairo and Beirut) the fulcrum of three continents.

Although their accounting is not completely transparent, I think their claim to have been profitable for all but one year of their 26 year existence is very credible. The accustaion that they receive susidised fuel is propounded largely by the ignorant - Dubai has had no oil for years. Emirates do benefit from some market-distorting advantages, particularly in the cost of acquiring new aircraft due to export credits from the EU and US (nice use of taxes) and the financing rates they can secure as a government-owned entity (even the Dubai government). Their labour costs are lower than European and North American-based carriers and they don't have to worry about unions. But these are incidental advantages compared to the scale and critical mass that they have now achieved.

Emirates look unstoppable. Alone, for most of the world's population in it's fastest developing regions, Emirates will be able to more than match the best network propositions of any of the alliances. As a single company with a single owner they are also able to respond much faster and more efficiently to changes than alliances (think US versus EU). Indeed the competitive threat from Emirates, and to a lesser extent Qataria and Etihad, may well force some of the regulatory changes that will enable the old airline alliances to start to evolve into proper multinational companies. But it may be too late to be relevant.

What I don't understand is how, given Air China is in Star (which has a near-monopoly already on US to China flights) and China Southern in Skyteam...how it China's third full international airline (China Eastern) was allowed to join Skyteam (which also includes major operators of Asian flights such as Air France-KLM and Delta) and not either the third major alliance oneworld or in partnership with other "up and coming" airlines (Kingfisher, Jet Airways, Virgin, etc.), an outcome that would have fostered competition and increased convenience?

Perhaps it's too early in the game, but I don't think the industry is headed to a metal neutral end point. That may be the case in terms of some limited back-end operations and revenue sharing, but not from the standpoint of passengers. Comparing services and (dis)comforts of US Airways versus Singapore Airlines, it should be obvious that passengers would care which partner they are flying on. Even a simple thing like the airport lounge. At many international airports alliance airlines have lounges right down the hall from each other. Both are accessible to frequent flyers depending on status. Yet, one lounge can be so much better than the other. You would think for cost cutting purposes, there would be an expectation of consolidating such services. And, how many phone calls does it take to get an upgrade on an alliance/codeshared flight using another airlines' frequent flyer miles?

The only way the industry will achieve true metal neutrality is not through alliances but through cross-border mergers, which national governments including European ones will not allow. But, as United's merger with Continental shows even when the government allows mergers to occur labor relations and management styles prevent guaranteed profitability.

And thus the reason US and AA must merge - US needs out of STAR given the overlap and dominance of UA/CO and AC.

In North America, DL/NW SkyTeam, UA/CO STAR and AA/US OneWorld would provide sufficient competition and global virtual netowrks.

Regionals are being consolidated by Republic Airways Holdings (RJET) Pinnacle Airlines (PNCL), SkyWest (SKYW) and AA Eagle / DL Comair.

Michael Wm. Denis
Vice President, Strategy & Consulting
InfoTrust Group
http://www.linkedin.com/in/michaelwdenis

As long as I can still avoid QANTAS I'll be happy with however it works.

as a U.S. researcher, funded primarily by U.S. federal agencies, these alliances have become a headache. I am required to fly a U.S.-flagged airline when traveling on federal funds. My institution (at least -- not sure about the letter of the law) has interpreted this to mean that I cannot take an itinerary with a non-U.S.-flagged leg, even if the leg has a codeshare flight number with a U.S. airline.

This has effectively limited me to flying U.S. Airways, with a tiny and oft inconvenient scheduling.

Fortunately I only have to travel internationally for work every other year or so. This is a minor detail of all this that ought to be addressed, though.

In the last Economist article I said pretty much exactly what Gulliver said (about veteran business class flyers preffering the alliances due to loyalty points). It would be nice to get some credit instead of posting it as original.

I think a previous article in the Economist touched on this, but the biggest problem I've encountered with an airline alliance is the (potentially) large difference in service and quality; particularly when you're dealing with a "proper" airline and a regional.

Try going from KLM or Air France to Flybe, for example.

I should point out that business travellers flying business class don't need to worry about not being a member of the frequent flyer club of the airline they are flying on, they will still be treated like royalty.

The true winners from alliances are the economy travellers who fly enough to reach elite status on one programme - they get to use the business class lounge, check in counters, get extra weight etc, i.e. most of the perks of business class travel except the big seat and personalised onboard attention.