A MAGAZINE FOR AIRLINE EXECUTIVES 2004 Issue No. 2 T a k i n g y o u r a i r l i n e t o n e w h e i g h t s AN ALLIED FRON T A conversation with … Geoff Dixon, CEO, Qantas Airways INSID E Air France and KLM form 4 Europe’s Largest Airline 18 The Evolution of Alliances A Conversation with oneworld, SkyTeam 26 and Star Alliance © 2009 Sabre Inc. All rights reserved. [email protected] industry industry global alliances, elected officials are often both the current alliance members as well as Global alliances will continue to evolve increasing anti-trust scrutiny. While the new associates. Existing members can as business conditions change. Some of the European Union and NAFTA are on opposite observe the business practices of associate evolution will benefit members and some will sides of the debate, they are not the only members without fully committing to part- not. One rule of evolution, of course, is “sur- Carrying the Freight regulatory bodies impacting global alliances nership. The associate members can ease vival of the fittest.” today. Many countries are signing open skies their way into the alliance without having to agreements, which foster global alliance rela- make all of the necessary business and tech- Unraveling Global Alliances tionships because they remove bilateral restric- nical changes at once. Perhaps the most worrying characteristic of Like their passenger counterparts, global cargo alliances, although still tions to capacity and frequency of air service. Lite participation will also certainly entail global alliances is that they are not easy to in the early going, have potential to help reshape the airfreight industry. Meanwhile, the E.U. requirement to fewer regulatory issues than full membership. unravel. Alliance members share many remove country designators from third-coun- The risk, however, is that lite membership may resources: commercial, financial, operational try bilaterals is meeting resistance from non- lead to a two-tier structure where the more and technical. While sharing resources is one E.U. countries as well as countries that do not junior members of the alliance have fewer of the primary benefits, it also exposes a belong to a large trade pact such as NAFTA. In benefits and more burdens than the full mem- weakness. What happens when a primary recent discussions between a Japanese and a bers. For example, CSA Czech Airlines, a member of an alliance dissolves? Several large European airline, the issue of bilateral restric- smaller carrier, is a full member of SkyTeam members of global alliances are struggling for tions was broached with the Japanese govern- while Malev, a partner of CSA that is actually financial stability. The failure of any of these ment, which said that it would not allow the slightly larger than the Czech airline, may only carriers would have a profound impact on the European carrier to operate to Japan because be allowed to enter SkyTeam as an associate health of its alliance partners. its ownership was not majority held in the member. Such lite memberships should be When the Wings alliance led by Photo courtesy of Lufthansa Cargo European country in which it was based. watched carefully to see if they evolve suc- Swissair unraveled, the ripple effects impact- Such issues could, for example, cause cessfully for all participants. ed all members. Although more of a regional problems for airlines such as KLM, a Dutch The final alliance trend is toward pro- than a global alliance, the fate of Wings illus- company whose majority ownership will be in curement partnering. When global alliances trates the effect of the collapse of a key France. Certainly, as global alliances become were first formed, one of the envisioned ben- alliance member. Wings was devastated by more pervasive and complicated, the regulato- efits was the purchasing power members the failure of its anchor carrier. Almost all of ry environment will also become more thorny. would enjoy. For the most part, however, the former members of the Wings alliance This added complexity might make more limit- these advantages have not been a significant have gone out of business or suffered financial ed participation in a global alliance attractive. contributor to profitability of individual airlines. hardship following the collapse of Swissair. As global alliances become more com- This lack of impact may soon change. When With rising fuel prices, dropping yields and plex, a trend toward “lite” membership could oil was around US$20 a barrel, airlines had lit- increasing competition, it is difficult to imagine accelerate. Under lite agreements, an airline tle incentive to enter large procurement part- that all of the troubled carriers will survive, becomes an associate member of a global nerships for fuel. threatening the health of the current alliances. alliance to obtain most of the benefits of par- Purchasing economies that could be Global alliances improve the passenger ticipation without the requirements of full realized through procurement partnering are experience and benefit member airlines. Even membership. small at US$20 per barrel. Today, oil, at more with the challenges they face, global alliances In the SkyTeam’s associates program, than US$40 per barrel, is considerably higher, can look forward to a healthy future — even if for example, a full member may sponsor an and procurement partnering among alliance individual members continue to struggle. a airline for the associates program through members becomes much more attractive. which it only participates on certain routes Other procurement partnering is already taking and with certain restrictions while receiving place with manufacturers, maintenance access to common resources such as fre- providers, ground handlers, catering compa- Shane Batt is a partner with Sabre Airline quent flyer links, branding and promotion. nies and similar suppliers, and it is a trend that Solutions Consulting. He can be contacted This form of lite membership is desirable for is sure to grow. at [email protected]. By Mukundh Parthasarathy | Ascend Contributor xpanding network reach. Providing seam- of services they received from their passen- The cargo alliances help airlines “meet E less services across airlines. Generating ger alliance. the demand for rapid deliveries to all parts of +count it up incremental revenue. Reducing costs. For Building on those discussions, in April the world,” according to an article in SAS years, large passenger airlines have known 2000, Lufthansa Cargo, SAS Cargo and Singapore Cargo’s Cargotimes. 700 million — Euros per 12 — Percent of possible fuel savings 3 — Number of doctors who delivered about the benefits of membership in a global Airlines Cargo launched the New Global Cargo “[A]irfreight companies have recog- day, according to the International Air the European Organisation for the Safety a baby aboard a KLM flight from alliance. Now, more and more cargo airlines alliance, now known as the WOW alliance, which nized that they must create global networks,” are discovering the same thing. has since been joined by Japan Airlines Cargo. the article said. “The new economy has made Transport Association, that aviation of Air Navigation, or EUROCONTROL, Amsterdam to Chicago Aug. 18. The About five years ago, the cargo divi- Five months later, the cargo divisions of sever- cooperation essential. No single airfreight contributes to the tourism industry estimates could be generated by minimiz- Jordanian woman and her healthy baby sions of Star Alliance members Lufthansa al SkyTeam alliance members — Aeroméxico company has a reasonable chance of meeting in Europe, creating considerable ing the inefficiencies in air traffic manage- daughter were taken to a local hospital German Airlines, Scandinavian Airlines Cargo, Air France Cargo, Delta Air Logistics the needs of all customers.” employment in the aircraft and ment systems, according to the in Newfoundland, Canada, where the System and Singapore Airlines began looking and Korean Air Cargo — also joined together By joining together, the members of the engine manufacturing industries. International Air Transport Association. aircraft made an emergency landing. for ways to create a cooperative airfreight to form the SkyTeam Cargo alliance. CSA WOW alliance can provide customers a com- group to provide some of the same types Cargo and Alitalia Cargo later joined the alliance. bined fleet of 43 freighters and the belly 22 ascend ascend 23 industry industry capacities of more than 760 passenger air- future,” said Peter Grølund, general manag- SkyTeam Cargo has a member from South work of alliance members, cargo alliances by differing information technology systems, craft. Together, the alliance’s network compris- er of SAS Cargo, when WOW was launched. America or Africa. Leading Cargo Airlines deliver a better product to customers. corporate and national cultures, and varying es 523 destinations in 103 countries on five “A stand-alone model is no longer sustain- Several large cargo airlines, including The alliances also allow their members to cargo services. continents. Similarly, the SkyTeam Cargo able if we are to offer customers the ser- American Airlines Cargo, United Airlines The top 20 airlines for international consolidate ground sales and marketing Alliance members must standardize freight traffic in 2003. alliance members combine to provide more vices they demand.” Cargo, British Airways World Cargo as well as (in millions of scheduled freight infrastructures. pricing, as well as product offerings and lev- than 8,217 daily flights serving 512 destina- Although they are relatively new, and cargo-only airlines such as Polar Air Cargo, ton kilometers) The alliances are gaining acceptance in els of service. Individual airlines must also tions in 114 countries using more than 1,200 include just a handful of members, the glob- continue to keep their options open. Some air- the industry — last year, the Asia Freight and harmonize their similar products — express 1. FedEx 13,320 aircraft.