Airline alliances: ties that bind

Airline alliances: ties that bind
By admin

Airline partnerships have seen more shuffling than a high rolling casino in the past 12 months. Joint ventures have been severed, others formed, and code share agreements have come and gone. 

Qantas has been at the centre of the action, inking a five year partnership with Emirates as it looks to revive its flagging international operations. The deal, which will kick off in April if it receives the rubber stamp from the ACCC, will see Qantas shift its hub for European flights from Singapore to Dubai and dramatically boost the number of connections in Europe. The number of flights to Dubai will also step up to 98 weekly services and customers will benefit from shorter travel time to Europe and exclusive frequent flyer benefits.

Like any partnership, the deal plays into the hands of both airlines. Rather than going head to head with its Middle Eastern rival, Qantas will tap into Emirates' fierce capacity growth. Emirates, meanwhile, will have access to Qantas' Australian domestic network of more than 50 destinations and 5,000 flights per week. 

New recruits

The deal marks the most significant in Qantas' history, but the Flying Kangaroo is no lone soldier in the partnership shuffle. Air New Zealand is forging a new deal with Cathay Pacific on routes to Hong Kong, Etihad has just struck up a commercial alliance with Air Berlin and China Eastern is looking to strengthen its ties with Australian carriers. Virgin Australia has also sold a 10% stake to Singapore Airlines, bought 60% of Tiger Airways and is looking to cough up $99 million on a takeover of regional carrier Skywest.

It all comes down to making the right connections to get customers on board. But it's more of a strategic game with competition at the heart of the match.

Take Delta for instance, which is looking to buy 49% of Virgin Atlantic to form a rival partnership with British Airways (BA) and American Airlines (AA). Delta has been salivating at the opportunity to go head to head with BA and AA since the deal kicked off in 2010, and jumped at the chance to buy the stake from Singapore Airlines late last year. Sir Richard Branson told reporters last month the tie up would start a new era of expansion and financial growth. But more importantly, it would help Virgin to knock its competitors off the perch. "We fought hard to stop BA and American Airlines getting together but they created a complete giant across the Atlantic. Now we are partnering with Delta, we can give them a real run for their money," he said.

Qantas is another maverick with its eyes on the prize, announcing its new tie up with Emirates would also spell the end to its 17-year joint venture with British Airways.  After discussing potential alliances with a number of rivals, Qantas opted to end its tie up with British Airways with the hope of turning around its international operations. Qantas will continue to work with BA via the Oneworld alliance and bilateral codeshares, but Emirates will essentially replace its BA partnership as the airline looks to move its focus to Asia.

The plot thickens

As partnerships rise and fall, global alliances complete the equation. As Virgin Atlantic chief executive Steve Ridgeway explains, joining an alliance such as Oneworld, Star Alliance or SkyTeam is a way of dealing with the "stresses and strains" of high fuel prices and sluggish industry growth. They are also good marketing tools which provide enticing frequent flier benefits for customers and allow carriers to book passengers on flights as if they were their own. 

But not all carriers are so inclined, with some of the major airlines opting to go solo. Preferring to invest more energy to strategic relationships, Emirates president Tim Clark branded alliances as a "product of late eighties thinking in an aviation world that bears little resemblance to today". "As such they are anachronisms," he told Bloomberg. Etihad also has "no interest" in joining an alliance in the near future, with chief executive James Hogan preferring to form bilateral partnerships rather than "being told who to work with". Virgin is another major player standing on its own, but last year announced it would review its options after opting out of the network for the past 15 years.

Measuring the effects

But whether the major players opt in or out of the alliance network, their decision ultimately has a limited impact on customers. In terms of connections, airlines which turn their back on the three major alliances make up for it by forging stronger bonds with other airlines. Take Virgin Australia for example. While the airline is reticent to join a global alliance, it has struck up code share deals with seven other airlines and partnerships with several others to boost its network to over 400 international destinations. The same goes for Qantas, Emirates and a string of other airlines, who are all vying for more power in the aviation space.

The major difference for customers comes down to the individual loyalty schemes. While customers can earn and burn miles on code share airlines, they can do the same on a much greater scale as a global alliance member. For instance, Star Alliance has 27 member airlines covering 21,900 daily departures, meaning there's more scope for customers to earn loyalty rewards.

Forging ahead

Looking forward, it's still early days for Qantas' new venture to play out, but Centre for Asia Pacific Aviation (CAPA) chairman Peter Harbison expects the Emirates Qantas partnership will spark a wave of strategic partnerships down the track.

 Certainly British Airways is on the hunt for new partnerships after it was ditched by Qantas, and Virgin's ongoing search for suiters will continue. But Harbison is backing that Middle Eastern carriers will be at the centre of the action as they look to follow Emirates' lead.

"For Qantas, the partnership will further help its loss-making international division, and for Emirates this may be its deepest partnership yet, but it could very well whet its appetite for more. With Etihad already having nearly 40 partners, it is time for Qatar Airways to make the next major move," he told Travel Weekly.

Regardless of which airline is first off the ranks, he expects the partnership shuffle will continue right across the spectrum as airlines look to become "smarter" with their geographical strategic partners. And as the mavericks strike up partnership deals which "cover the entire world", he says global carriers are left with no choice but to play the game.

Inevitably, alliances will prosper and others will fail in the year ahead, but Harbison agrees only one thing is for sure – the partnership puzzle will never stand still.

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