Airline alliances were supposed to represent seamless integration, a precursor to the current promise of ‘joint business ventures’ where airlines cooperated and coordinated to create passenger experiences that were nearly metal-neutral. It wasn’t supposed to matter which airline you flew as there would be alliance-wide product standards and assistance during irregular operations.
Willie Walsh, the CEO of IAG which is the parent of oneworld members British Airways and Iberia says that airline alliances won’t exist in 10 years.
Speaking overnight at London’s World Travel Market expo, Walsh said that “alliances add value today but I would question whether they will continue that in the future. There was a need and there still is a role for them to play but I would be surprised and question whether they will exist in 10 years from now.”
Instead, the future will be paved with bespoke arrangements between individual airlines.
“I think relationships have changed and you are seeing more deals such as joint ventures,” Walsh added.
British Airways lost its close partnership with alliance member Qantas, when the latter teamed up with Emirates even as Gulf rival Qatar joined oneworld (and acquired a stake in IAG).
Of course declaring the death of airline alliances isn’t new, a SkyTeam airline executive said 3 years ago that “Alliances are a thing of the past,” he told me. “It’s a bad solution to a problem which is basically about to disappear: that consolidation is impossible.” Of course the belief there was that airlines would merge across national boundaries. In places like the U.S. that remains illegal.
Etihad has built their own alliance out of acquiring stakes in airlines around the world — but usually troubled airlines, where governments are happy to see the investment — but investments in airberlin and Alitalia have been challenging at best.
For small airlines alliances can be costly (“annual membership fees around $750,000, annual operating costs around $2.5 million, and restrictions on whom they can codeshare with outside the alliance.”)
While the ‘action’ has certainly shifted more towards joint business ventures — which are closer collaborations — than alliances, in some sense that’s a function of the success of alliances. They’ve already delivered value, and there are limits to further growth. They aren’t a relic of the past, but they also may not be vehicles for the future.
- Alliances allow airlines to provide services, customer sharing, and mileage earning/burning across greater swaths of the world than individual carriers can offer on their own.
- Alliances are a mechanism to grow virtually and quickly in the face of heavily regulated aviation markets.
But alliances — operating by consensus of large numbers of airline managements — move slowly. And they aren’t a substitute for mergers or direct control.