By Joe Brancatelli
October 28, 2009 -- Chief executives from several of the world's largest airlines scurried between New York hotels and the Big Apple's airports this week, all to publicize what they consider to be a big, big deal: The defection of Continental Airlines to the Star Alliance.
The 16-months-in-the-making transfer of Continental to Star from the SkyTeam alliance is the most recent maneuver in the high-stakes global competition between the three airline groupings that now dominate the skies. When Japan Airlines teetered on the edge of collapse last month, Delta Air Lines and Air France-KLM were prepared to inject hundreds of millions of dollars into Asia's largest carrier. The goal: Woo JAL away from the Oneworld alliance and into SkyTeam, which is fronted by Delta and Air France. Meanwhile, American Airlines and British Airways, key partners in Oneworld, are a year into their third attempt to convince U.S. and European regulators to grant them antitrust immunity to share routes and collaborate on prices.
If these moves seem vaguely comical—airline alliances are jokingly compared to as everything from Mafia families to the political allegiances that drove World War I—think again. Less than full-on mergers but much more than casual corporate cooperation, airline alliances are now the driving factor in how carriers plan routes, price seats, create products and services, coordinate airport facilities, and even design the benefits of their loyalty programs.
Take Continental's move to Star, for example. One of Star's founding partners, United Airlines, says that Continental's arrival will mean $100 million in new revenue for United next year. Continental, meanwhile, juggled its route network in the run-up to its move to Star. Out were many flights to Atlanta, Detroit, Memphis, and Cincinnati, all hubs operated by Delta. In were new flights to places like Washington/Dulles, one of United's hubs. Continental is moving its operations at the airports in Tokyo, Beijing, Shanghai, Honolulu, Frankfurt, and Chicago to be closer to the gates and check-in counters of United and other Star Alliances partners. Continental says that it changed the fare codes on more than six million existing passenger reservations to align them with the rules, regulations, and designation of its new Star Alliance partners. Both United and Continental announced changes to their proprietary frequent-flier programs to make the rules and benefits look more consistent to travelers.
"Alliances mean tens of billions of dollars of decisions," one airline insider told me recently. At Star, he pointed out, control of the pricing on many code-shared flights of the Star partners moves from United to Continental. "That means entirely new sets of eyeballs looking at how fares are set, what sales and prices to promote, and what the yield-management targets are."
Although airlines have been cooperating to some degree or another since the dawn of commercial air travel, the current wave of formalized, global alliances began in 1992, when British Airways forged a deal with what was then called US Air. The carriers called the then-unprecedented cooperation "the first major step toward the creation of a truly global airline group."
It never happened, of course. BA and US Air parted ways when British Airways and United Airlines formulated an alliance. The last physical reminder of that attempt to shape worldwide aviation is at New York's Kennedy Airport, where BA and United still share a terminal building rather than co-locating with their respective current alliance partners. Other airlines were pursuing other alliances too, and virtually all of those deals (with names like Wings, European Quality Alliance, and One Ticket) are also long gone.
These days, Oneworld estimates that 60 percent of the world's commercial airline capacity is affiliated by one of the three existing alliances and all but two of the world's 20 largest carriers are members of Star, SkyTeam, or Oneworld. The largest, Star, includes 25 airlines that range from household names like United, Lufthansa, and Singapore Airlines to regional carriers such as Blue 1 of Finland and Shanghai Airlines of China. After the loss of Continental, SkyTeam is anchored by Delta and the Air France-KLM conglomerate, but also includes carriers such as Korean Air, Alitalia, Aeroflot, and Kenya Airways. Besides American Airlines, British Airways, and Japan Airlines, Oneworld includes Cathay Pacific, Iberia, and Qantas.
But if all this alliance talk seems somehow stilted, it is. The missing element is us passengers.
Going all the way back to the BA-US Air pairing, carriers have promised that alliances would offer fliers seamless global connections, simplified prices, consistent service, and a raft of soft benefits such as frequent-flier program reciprocity and interchangeable club-access privileges. The reality has always fallen far short of the promises.
United Airlines, for example, denies members of its Mileage Plus frequent-flier program access to many award seats available on its Star Alliance partners. Although the rules specifically allow it and the airline promotes the awards, the carrier has bluntly said that it would be too costly for United to buy all of the seats on partner airlines that Mileage Plus members try to claim. The chat boards at FlyerTalk are rife with posts from outraged international flyers who were denied entry to an airport lounge operated by one alliance partner or another. On a more practical note and despite the growth of so-called co-located airport terminals, no alliance can ensure that their flights operate anywhere near the connecting service operated by an alliance partner.
Any flier who's ever lost a bag or had a flight disruption on a code-shared itinerary can tell you how little impact an alliance has on the actual travel experience. More often than not, carriers shift the blame and responsibility to each other rather than treat the traveler as a customer of a seamless alliance. Usually, the traveler is forced to bounce back and forth between individual airline power centers in order to locate the lost bag or rebook the busted itinerary.
Or then there's this tidbit from Continental's defection to Star. Continental operates a two-class in-flight configuration (coach and business) on its international routes. That's at odds with many of its new Star Alliance partners such as Lufthansa, Singapore, South African Airways, All Nippon, and Air New Zealand. They offer at least three classes of in-flight service. Where's the consistency and opaque experience if each alliance partner offers a different type of in-flight service?
Of course, carping about the internal logic or cross-carrier passenger service you'll experience within any particular alliance is a fool's game, one best left to travelers who believe the soaring rhetoric of airline chief executives and the mostly hollow promise of the alliances' promotional campaigns.
"Alliances are not about you," Jack Foley, executive vice president of Aer Lingus, told me in 1999 when the Irish carrier joined Oneworld. "Alliances are about what is good for airlines, not passengers."
The Fine Print…
Aer Lingus left Oneworld in 2007, and the growth of that alliance has stalled because regulators on both sides of the Atlantic worry about granting wide-ranging antitrust immunity to American Airlines and British Airways. The two carriers control a large portion of the U.S.-U.K. market and a huge percentage of the takeoff and landing slots at London's Heathrow Airport. Previous antitrust requests (in 1996 and 2001) floundered when BA balked at surrendering slots at Heathrow. The Financial Times implied this week that regulators will once again demand BA give up Heathrow slots as the price of an antitrust exemption.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
THE FINE PRINT This column is Copyright © 2009 Condé Nast Inc. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2009 by Joe Brancatelli. All rights reserved.