Global Airline Alliances Dominate Travel Landscape
[Part 1 of a 3-part series on global airline alliances]

Thinking Globally Can Benefit Travelers (and their Miles).

June 13, 2000 - Relationships are everything. And in at least one industry, that's a truism which gets truer every day.

We're referring to the travel industry, and the relationships in question are those among airlines. In particular, our focus here is on the highest profile relationships: the so-called global alliances. There are currently five such groupings, as follows:

The Players

1. Wings
While not the largest, in some ways the Wings group (Alitalia, Continental, KLM, Northwest) wrote the book on global alliance. Northwest and KLM were granted antitrust immunity in 1993 and have integrated their products and services closely, "rationalizing" their flight networks, linking frequent flyer programs, airport lounges and other aspects of their operations. Northwest, Alitalia and KLM were granted antitrust immunity in December 1999.

2. Star Alliance
Anchored by United and Lufthansa, this is the most extensive grouping, comprising Air Canada, Air New Zealand, All Nippon Airways, Ansett Australia, Austrian Airlines, Austria's Lauda Air, Lufthansa, Scandinavian Airlines System, Singapore Airlines, Thai Airways, Tyrolean Airways, United Airlines and Varig. (Mexicana and British Midland will join in July.)

3. oneworld
Size-wise, oneworld is in second place. The partner lineup includes American Airlines, British Airways, Cathay Pacific Airways, Finnair, Iberia, Qantas, Aer Lingus and LanChile.

4. SkyTeam
The Delta-led group is the least developed of the major alliances, lacking even its own name. The current partner roster includes Air France, AeroMexico, Delta, and Korean Air.

5. Qualiflyer
Qualiflyer is something of an outlier here, lacking partners in Asia and the Americas. While it doesn't currently qualify as truly "global" alliance, it could develop into one. Current partner roster: Air Europe, Air Littoral, AOM, Austrian, Crossair, Lauda Air, Swissair, Sabena and TAP Air Portugal, Turkish, and Tyrolean.

Why Ally Globally

What's driving the airlines to cooperate under the "global alliance" umbrella are the twin goals of revenue enhancement and cost reduction. Achieved together, they result in the holiest of grails, increased profits.

On the revenue enhancement side, the participating airlines expect to attract more customers because as a group, operating as a single virtual worldwide carrier, they can fly you anywhere in the world. And by coordinating schedules and linking frequent flyer programs, the allied airlines create a series of mutually reinforcing incentives for travelers to keep their entire itinerary within the alliance's borders.

On the cost reduction side of the equation, the allied carriers can operate more efficiently by consolidating flights on over-served routes, combining ticket offices, cross-utilizing sales forces, etc. In some cases, the partners are able to secure better prices on jet fuel and aircraft parts, for example, by buying as a group instead of individually.

In some cases, the relationships are underscored by equity investments (Northwest's 14% stake in Continental, for example). More often, though, the relationships are purely contractual, held together by the strength of the participants' self-interest.

As mentioned above, KLM and Northwest have an alliance that includes a U.S. antitrust exemption that allows the two carriers to operate as a single airline. In that case, Northwest has a seat on KLM's board of directors, and KLM has a seat on Northwest's.

Global, Schmoble... Who Cares?

In future installments, we'll be discussing the consumer benefits of global alliances in more detail, and how the make-up of the alliances may be changing.

For now, though, consider the following competing scenarios for a round-the-world trip. In one case you use only airlines in one of the global alliances; in the other, you use non-allied carriers.

There are, in theory at least, some compelling reasons to think globally.