Airline alliances are benovelent oligopolies

ByaseL · 2010-01-25T08:11:28+00:00

Byase Luteke In the last 20 years the airline industry has gone through a tremendous metamorphosis. From being lone rangers during the early 1980 airlines have gone through a series of consolidation in various shapes and forms. During this period many airlines have come together to either form one big airline or buy into each other's equity stake so as to have some symbiotic relationship for business purposes. In the survival for the fittest environment, British Airways bought out British Caledonian Airways and completely integrated it into its system and that was the end of the latter. This move entailed British Airways (BA) taking over all British Caledonian staff, aircraft and route network. A massive restructuring was undertaken to transform BA into one big airline. Some airlines like Continental and Northwest of United States of America (USA) bought into each other's equity stake which allowed them to operate independently but enabled them to work very closely from the business stand point particularly on policy harmonization at corporate board levels. Recently Air France and KLM Dutch Airlines went through a similar arrangement to form what is now known as Air France-KLM group. At one time British Airways and American Airlines contemplated going the Continental-Northwest way but their plan was forestalled because it was deemed anti-competitive by the relevant authorities. As airlines have increasingly endured competitive pressure, some airlines have taken to mergers. The recent case in point is the unveiled plan of Delta Airlines to merge with Northwest Airlines, an act that has prompted Continental Airlines to ditch its equity relationship in Northwest Airlines. While all these moves have, by and large, shaped the modus operandi of the airlines we see today, however, it is the commercial alignment known as strategic alliances, mostly by the big airlines worldwide, that has changed the way the airline industry operates today. Under a cleverly crafted marketing plan the big airlines have divided the aviation business world into three competing "spheres" of influence, so to speak. Essentially what an Alliance entails is that a group of airlines go well beyond the traditional ways of cooperation amongst themselves and come together to form some kind of "cartel" to harmonize and link their route networks, common-rate airfares, integrate their frequent flyer programs, pool airport lounges, etc, such that customers using the services of the cartel airlines will enjoy seamless and cost effective services. However, not every Tom, Dick and Harry kind of airlines are eligible to join an Alliance as there are certain benchmarks to be met before an airline can become an Alliance member or associate. Issues like safety, on-board product, schedule reliability and integrity, corporate governance and more importantly the routes must be complementally amongst members/associates. There should be minimum overlap of routes amongst Alliance members. "The reality is alliances work best when they are end-to-end" says Keller, former CEO of Continental Airlines. These are the basics that must be met before an individual airline can be allowed into the "exclusive club". In this way Alliance members are able to reach almost all corners of the world through "proxies". Alliances have come to effectively monopolize the aviation business globally and fringed out the disadvantaged small airlines from accessing the lucrative markets. In other words Alliances are modern times benevolent oligopolies disguising as strategic marketing partnerships amongst well endowed airline players. In today's world an airline competing for business outside the alliance framework is at most an "also runs" outfit. Alliances are trans-national in character and as mentioned earlier there are three major alliances shown here below with their membership composition; In the Oneworld Alliance there is American Airlines, British Airways, Cathay Pacific, Finnair, Iberia, JAL Japan Airlines, LAN, Mexicana, Qantas and Royal Jordanian Airlines. This partnership is not restricted to just the member airlines of the alliance. Oneworld also has further affiliate members, airlines which provide regional services in association with the alliance's members. It is quite obvious that American Airlines and British Airways are the "bulls" in the Oneworld kraal. The Star Alliance is the biggest partnership comprising of 26 airlines including Adria, Air Canada, Air China, Air New Zealand, ANA (Japan), Asiana Airlines, Austrian, Blue 1, British Midland International, Brussels Airlines, Continental Airlines, Croatia Airlines, Egypt Air, LoT Polish Airlines, Lufthansa, Scandinavian Airlines, Shangai Airlines, Singapore Airlines, South African Airways, Spanair, Swiss, TAP Portugal, THAI, Turkish Airlines, United Airlines and US Airways. Continental Airlines is a new comer to the Star Alliance group having ditched the SkyTeam Alliance after going separate ways with Northwest Airlines. United Airlines and Lufthansa are the major driving force within this group. SkyTeam Alliance is a 10 airline member group bringing together the likes of Aoeroflot, Aeromexico, Air France-KLM group, Alitalia, China Southern, Czech Airlines, Northwest-Delta group and Korean Air. SkyTeam associate members include AirEuropa, COPA Airlines and Kenya Airways. The dominant airlines in this membership are Air France-KLM and Delta-Northwest groups. Dear reader, this being the case it is quite obvious that Africa is in the periphery as far the aviation business is concerned because as we have seen only three airlines namely South Africa, Egypt Air and Kenya Airways (associate) have so far made it to the exclusive clubs which, by and large, monopolize the aviation industry. Unlike Emirate Airlines, Qatar Airways, Virgin Atlantic and probably Ethiad Airlines who are most likely out of these alliances by choice, African Airlines find themselves excluded because most of them cannot meet the stringent benchmarks set to reach the elite status and therefore do not merit to share the market spoils! Is Africa doomed in this area as well? Your take is as good as mine Source: Business Times

Thread starter ByaseL
Start date Jan 25, 2010

ByaseL

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Airline alliances are benovelent oligopolies

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