June 19, 2024

The Clout of Air Alliances

But over the past decade, three alliances — Star Alliance, Oneworld and SkyTeam — have carved up the globe into three teams of at least a dozen airlines each. These alliances offer passengers easier access to the world, but their growing power also positions them to dominate unaffiliated rivals and to control prices.

For passengers, alliances offer simpler ticketing and smoother connections on intercontinental trips, as well as the chance to earn and redeem frequent-flier miles on other member carriers. That means a passenger flying on Lufthansa can choose to earn United miles for the trip, then redeem them on US Airways — all Star Alliance members.

The main incentive for carriers to partner up is to bolster their international traffic, an increasingly important source of revenue.

“The U.S. market is a mature market — we’ve seen the shakeout, we’ve had consolidation,” said Henry Harteveldt, a travel analyst with Forrester Research. “To continue to grow, airlines have to expand abroad, but it’s impractical and, in some cases, impossible for carriers to do much expansion on their own. That’s why we’ve seen the alliances become so popular.”

International treaties dictate where carriers are allowed to operate in another country, and laws in the United States prohibit foreign ownership of a majority stake in an airline, so global alliances are also a way of expanding abroad without a buyout or a merger.

But now that the dominant carriers in each alliance have been granted antitrust immunity by the United States government and the European Union, they are free to behave as if there had been a merger — coordinating schedules and fares and sharing revenue on trans-Atlantic routes. The alliances also help the airlines save money as members shift operations to a single terminal and move toward more joint lounges and services.

“The one-roof strategy we have in airports helps save costs,” said Marie-Joseph Malé, SkyTeam’s managing director. “In London, we are all in Terminal 4. If we were separated, we would have had 60 check-in counters, which we were able to reduce to 48.”

Mr. Malé pointed to the liberalization of international aviation treaties, the globalization of the economy and advances in technology as the three main factors contributing to the growing strength of airline alliances. SkyTeam currently has 13 members, including Delta, Air France and KLM, and plans to have 19 by the end of 2012 — focusing on increasing its presence in China.

Star Alliance is the largest of the three with 27 members, including United, Continental, US Airways and Lufthansa. It is generally considered by frequent fliers to be the best alliance for booking awards, including upgrades, though cashing in awards within any alliance can still be frustrating for travelers because of limited seat availability and online ticketing systems that are not fully linked by member airlines.

Travelers with elite status on one airline can also take advantage of another benefit of the alliances — reciprocal recognition of that status by other members, which means priority check-in, boarding and baggage handling, and access to partners’ airport lounges.

Michael Blunt, a spokesman for the Oneworld alliance, said it focused on serving frequent business travelers with these types of perks, opting for quality over quantity with its dozen member airlines, including American, British Airways, Cathay Pacific and Qantas.

As part of that strategy, Oneworld is opening joint transfer centers at 10 hub airports worldwide, to help passengers troubleshoot problems like a missed connection or a delay that causes a tight connection time.

“Someone will meet you at the aircraft and they will tell you they’ve rebooked you onto another flight,” Mr. Blunt said. “Or they will take you and your hand baggage and rush you through the airport.”

But for all the talk of the benefits that alliances offer travelers, there is a continuing debate about the downside of this trend: too much market concentration, leading to higher fares. That is particularly a concern across the Atlantic, where fares have risen disproportionately as competition has shrunk.

“Something changed in the North Atlantic that allowed prices to rise three times faster than they did in any other market,” said Hubert Horan, an aviation consultant who has opposed alliance antitrust immunity. “That was due to the extreme consolidation of the industry. There is no other factor that could explain it.”

Mr. Horan helped develop the alliance between Northwest and KLM more than 20 years ago, but said he believed that the original benefit of alliances — making it easier to fly between secondary cities in the United States and Europe — was long ago achieved.

“The need to serve St. Louis to Stuttgart was filled by 1999,” Mr. Horan said. “All of the alliance activity since then has been in places where it created no value and the only purpose was to eliminate competition.”

Critics also worry that there is little opportunity for low-cost carriers to compete on trans-Atlantic routes (unlike domestic price competition from airlines like Southwest) and that the alliances will ultimately crush independent carriers like Virgin Atlantic.

In March, Virgin Atlantic announced a partnership with JetBlue, enabling customers to book trans-Atlantic tickets that include travel on both carriers. JetBlue has similar deals with Emirates, Lufthansa, El Al and other airlines, opting not to join a single alliance so it can pursue strategic partnerships instead.

Mr. Harteveldt said this approach made sense for some carriers, but that it remained to be seen what effect alliances would have on the competitive landscape as the market evolved.

“Certainly, alliances reduce competition,” he said. “There’s no question that it makes life more difficult for airlines that either choose not to be part of an alliance or aren’t asked.”

Article source: http://feeds.nytimes.com/click.phdo?i=6a7e8d73b2679723a0d9e165cf270397

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