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Analysis
the second biggest alliance with key members including Delta and Air France-KLM, is also hoping Garuda Indonesia joins as planned next year. And, of course, Virgin is widely expected to join Delta in Skyteam. Virgin’s chief operating officer Julie Southern, in a recent interview with the Financial Times, said: “I suspect in due course you may see us joining Skyteam.”
Although Virgin cites its forthcoming transatlantic joint venture (JV) with Delta Airlines for the end of its US Airways codeshare and frequent flyer link-up, there is another major reason: the merger due to be completed this summer between US Airways and American Airlines, creating what is claimed will be the world’s biggest carrier group (by passenger numbers) with annual sales of US$40 billion. American, of course, is the transatlantic partner of British Airways and also one of the co-founders – with BA – of the Oneworld airline alliance. Given the past 30 years of bitter internecine warfare between BA and Virgin, it was odds-on that the US Airways relationship would come to an end sooner rather than later.
In addition to the JV with Delta,
Virgin is also selling the US carrier the 49 per cent stake in Virgin previously owned – since 1999 – by Singapore Airlines. And it is exploring possible JVs with Air France-KLM and Alitalia on routes to Asia, the Middle East and Africa.
REVIEWING STRATEGIES If would be a mistake, however, to think all these events are just ‘Virgin-centric’. In reality, all three of the global airline alliances – the Star Alliance, Skyteam and Oneworld – are in a state of flux as airlines review their strategies. US Airways, for example, is quitting Star for Oneworld once the merger with AA is complete. South American carrier TAM Airlines is also leaving Star next year following its 2012 merger with LAN to form
“For smaller airlines in an alliance, the cost of membership will almost inevitably be greater than the accompanying benefits”
LATAM Airlines, joining LAN in Oneworld, where it has been a member for more than a decade. Despite these losses, Star remains the biggest (and first) airline alliance, dominated by Lufthansa and United Airlines, and is currently courting India’s Jet Airways as a new member. Skyteam,
BESPOKE RELATIONSHIPS But alliances are threatened by the growing willingness of some airlines to form bespoke relationships that are more suited to their needs, especially given the high costs associated with alliance membership. Veteran City aviation analyst Chris Tarry, who now runs his own consultancy, suggests that for smaller airlines in an alliance “the cost of membership will almost inevitably be greater than the accompanying benefits”. This has been made graphically clear by the success of airlines such as Etihad Airways (see panel, next page) which has established a business model based on taking minority stakes in small strategic carriers – including Aer Lingus and Air Berlin – as well as extensive codeshare agreements.
“The traditional airline alliance
has evolved into slow-to-respond, bureaucratic organisations which struggle to deliver added value to their member airlines, many of which are no longer compatible with each other,” suggested Etihad CEO James Hogan in a speech in Washington last month [April]. “If we look at the consolidation currently occurring throughout the airline industry, we are also seeing more fragmentation within the alliances,” he added. These changes are being driven by high fuel costs and the slow pace of global economic recovery, as airlines continue to struggle to adapt to more competitive markets. But full-blown airline mergers are still something of a rarity given the protectionist stance many governments continue to adopt. Foreign takeovers of US carriers, for example, are blocked by law, which is primarily why US
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