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Star Alliance, oneworld and SkyTeam getting younger by the day

28-May-2009

This week, the Star Alliance and oneworld respectively announced that Greece's Aegean Airlines and Russia's S7 would join their groupings. And, last month, SkyTeam revealed that Vietnam Airlines would make preparations to join the group next year. As the global alliances expand, they are seen to offer attractive revenue generation and cost reduction benefits for carriers, key reasons why they continue to attract new members, particularly amid the current downturn (see table of alliance members below).

Each of the alliances is founded on one of the three major European flag carriers, Lufthansa, Air France-KLM and British Airways. The first and essential complementary partner in each case is then a major US airline, United, Delta and American Airlines respectively.

Octogenarians rule

These are all venerable airlines, whose average age is almost 84 years (BA: 1919, AF: 1933, KLM: 1919, UA: 1927, DL: 1924, AA: 1930). In the case of the European carriers, all were for many years government-owned, before privatisation over the past couple of decades.

But alliance critics, like youngsters, Virgin Atlantic (est. Jun-1984) and Emirates Airline (est. Oct-1985), argue the expanding global alliances distort competition.

Youth vs experience

Most analyses of the global alliances focuses on network coverage, fleets and airport lounges. In this review, we focus rather on the ages of the carriers involved. Most of the founding members of the alliances are the 'grandfather' brands of global aviation. Recent members have however tended to be younger airlines, which help to inject fresh thinking and approaches to the groupings.
 
There have also been a few notable “old-timers” entering (or attempting to enter) the global alliances, including Japan Airlines and Royal Jordanian (which entered oneworld in Apr-2007), as well as Vietnam Airlines and Garuda Indonesia (future Skyteam members) and Air India (future Star member).
 
Star Alliance has a blend of youth and experience and boasts the largest combined operating experience of the three global alliances (excluding affiliates/regional members). By virtue of its wider spread, it also has the lowest average carrier age, at a relatively youthful 48.4 years.

The average age of members of the smaller SkyTeam Alliance is 63.5 years, while oneworld offers the most experience, with an average member carrier age of 71.4 years.

Youth vs experience: Global Alliances (excluding affiliates and regional members)

 

Total combined operating experience (years) of members

Average per carrier

oneworld

714

71.4

SkyTeam

635

63.5

Star Alliance

1016

48.4

Age brings its problems, along with its advantages. It could be argued that the older the members, the greater the legacy issues – some bad, some helpful. Certainly all have experienced the powerful support of mother governments in their lengthy histories. But sclerosis is always a threat among the over-60s.

oneworld members British Airways and Iberia are certainly struggling in this regard with their merger held up by weighty pension plan liability concerns; meanwhile the BA/American-led push for antitrust immunity goes to the heart of the debate over slots and competitive issues, given their historic dominance of key trans-Atlantic markets and BA’s hold on Heathrow slots.

The Star Alliance and SkyTeam have arguably performed better over the past decade (in terms of expanding their membership/networks), because the negative legacy issues have been fewer. It is even arguable that the milestone Air France takeover/merger with KLM was made easier because of their long and illustrious histories.

Each of these two groupings have certainly been more adept at obtaining highly valuable anti-trust immunity than the looser, bilaterally-focused oneworld alliance.

The (young) new entrants

Aegean (Star)

As reported in Europe Airline Daily, this week’s new arrival, Aegean Airlines, launched scheduled passenger services in May 1999 - making it younger than the alliance group it is joining.
 
Aegean has grown rapidly and, as of 2008, became Greece's largest airline in terms of passengers carried. Also noteworthy is the fact that the airline has been consistently profitable since 2003 - no mean feat in the current operational environment.
 
Aegean has been a regional partner of Lufthansa since 2005 and its accession to Star was facilitated by that link. In 2008, its passenger traffic was roughly 60% domestic and 40% international. Currently the carrier serves 17 destinations in Greece and 18 foreign destinations with eight other regional points under current consideration. It expects to benefit from Star membership more through an expansion of revenue streams than a reduction in costs.

Aegean Airlines Chairman, Theodore Vassilakis, noted in particular the increased opportunity Star membership will deliver the carrier in linking with the large Greek diaspora in countries such as Australia, Canada, South Africa and the United States. He added, "by the same token, more business travellers based in Greece will in future benefit from the Star Alliance customer proposition: world-wide reach through the extensive network, seamless travel and status recognition through the frequent flyer programmes".

These are increasingly vital elements of airline operation for smaller carriers, as the power of the big three expands.
 
And each new member adds to the value of the alliance in expanding global coverage  for each of its members. Star CEO, Jaan Albrecht stated, "Aegean Airlines is a welcome addition to the Star Alliance network. Its home market, Greece, is of strategic importance due to its geographic position in the Eastern Mediterranean, acting as the main Southeastern access point into the European Union.”
 
Integration teams from Aegean Airlines and Star Alliance will begin work shortly, likely to take around 12 months. Once this process is complete, the Star Alliance embrace 26 carriers (currently 21, along with now-confirmed future members Aegean Airlines, Air India, Brussels Airlines, Continental Airlines and TAM) and three regional member carriers (Adria Airways, Blue1 and Croatia Airlines). These, say Star, offer a choice of more than 1,000 destinations in 176 countries, served by 21,000 daily flights.

S7 (oneworld)

S7 will become part of oneworld during 2010 and will also reduce the average age of its membership. Launched in May-1992, S7 is Russia's leading airline in terms of domestic passenger numbers and serves 72 destinations worldwide.

S7’s addition to the alliance will add 54 cities to the oneworld map - 35 of them in Russia - and bring eight countries onto the alliance's network: Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan and Uzbekistan.
 
Despite being smaller than, oneworld holds the distinction of being the only alliance with member airlines based on every continent. S7's entry will expand the alliance's network to nearly 750 destinations in almost 150 countries, a combined fleet of 2,300 aircraft operating almost 8,500 flights a day, carrying more than 330 million passengers a year.
 
oneworld Managing Partner John McCulloch stated: "S7 fills one of oneworld's few remaining membership 'white spaces'...It will expand oneworld's presence substantially in Russia and the Commonwealth of Independent States".
 
And, for the airline’s part, S7 Chief Executive Vladimir Obyedkov believes membership will "strengthen us financially, through revenues from passengers transferring to our network from our oneworld partners and the cost reduction opportunities the alliance offers."

Vietnam Airlines (SkyTeam)

On 15-Apr-09, SkyTeam and Vietnam Airlines – a healthy and revitalised 50-year old - signed a preliminary agreement confirming the airline's first step towards full membership into the alliance in 2010.

Vietnam Airlines operates 64 routes to 20 domestic and 24 international destinations with a young fleet of 50 aircraft, serving more than 9 million passengers annually to cities, including Beijing, Guangzhou, Melbourne, Moscow, Paris, Seoul, Sydney and Tokyo. Vietnam Airlines will add 17 unique destinations to the SkyTeam network, including 14 cities in Vietnam. In 2006, Vietnam Airlines was also officially accepted as a full member of the International Air Transport Association (IATA).
 
Another Southeast Asian carrier, Garuda Indonesia, was endorsed by Korean Air in Jul-2008, to become a member of the SkyTeam Alliance, possibly in 2010 as well.
 
SkyTeam states its current members handle 462 million passengers p/a in a network of more than 16,700 daily flights covering 905 destinations in 169 countries.

The detractors: Gen-X Emirates and Virgin Atlantic hit back

Emirates and Virgin Atlantic, both children of the 1980s, have however been vociferous opponents of what they see as a reduction in competition as a result of the spread of global alliances. In a discussion paper released in Feb-2009, Emirates stated, the importance of competition in our industry is at risk of being lost in the "smoke of a global economic firestorm".

Emirates noted, "while we are not opposed to consolidation in our industry and these are undoubtedly extraordinary times...we argue that politicians and competition regulators must maintain a more vigilant watch to ensure a balance is struck between consolidation, necessary clean-out and the creation of 21st century monopolies".
 
The Dubai-based carrier added, "we believe policy makers in aviation need to assess the long-term impact of consolidating and, importantly, expanding airline alliances on the competitive landscape".

This was largely in response to the cries of the established European majors that Emirates was an unfair beneficiary of government support as it expands organically – but without alliance participation.

Top ten world airports by international passengers in 2007 (ACI)
Alliance / non alliance airline share by international flight departures: Jan-2009

Virgin Atlantic's founder, Sir Richard Branson, has been extremely active in his lobbying against the British Airways-American Airlines trans-Atlantic tie-up, saying it would "create a monster monopoly on key routes between London Heathrow and the US".
 
According to Virgin Atlantic, BA and AA, together with their oneworld partners, would hold nearly half of all take-off and landing slots at London Heathrow. In comparison, Virgin Atlantic has just over 3%. BA/AA would also control most of the capacity on key routes such as Heathrow-Boston (80%); Heathrow-Miami (73%); Heathrow-Chicago O'Hare (64%) and Heathrow-New York JFK (64%).
 
Sir Richard concluded, "it doesn't make sense to encourage even less competition by allowing dominant carriers to increase their stranglehold by setting prices together and agreeing schedules.

I understand that it is tempting for regulators to say: 'We've given dispensation to one alliance, we should do likewise for others', as they've done previously. But they must resist temptation. Each anti-trust application must be considered on its merits and it's clear that the application for a merger between BA and AA must be rejected".

That said, the always pragmatic British knight has made it clear that overtures of one kind or another from Lufthansa would not be unwelcome. If you can’t beat them…?

Alliances and competition in 2009

For the core alliance members, North Atlantic anti-trust immunity is the crowning glory. Star and SkyTeam have it; oneworld is hoping to get it.

And for these reasons, the debate over the role of the global alliances will heat up this year, as Chairman of the US House of Representatives’ Committee on Transportation and Infrastructure, Rep Oberstar, stirs up controversy with his renewed challenges to the system. In a speech in Mar-2009, he asserted that, “ as the evidence indicates, these immunized alliances hold great market power and have the potential for exercising that power to the exclusion of non- immunized carriers, thereby reducing competition in the international marketplace, as well as disrupting domestic competition.”

This is partly a parochial view, with even some protectionist overtones. But it is a question that is worth addressing continually as the industry evolves rapidly over the next couple of years. Rep Oberstar and his unlikely bedfellows in the UK and UAE will have more to say on that score, no doubt.

Global alliances members (excluding affiliates/regional partners): May-2009

Airline

Base/HQ

Launch

CEO

Pax 2008 (mill)

oneworld

American Airlines

Dallas - USA

1930

Gerard Arpey - CEO

92.8

British Airways

London Heathrow - London

1919

Willie Walsh - CEO

32.3

Cathay Pacific

Hong Kong - Hong Kong SAR

1946

Tony Tyler - CEO

25

Finnair

Helsinki - Finland

1923

Jukka Hienonen - CEO

8.3

Iberia Airlines

Madrid - Spain

1927

Fernando Conte - CEO

n/a

Japan Airlines

Tokyo - Japan

1950

Haruka Nishimatsu - CEO

46.9

LAN Airlines

Santiago - Chile

1929

Enrique Cueto Plaza - CEO

n/a

Malev

Budapest - Hungary

1946

Ballo Anatoly Borisovich

3.1

Qantas

Sydney - Australia

1920

Alan Joyce - CEO

38.5

Royal Jordanian Airlines

Amman - Jordan

1986

Samer A. Majali - CEO

n/a

 

 

 

 

 

SkyTeam

 

 

 

 

Aeroflot

Moscow - Russia

1923

Vitaly Gennadevich Saveleyv - Director

9.3

Aeromexico

Monterrey - Mexico City

1991

Andres Conesa Labastida - CEO

8.3

Air France

Paris - France

1933

Jean-Cyril Spinetta - CEO

50

Alitalia

Rome - Italy

1946

Rocco Sabelli - CEO

18

China Southern Airlines

Guangzhou - China

1989

Wang Changshun - President

58.2

Continental Airlines*

Houston - USA

1934

Lawrence W. Kellner - CEO

46.9

CSA Czech Airlines

Prague - Czech Republic

1923

Radomír Lasak - CEO

4.8

Delta Air Lines

Atlanta - USA

1928

Richard Anderson - CEO

71.6

KLM

Amsterdam - The Netherlands

1919

P. F. Hartman - CEO

23.8

Korean Air

Seoul - South Korea

1969

Cho Yangho - Chairman and CEO

12.6

Kenya Airways (affiliate member)

Nairobi - Kenya

1977

Titus Naikuni

2.7

Copa Airlines (affiliate member)

Panama City - Panama

1947

Pedro Heilbron - CEO

 

Air Europa (affiliate member)

Majorca - Spain

1986

Juan Jose Hidalgo - Chairman and CEO

 

 

 

 

 

 

Star Alliance

 

 

 

 

Air Canada

Montreal - Canada

1936

Calin Rovinescu -CEO

33

Air China

Beijing - China

1988

Li Jiaxiang - Chairman

34.2

Air New Zealand

Auckland - New Zealand

1940

Rob Fyfe - CEO

12.9

All Nippon Airways

Tokyo - Japan

1952

Mineo Yamampto - CEO

n/a

Asiana Airlines

Seoul - South Korea

1988

Chan - Bup Park - CEO

13.1

Austrian Airlines

Vienna - Austria

1957

Peter Malanik - CEO

9.1

bmi british midland

London Heathrow - England

1964

Nigel Turner - CEO

9.3

Egyptair

Cairo - Egypt

1971

Capt. Sherif Saad Eldin Galal - Chairman

6.8

LOT Polish Airlines

Warsaw- Poland

1929

Sebastian Mikosz

4

Lufthansa

Cologne, Frankfurt - Germany

1954

Stefan Lauer

70.5

SAS

Copenhagen - Denmark

1946

Lars Sandahl Sorensen - CEO

37.9

Shanghai Airlines

Shanghai - China

1985

Fan Hongxi - CEO

8.9

Singapore Airlines

Singapore - Singapore

1972

Chew Choon Seng - CEO

19.1

Spanair

Palma de Mallorca - Spain

1988

Marcus Hedblom - CEO

8.8

SWISS

Basel, Zurich - Switzerland

2001

Dr. Christoph Franz - CEO

13.3

TAP Air Portugal

Lisbon - Portugal

1945

Fernando Pinto - CEO

n/a

Thai Airways

Bangkok - Thailand

1960

Surachai Tansitpong - Chairman

18.7

Turkish Airlines

Istanbul - Turkey

1933

Temel Kotil - CEO

22.5

United Airlines

Chicago - Illinois

1934

Glenn F. Tilton - CEO

63.1

US Airways

Phoenix - USA

1996

Doug Parker - CEO

54.8

South African Airways

Johannesburg - South Africa

1934

Chris Smyth - CEO

n/a

Blue1 (regional member)

Helsinki - Finland

1998

Mats Jansson - CEO

1.6

Croatia Airlines (regional member)

Zagreb - Croatia

1990

Ivan Mišetić - CEO

1.8

Adria Airlines (regional member)

Ljubljana - Slovenia

1961

Tadej Tufek - President

n/a


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