Global Alliances

After 'engine change in-flight' bmi Regional looks to re-grow partnerships – and profitability

bmi Regional is a familiar name now undertaking a very different strategy after what management terms an “engine change in-flight” when the carrier was sold off from IAG and had to migrate to its own IT systems, new office, IATA code and BSP in a matter of weeks.

During that time the focus was to keep the carrier operational, and with the transition settled down, bmi Regional is now looking to re-establish partnerships, grow its network focused on point-to-point traffic rather than the approximate quarter of traffic it received from Star Alliance, which it is no longer a member of. The carrier is viewing an open future across Europe, not just the UK, where sub-100 seat services are needed. A320 and 737 operations are not its focus, at least for now.

Why Emirates and friends will soon reshape American aviation

Shortly after Emirates Airline announced its remarkable breakthrough partnership with Qantas in Sep-2012, Emirates CEO Tim Clark said he had also been talking to American Airlines for some time and publicly expressed hopes that the two would also establish a close relationship. This was despite the fact that American already had an extensive codeshare relationship with Etihad; and the third Gulf carrier, Qatar Airways, has since been invited to join the oneworld alliance – which American leads.

The Gulf airlines, and particularly Emirates, have had a devastating impact on European long-haul hub carriers. The impact will be different for US airlines, but despite the different geography, it will be much bigger than most expect. For one thing they will cut across the developed boundaries of the global alliances.

Saudia faces new competitive threats in 2013 as Saudi Arabia loosens the regulatory reins

The Saudi Arabian General Authority of Civil Aviation (GACA) has confirmed that Qatar Airways and Gulf Air will launch domestic operations in the country before the end of 2013. The granting of the licences to two foreign carriers to operate domestic service is an unparalleled move of openness in the Middle East. It will start a new era for travel within the country.

The opening of the Saudi Arabian market presents a new challenge to national airline Saudia. However, after several years of facing competition from domestic carriers and a thorough modernisation ahead of its entry into SkyTeam in 2012, as well as the extended international reach that alliance membership offers it, the carrier is in a better position now to meet the latest threat.

Qatar Airways set to join oneworld by late 2013

Qatar Airways CEO Akbar Al Baker announced earlier this month the carrier intends to join the oneworld alliance by Oct-2013, only 12 months after it announced that it had been selected for membership. The 2012 announcement that the airline planned to join the alliance system sent ripples of reaction through the aviation landscape of the Middle East, as well as globally, helping to bring about a major commercial reshaping.

Joining oneworld will usher in a new era for Qatar Airways. After years of setting its own path and growth trajectory, the airline has decided to hitch itself to the alliance system, albeit to the most loosely based of the international airline groupings. Its membership is being sponsored by British Airways. The airline’s membership in oneworld will see it coordinate flights, schedules and systems with other member airlines, including Iberia, Qantas, Royal Jordanian, Cathay Pacific, Malaysian Airlines, LAN and Japan Airlines.

Delta Air Lines improves China position with better slots from partners China Eastern & Southern

Slots at Chinese airports cannot be openly swapped the way they can at other airports – such as at London Heathrow where slot trading over the past year has occurred between Jet Airways and Etihad, Cathay Pacific and Air New Zealand, Qantas and British Airways, Delta and unnamed partners and perhaps soon Aer Lingus and British Airways. This has become problematic for carriers like Delta, which are given late arrival times and early departures that stymie critical connecting traffic.

But Delta in recent months has been able to leverage its partnerships with fellow SkyTeam carriers China Eastern and China Southern to adjust their slot portfolio to maximise connections, which benefit both parties. Delta has been able to move its Detroit-Beijing/Shanghai Pudong services to arrive in the afternoon and depart in the evening, key times for foreign long-haul carriers. While this improves Delta's position in China – the smallest of the three US carriers present – its ability to tap into new cities appears limited owing to fleet limitations.

Airlines in Transition part 2: Where are smaller airlines in the new partnership world?

In our first article based on CAPA’s recent Airlines in Transition conference, we looked at the evolution of airline alliances. In general, this theme is relevant only to the larger carriers with significant long-haul networks, but 86% of the airlines in CAPA’s database are not full members of a branded global alliance (BGA). In this second report from the conference, we ask where this leaves smaller and non-aligned airlines?

There are a number of benefits and issues that alliance members associate with their membership of a BGA. However, CAPA’s panel of smaller and non-aligned carriers believe that they can address these factors better and more flexibly by remaining outside the BGAs. These issues are mainly connected to expanding and securing the available revenue pool through wider access to markets, brand loyalty and distribution.

CAPA Airlines in Transition report, Part 1: The natural history of airline alliances

From the first US Open Skies agreement with the Netherlands in 1992, and the subsequent granting of antitrust immunity to the KLM-Northwest joint venture in 1993, the evolution of airline alliances has been rapid and far reaching. Bilateral codeshares, immunised JVs, multilateral branded global alliances, the Etihad equity alliance: why are there so many models? In the first of a series of reports based on CAPA’s recent Airlines in Transition conference in Dublin, we examine the history and evolution of airline alliances and partnerships.

After decades of strict regulation of international traffic rights post WWII, which controlled destinations, capacity, frequencies and prices, a campaign for more liberal air services agreements (ASA) between nations began to gather pace in the US from 1977. In the words of Jeffrey Shane, General Counsel, IATA and a former senior US aviation regulator, any attempt to modify an ASA was characterised by a "highly calibrated, tit-for-tat mode of negotiation".

airberlin: in need of a cap that fits after another underlying loss

Air Berlin PLC returned to a net profit in 2012 for the first time since 2007. However, if the one-off proceeds of the disposal to Etihad of 70% of its topbonus FFP are excluded, the operating result would have been a loss of EUR114 million. This is a narrower figure than 2011’s shocking EUR247 million loss, helped by airberlin’s entry into oneworld and its deepening strategic partnership with Etihad.

Wolfgang Prock-Schauer, CEO since Jan-2013 after only joining the company in Oct-2012, rightly assesses that “we have not yet reached our goal – namely sustainable profitability”.

airberlin's cost structure is quite low versus European legacy carriers, but not LCCs, but its revenue base is too close to LCC levels. Thus the airline must simultaneously reduce costs and grow revenues. Further capacity cuts and another efficiency programme are under way, but much will depend on the further successful development of its relationship with oneworld and, in particular, Etihad.

After years of trying on every cap – charter carrier, LCC, full-service carrier, short-haul, long-haul, M&A predator and prey – airberlin needs to find one that fits.

Radial Alliances and Virtual Airlines. Reshaping the partnership model in a new world

The constraints of national ownership requirements and a deep rooted preference for protectionism to promote national flag carrier interests have for decades moulded the ungainly shape of an inefficient and largely unsustainable airline industry. It is a model designed for the conditions of post-war 1945, yet it has somehow survived for 70 years with only modest changes.

That it has been perpetuated for so long is the product of the network of bilateral agreements that, like a cobweb produced by hundreds of spiders, is beyond the power of one or two willing parties to change.

The meticulous construction of this unwieldy but impenetrable fabric over decades has effectively meant that individual states cannot change it. The only solution was through multilateral agreement and the few modest attempts at that have invariably resulted in failure.

SAS SWOT: final call to establish a sustainable Scandinavian Airlines

SAS has been through many restructuring programmes and capital raisings over a number of years. Yet it still has high unit costs and poor labour productivity, is loss-making and has a weak balance sheet. In 1QFY2013 (Nov-2012 to Jan-2013), the group's loss before tax and non-recurring items widened to SEK801 million from a SEK656 million (EUR78.7 million) loss a year earlier. Nevertheless, it continues to target a positive pre-tax result and an EBIT margin of more than 3% for FY2013.

The Nordic region contains a more efficient long-haul operator (Finnair) and is experiencing increasing penetration by short-haul low-cost operators from elsewhere in Europe. Also, in Norwegian Air Shuttle, SAS has a low-cost local operator that competes with it on both short-haul and (from this summer) long-haul. In Nov-2012, CEO Rickard Gustafson called the ‘4Excellence Next Generation’ plan, which aims to achieve SEK3 billion (EUR360 million) of annual savings by 2015, a “final call if there is to be a SAS in the future”.

Taiwan’s TransAsia growth Pt II: responding to LCCs, res system cutover & alliances/partnerships

In the second part of this report, TransAsia weighs how it can expand traffic in Northeast and Southeast Asia but also counter growing foreign LCCs as well as the inevitable local Taiwanese LCC that has yet to form. TransAsia has laid out an undisclosed pathway to guide it depending on what outcomes occur in the Taiwanese market with respect to LCC development.

TransAsia believes it can counter LCCs and competitors in general with the carrier's forthcoming cutover to a new reservation system that will offer it greater agility and be the impetus for the carrier to raise online sales from at least 15% to, perhaps optimistically, over 50% within two years.

TransAsia is also watching the developments with alliances and partnerships and it is interested in having more friends, although the carrier thinks it is early days for it to consider joining a global marketing alliance; this could change if it were invited.

Pressure mounts on Star and SkyTeam to secure Brazilian members as TAM confirms switch to oneworld

LATAM Airlines Group announced on 07-Mar-2013 that its TAM, TAM Paraguay and LAN Colombia subsidiaries would join its sister carriers in oneworld, confirming moves which had been considered a foregone conclusion for 18 months. The Star Alliance now faces the risk of not having a member in Brazil, one of the world’s most important growth markets, after TAM shifts from Star to oneworld in 2Q2014. But the void will not last long as Brazil’s fourth largest carrier, Avianca Brazil, will almost certainly join its sister carriers in Star, potentially by the end of 2014.

Meanwhile, Brazil’s second largest carrier Gol continues to be wooed by SkyTeam. With TAM moving to oneworld and Avianca Brazil expected to join Star, the stakes mount for SkyTeam while the benefit of maintaining independence for Gol diminishes.