airberlin’s accession to AEA: a departure from low-cost roots
airberlin took another step in its evolution on 17-Jan-2011 when it became a member of the Association of European Airlines (AEA), a lobby group representing “Europe’s most important network carriers”. The story of this former charter carrier, low-cost carrier, hybrid, and now alliance member-designate, is a telling example of the later growth stages of LCCs and the industry realities faced by alliances.
airberlin is perhaps the most prominent exception to the formerly rigorous alliance entrance requirements. As the pool of eligible members shrinks, the need for a comprehensive coverage of key markets has overtaken the product of any would-be member. oneworld, with continental and central Europe a gaping hole on its network, has filled a remaining key market. The alliance will at last have extensive coverage of Germany, a major global business centre and tourism market, and gain access to airberlin’s extensive European network.
airberlin moves and shakes ahead of alliance entry
Ahead of full oneworld membership in 2012, airberlin announced on 14-Jan-2011 plans to increase the number of executive board members from three to four. The four-member executive board will comprise CEO Joachim Hunold, CFO Ulf Huettmeyer, COO Christoph Debus and a yet-to-be-appointed CCO, a role Mr Hunold will assume until an appointment. In a key part of airberlin’s alliance integration, Mr Debus will be responsible for overseeing the integration of the acquired airline LTU and importantly, align the airline’s IT systems with oneworld’s.
Days later, on 17-Jan, airberlin was announced as the 36th member of AEA. Membership in the industry trade body, which "represents Europe’s most important network carriers", is a significant departure from its low-cost past, where it was once a member of the LCC association ELFAA. Announcing its membership, airberlin noted the uniqueness of its background, stating “business models are the result of commercial decisions and should not play any role when promoting the interests of European aviation and its customers”. airberlin’s accession to AEA is a preparatory step for oneworld membership. Global alliance membership is essentially synonymous with membership in such trade associations, which include the ATA, AAPA, ALTA, AFRAA and AACO.
As part of plans to provide passengers with access to a “truly global” offering, airberlin has expanded cooperation with future oneworld partners. This includes the launch codeshare agreements with American Airlines, Finnair, S7 and bilateral agreements with Iberia and British Airways. airberlin has stated that through American Airlines it gains access to an extensive North and South American network, through Finnair it gains access to that airline’s growing presence in Asia, while IAG’s Iberia and BA provide access to markets in Latin America. Air Berlin’s eventual oneworld membership will provide these airlines with access to almost 140 cities across Europe, the Middle East and Africa – an enormous additional to an alliance network which was underrepresented in a key market.
airberlin, which has a strong track record of revenue growth, passenger growth, profitability and will undoubtedly be a strong addition to oneworld. Despite substantial differences between airberlin’s product and business model and those of its alliance partners, there is also a substantial difference between airberlin’s role in the alliance and those of its partners.
Alliance incumbents American, BA, Iberia and Finnair will like that their new partner has no bold international growth plans – airberlin’s current fleet and order backlog is overwhelmingly skewed towards short-haul, narrowbody types. This is the role the leaders’ will have earmarked for airberlin: to deliver strong regional and domestic feed for their long-haul services.
A still-unresolved point of contention must be the lack of airberlin’s presence at Germany’s major international airport and commercial centre, Frankfurt. While every oneworld member (with the exception of the non-operational Mexicana) operates into Germany, many of oneworld’s long-haul heavyweights, including American, Cathay, JAL, Qantas and LAN, operate only to Frankfurt. These airlines will be looking for extensive regional/domestic feeder network at Frankfurt: ideally a network that rivals Star Alliance’s at the airport. In this respect, while airberlin’s future membership will widen the alliance’s regional network, it remains to be seen how much it strengthens it. Given oneworld’s focus on the frequent business traveller, the (mostly leisure) destinations listed below are unlikely to add much value.
Air Berlin from FRA – Jul-2010 (summer)
Air Berlin from FRA – Jan-2011 (winter)
Fraport has noted airberlin’s absence at Frankfurt, and will be encouraging the airline to locate a hub in Frankfurt. Fraport CEO Matthias Zierschang has noted the strong “potential benefits from a oneworld hub in Frankfurt”, saying airberlin should refocus its operations on Frankfurt to better align with the long-haul operations of its partners. Airberlin has previously found gaining access to the Lufthansa fortress to be challenging. But with a fourth Frankfurt runway coming online in 2011, there will be spare capacity to absorb.
From ‘big three’ LCC to ‘big three’ alliance
airberlin has previously stated that joining an alliance is the logical next step in its development. But despite this step forward, the airline remains very much attached to its lower-cost, hybrid model background - determined to hold on to its lower cost base while chasing higher-yield passengers, a strategy seen in other former LCCs in mature markets elsewhere. Whilst seeing the benefits of "the growing trend for partnerships, globalisation and alliances" the airline is clearly wary of those the higher-cost airlines typically associated with alliance membership.
airberlin is an example of the growing convergence between full-service and low-cost airlines. oneworld members, interestingly, have often been at the forefront of this movement. With some large markets unserved by the alliance and the number of potential partners diminishing, oneworld members have been forging partnerships with higher-quality LCCs, most notably with JetBlue (American) and WestJet (American, Cathay, BA). Other hybrid airlines, including Virgin Blue and airBaltic, are also active in similar activities.
Throughout the integration process, BA CEO Willie Walsh has mentioned that airberlin’s cost structure is likely to give oneworld an advantage when competing against rival alliances in the region. He even mentioned oneworld members might be able to gains some tips about cost control from the airline. With major oneworld partners scrambling to keep a lid on costs, airberlin’s low-cost experience might just add more value to the alliance.