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The travel adviser: Mysterious, murky meanderings of airline alliances
By MARK FELDMAN
11/01/2014
El Al, rebuffed and rejected by the alliances, reiterates that its ability to effectively compete with European carriers has been hurt because of their rejections.
 
The largest omission made on behalf of leisure clients, is failure to ensure they have frequent flier membership when they purchase a ticket.

This is because they believe they don’t fly enough to accumulate enough miles for a bonus ticket or because they fly a multitude of airlines.

Yet that is the reason that airline alliances exist. At its core, an airline alliance is an agreement between two or more airlines to cooperate on a substantial level. Historically, it began with “codeshare,” an agreement where two or more airlines share the same flight. Back in 1989, KLM (Royal Dutch Airlines) and Northwest (long ago merged with Delta) agreed to codeshare their flights. It kicked into high gear when the Netherlands signed the first open skies agreement. This gave both countries unrestricted landing rights on each other’s soil.

It took until 1997 for the Star Alliance to be formed; uniting Air Canada, Lufthansa, Scandinavian Airlines, Thai Airways and United Airlines. This exclusive club led to competing airlines to form One World in 1998; spearheaded by British, American Airlines, Qantas and Cathay Pacific. In June 2002, the last alliance, SkyTeam came into existence, a union by Delta, Air France, AeroMexico and Korean Air.

From little acorns grow mighty oaks and today the three alliances combined fly over 60 percent of the worlds’ passengers. The ability of an airline to join an alliance is often restricted by laws and regulations and subject to approval by authorities. Antitrust laws play a large role.

The desired benefits of an alliance should consist of an extended network; often realized though codesharing agreements. Potential cost reductions could result from sharing of sales offices, maintenance facilities and operational facilities, primarily the computer system.

Operational staff could also be curtailed in such areas as marketing and branding. The three alliances love to trumpet the traveler benefits. These can include: • Lower prices due to lower costs • More destinations within easy reach • More departure times to choose from • Shorter travel times as a result of optimized transfers • A wider range of airport lounges shared with alliance members • Faster mileage rewards by earning miles on several different airlines • Round-the-World tickets, enabling travelers to fly over the world for a relatively low price But don’t drink the lemonade so quickly. Airline alliances also create disadvantages for the traveler, such as: • Higher prices when all competition is erased on a certain route • Less frequent flights For instance, if two airlines separately fly more than once a day respectively on a shared route, their alliance most likely will fly less. My favorite example is between Amsterdam (KLM’s home city) and Detroit (a Delta hub). Today, only one airline flies nonstop between the two cities, Delta, with KLM opting to piggy back on the flights. The price for this monopoly route is thus 30% higher than flights of identical distances – say Paris to Detroit.

• Raising the barrier higher and higher with more and more restrictions to earn that elusive mileage ticket Proponents argue that limited co-operation in these alliances gives choice and raises standards. Opponents argue that these alliances are bullying monopolistic cartels and are reducing competition. Frequent fliers report that whereas earning and redeeming mileage tickets in the past was relatively easy, the obstacles today are far more complicated with a paucity of seats available unless reserved months in advance.

So what does this mean for the passenger? In principle, passengers are concerned primarily about three things: safety, price and product. The safety issue should be left out of the comparison between alliance and non-aligned airlines as airlines not aligned – El Al and Emirates are prime examples – have sterling security records.

I’m less convinced of their spurious argument that alliances allow airlines to lower their cost base and pass on those savings to passengers.

Espousing the contrary view are the executives at Emirates Airlines. They argue that alliances have undue influence over airports and in particular the allocation of valuable slots. This means that the barriers to new entrants in the airline market are raised even higher. In fact, eight out of the top 13 airports in the world have more than a 50% share by alliance carriers.

Significantly, the two airports where this is reversed are at Dubai – where non-aligned Emirates dominate – and Ben-Gurion Airport in Tel Aviv, where El Al holds a large lead over alliance affiliated airlines.

Thus, Emirates refuses to join any global alliance, stating that unless an airline is the lead participant in such an alliance; like Lufthansa in Star Alliance or Air France in SkyTeam, individual alliance members’ freedom of action is compromised.

El Al, rebuffed and rejected by the alliances, reiterates that its ability to effectively compete with European carriers has been hurt because of their rejections.

“Most carriers flying to Israel are part of a large international airline alliance,” the airline states. “El Al has been trying to become a member, but for obvious political reasons, has not been accepted. The fact that we are not able to join an alliance severely restricts our global operations and destinations served.”

Politics certainly plays a role in keeping El Al out of the global alliance. After all, Qatar Airways and Royal Jordanian are members of Oneworld. However, Israeli- Jordanian relations are fairly good and Royal Jordanian has been flying out of Tel Aviv for many years.

Saudi Airlines belongs to SkyTeam. But does El Al’s ostracism from this Holy Trinity merely have a political subtext or is there more to it? It would be safe to assume that when an airline is seeking membership, there should be a cost-benefit, that membership of any new airline enhances the alliance as a whole. El Al, while flying to dozens of cities from Israel with only a handful of codeshares, could in the same breadth be harmful more than helpful. El Al only flies six days a week, never on Jewish holidays and employs exhaustive and expensive security procedures.

In fact, I’d argue that El Al’s banishment from global airline alliances stems from a combination of reasons.

In the world of aviation, El Al is a tiny carrier and it’s challenging for other participants to see ways in which they substantially enhance an alliance. While El Al doesn’t offer a true hub and spoke system from Tel Aviv, the market is important for business and leisure travelers and while it would add value to any of the alliances, I don’t see the challenges being resolved anytime soon.

The largest market from Israel remains the United States. El Al’s lack of a meaningful alliance allows the Star Alliances airlines to gain and maintain market share on these profitable routes. Called the North American Alliance, it combines United Airlines, Air Canada, Lufthansa, Swiss, Austrian Air & Brussels Air in a myriad of flight combinations with hundreds of options available. Utilizing sophisticated computer models, these airlines have avoided antitrust issues by receiving European Union permission to match airfares and classes wreaking havoc on El Al’s ability to compete on the same level.

Consumers can fly to dozens of cities on their way to hundreds of cities in North America with no additional costs. El Al’s partners on her North American routes are limited to far less partners, American Airlines, WestJet and Jet Blue being the largest of them.

Unfair competition can be claimed by El Al. More curious is why One World’s members in Israel, Air Berlin, American, BA, Iberia and Royal Jordanian have failed to make any joint marketing a cornerstone of their aviation policy on flights to and from Israel? There is no doubt that airline alliances remain a contentious issue in the industry. The Irish carrier, Aer Lingus, elected to cease being a member in One World. US Air is moving from Star Alliance to One World on March 31 as part of its merger with American airlines and the stripping of her name sometime later this year. Vestiges of national control and pride still restrict carriers in full mergers or acquisitions.

The results, as we see are alliances. What will be interesting in the future is if these restrictions do lift as we enter an era of super-airlines and evolve into these mega-carriers themselves.

In conclusion, since only El Al requires a onetime membership fee to join their frequent flier program, it costs no capital to join an airlines frequent flier club; one should strive to do so and assiduously ensure they have a frequent flier number on all of their tickets. While there may be no such thing as a free lunch or free airline ticket, some benefit can be received.

Mark Feldman is the CEO of Ziontours, Jerusalem. For questions and comments email him at mark.feldman@ ziontours.co.il
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