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The Power of Airline Alliances

December 15, 2009 By: George Dooley Travel Agent

American Airlines and its Oneworld alliance are offering Japan Air Lines (JAL) a deal worth more than $1.8 billion, a top American official said this week in a report filed by the Dallas Morning News. The move counters a comparable offer from Delta to get JAL to join the competing SkyTeam alliance.

American’s move – and Delta’s - is a dramatic illustration of the new importance embattled airlines are placing on their global alliances. Alliances may be the keys to the airline’s survival and will have a great impact on travel agents and the traveling public.

Alliances – the three majors are Oneworld, SkyTeam and the Star Alliance – impact member airlines operations including scheduling, access to destinations and frequent flyer programs. There are also economies of scale and opportunities to share facilities. Alliances can become brands for business travelers.

And in an era of global competition, the Alliances give members market advantages, especially for business and corporate travelers seeking “seamless” services and travel incentives and rewards. In short, alliances make economic sense when the airlines need it most.

With good reason ASTA has questioned the pending decision of the Department of Transportation’s proposed antitrust immunity for the Star Alliance airlines (Air Canada, Austrian, bmi, LOT, Lufthansa, SAS, Swiss, TAP and United) plus new member Continental Airlines.

Joined by the Interactive Travel Services Association (ITSA), ASTA said it was  alarmed that the Department would permit “huge airlines to combine their bargaining power against both traditional and online travel agents, which have brought transparency, innovation, and lower fares directly to consumers.”

“If finalized, this broad grant of immunity could be used to undermine independent travel distributors, which are critical to promoting airline competition and consumer welfare. The result will be fewer choices and higher prices for consumers. In the face of unprecedented airline consolidation and demands for extraordinary protection from the antitrust laws, the federal government needs to be more vigilant, not less, in protecting the traveling public."

American clearly wants JAL to remain in its Oneworld alliance rather than shifting its loyalties to Delta Air Lines and its competing SkyTeam alliance. JAL itself is dealing with serious problems of liquidity despite the growth of the Asia-Pacific markets. A strong JAL is an asset and waivers from U.S. antitrust laws would allow them to set prices and offer other advantages.

The competition for JAL is fierce. Its outcome could change the balance of power among the Alliances and partners.  Most of the world’s major airlines are now in an Alliance or an estimated  60 percent of the world's commercial air traffic. The combined marketshare of the  three alliances is around 80 percent and 24 of the world's top 25 airlines by passenger count have joined or are in the process of joining an alliance, according to David Grossman in USA TODAY.

Oneworld brings together some of the best and biggest names in the airline business, including American Airlines, British Airways, Cathay Pacific, Finnair, Iberia, Japan Airlines, LAN, Malév Hungarian Airlines, Mexicana, Qantas and Royal Jordanian, and around 20 affiliates including American Eagle, Dragonair, LAN Argentina, LAN Ecuador and LAN PeruRussia's S7 Airlines will join the alliance in 2010.

Oneworld reports that between them, these airlines serve almost 750 airports in nearly 150 countries, with some 8,500 daily departures and carry some 350  million passengers a year and generate some $100 billion annual revenues in total.

Competing SkyTeam is a global airline alliance with  nine members, Aeroflot, Aeroméxico, Air France, Alitalia, China Southern, Czech Airlines, Delta Air Lines, KLM Royal Dutch Airlines and Korean Air, and two associate airlines: Air Europa, and Kenya Airways. SkyTeam offers its 384 million annual passengers a worldwide system place to work, invest and do business.

Whatever the results of the battle by American and Delta for JAL,  airline alliances will have to be watched carefully by travel agents, the airline dependent industry and the traveling public.

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