31 October 2010

Alliances… good or bad?

There is currently a spat going on between the airlines of the traditional variety and the airlines of the non-traditional variety. On the traditional airlines group are the likes of Air France, British Airways and several US airlines. They are complaining that Emirates is abusing its position and getting preferential pricing from the manufacturers such as Boeing via the US Government’s Exim Bank. The traditional airlines are now also very concerned that Emirates is going to start eating their lunch in a lot of markets. Indeed when you start to look at the order book from Emirates it becomes hard to imagine that the UAE Carrier is not going to take a significant chunk of world’s global traffic. In a few weeks they will announce a bumper profit – my sources tell me it will be quite pleasing to the cash strapped Emirate of Dubai.

But perhaps the traditional airlines are complaining long and loud for reasons that don’t always make sense. I have been looking lately at what the world is coming to in Airlines. The latest trend is merger in all but name aka the Marketing JVs. In my view these are back door mergers and are not really thought out well. What seems to be so incongruous is that supposed champion of the consumer the US government has been the biggest supporter in the merger process. The US DoT has effectively rubber stamped all the JV requests. Over the severe objections of its own Dept of Justice, the US DoT has approved these anti-trust immunity agreements: BA+AA and co, A++, TransPac Star and Inner Skyteam. What were they thinking! They are clearly anti-competitive. Just look at the fares.

As a direct result of these new JVs, I believe that Airline corporate management have moved further from the customer. Consider this. One of the key components of the JV alliance model is the move to local home airline serving all the alliance members in that geography. So that in the case of A++ (LH, UA, CO, AC) Lufthansa handles everyone in Germany and UA/CO handles everyone in the USA. The local market staff for LH have been fired, retired or reassigned. And vice versa. However this assumes that the JV has a strong team at the top who operate effectively a unique business. My friends – I can assure you that this is not behavior that we have seen from airlines. JV Alliances have pointed to the success of the KLM/Northwest JV that actually worked. However I think this was an exception rather than the rule. An alliance of equal partners worked because of a number of factors. Not least of which was the streamlined management structure and the ease with which the two players complemented each other. But not so the new batch.

The complexity of these arrangements is almost mind boggling in their complexity. Sadly in my view having experienced just about all of them from a consumer perspective – they do nothing to improve my travelling experience. In fact I would say that actually it has worsened the situation because remedial action out of your home market results in laughable service if you are trying to get service in the non-home market. Air France is not going to even give me the time of day when I as a Delta customer ask for help. Trust me this has not changed – its still awful.

I believe that the unwieldy management of the JVs will harm everyone’s brand involved in the JV. The service quality will fall all round. The responsiveness of the airlines to market conditions will worsen. The arrogance of some players will become acute. But perhaps the most perplexing part of all of this – is that the JVs are not going the whole hog. It seems that no one is asking the one question that would seem to be obvious. If the world falls now into effectively 5 airline types. Skyteam, Star, OneWorld, Pure LCCs and unaligned independents. So why do we need GDSs?

Now that’s a good question… anyone care to give me their answer?


(Image courtesy of the good the bad and the ugly)

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