Airline alliance

An airline alliance is an agreement between two or more airlines to cooperate for the foreseeable future on a substantial level.

The degree of cooperation differs between alliances.

Table of contents

1 Benefits/Costs 2 Hurdles to take 3 Global players

Benefits/Costs

Benefits might consist of:

• An extended and optimised network
  This is often realised through code sharing agreements. Many alliances started as only a code sharing network.

• Cost reduction
  This might include sharing of
  • Sales offices
  • Maintenance facilities
  • Operational facilities, e.g. catering or computer systems.
  • Operational staff, e.g. ground handling personnel, at check-in and boarding desks.
  • Investments and purchases, e.g. in order to negotiate extra volume discounts.

Benefits for the traveller might be:

• Lower prices due to lowered operational costs for a given route.
• More departure times to choose from on a given route.
• More destinations within easy reach.
• Shorter travel times as a result of optimised transfers.

Disadvantages for the traveller might be:

• Higher prices when all competition is erased on a certain route.
• Less frequent flights, for instance when two airlines fly each three times a day on a given route, the alliance might fly only four times on the same route.

Hurdles to take

The abilities for airlines to form an alliance are often restricted by laws and regulations or subject to approval by authorities. Anti-trust laws play a large role. Sometimes political quid pro quo between governments is at hand.

Also landing rights may not be owned by the airlines themselves but by the nation in which their head office resides. If an airline loses its national identity by merging to a large extent with a foreign company, existing agreements may be declared void by a country which objects to the merger.

The first large alliance which is still functioning started in 1989, when Northwest and KLM Royal Dutch Airlines agreed to code sharing on a large scale. A huge step was taken in 1992 when The Netherlands signed the first open skies agreement with the United States, in spite of objections uttered by the European Union authorities. This gave both countries unrestricted landing rights on each others' soil. Normally landing rights are granted for a fixed number of flights per week to a fixed destination. Each adjustment takes a lot of negotiating, often between governments rather than between the companies involved. The United States was so pleased with the independent position that the Dutch took versus the E.U. that it granted anti-trust immunity to the alliance between Northwest and KLM. Other alliances would struggle for years to overcome transnational barriers or still do so.

Global players

The four largest alliances are:

	Star Alliance	oneworld	SkyTeam	Northwest/KLM Royal Dutch Airlines/Continental
Passengers per year *	112 million	85 million	56 million	68 million
Market share *	23%	17%	13%	11%
Participants	Air Canada Air New Zealand ANA Austrian Airlines British Midland Lauda Air Lufthansa Mexicana Scandinavian Airlines Thai Airways International Tyrolean Airways United Varig Brazilian Airlines	Aer Lingus American Airlines British Airways Cathay Pacific Finnair Iberia LanChile Qantas Swiss International Airlines	Aeromexico Air France Alitalia CSA Czech Airlines Delta Korean Air	Continental KLM Royal Dutch Airlines Northwest
external link	star-alliance.com	oneworldalliance.com	skyteam.com	no dedicated site

* = source IATA / september 2002 

As the table shows the four alliances together fly 64% of all passengers travelling each year.

Note: market share and number of passengers are quite unrelated. Long haul international flights are much more profitable than shorter national flights (where competition often is even stronger). Freight transport is also a major contributor to profits.