Have Indian Carriers Missed the Boat on Alliance Membership?

It has been a very turbulent few weeks for oneworld alliance. A few weeks ago, Qantas and Emirates announced a close cooperation agreement for Australia-Europe traffic. Then, earlier this week, it was announced that Etihad, Air Berlin, and Air France-KLM are entering a cooperative agreement. Air Berlin is also a oneworld member, but it appears that it, along with Etihad, are actually lining up more with SkyTeam Alliance members. Then, later on the same day, it was announced that Qatar Airways is joining oneworld alliance, in cooperation with British Airways.

What can clearly be seen from these 3 moves is that oneworld is splintering, with each of the three Gulf carriers pulling their preferred partners in different directions. It is showcasing the new paradigm which will appear over the next few years – individual carriers will closely align with other carriers which suit their needs best, instead of focusing on which carriers will suit the alliance best.

“Oneworld is secondary [for Air Berlin],” Etihad’s CEO James Hogan was quoted as saying recently. Etihad took a ~30% stake in Air Berlin some time back.  Instead, Air Berlin will focus on creating synergies and aligning networks with Etihad, Air France, and KLM, despite the fact that none of the carriers mentioned are fellow oneworld partners.

Similarly, Qantas has aggressively been pursuing a strategy of aligning with partners which are most valuable. With service to Africa, the airline has for years worked with South African Airways, despite the fact that they are in different alliances. With the new agreement with Emirates, oneworld partners will become secondary for services to Europe.

A similar phenomenon can be observed in other alliances as well. Delta Air Lines has aligned with Virgin Australia on USA-Australia sectors, despite not being alliance partners.

In every alliance, the core group of partners has gotten anti-trust immunity and agreed to lucrative joint ventures* on trans-atlantic sectors, pushing the concept of metal-neutrality. Metal neutrality is where carriers find it equally profitable for a passenger to be carried on its aircraft or its competitor’s aircraft, allowing better utilization and fleet planning. Delta Airlines operates a variety of services from the USA to Paris and Amsterdam from non-hub cities because it has a better cost profile and aircraft for those specific missions.

*An interesting read on the advantages of joint-ventures can be found here.

Star Alliance has taken joint ventures even further – United, Lufthansa Group, and All Nippon Airways all have joint ventures with each other, forming a core group of partners which strengthens the alliance and keeps it together.

But the alliance is not an imperative part of any of this – carriers are perfectly capable of creating bilateral partnerships to suit their own needs. Removing alliances is removing an unnecessary middleman which simply adds costs and complications. And as alliances get larger and more unwieldy, they will reduce in importance – carriers will focus more on their individual goals.

This splinter in oneworld is the beginning of the end of alliances as we know them…

***

While these events were happening on the other end of the globe, Civil Aviation Ministry Ajit Singh was busy drafting a letter begging for Air India to be granted entry into Star Alliance. Indeed, there were some decent points about how Lufthansa took advantage of benefits given for being partners with Air India without returning the expected favor, but it is quite honestly irrelevant at this point. The 2000s was the decade of the alliance, and Air India is desperate to get in on that action, just as it is coming to an end. And let’s not discuss Jet Airways, which has sent so many mixed signals that we have to wonder whether they will ever get around to that love affair with Lufthansa which they profess to desire.

Jet, at least, has developed some kind of strategy regarding airline partners. They are willing to partner with practically everybody, from bmi to Barista Lavazza. The carrier has thrived on the business of feeding other carriers’ operations from India, and therefore they are eager to codeshare with every airline possible – it increases the route network and potential market without Jet actually having to fund expansion.

Air India, on the other hand, has relatively few partners. Mileage in Flying Returns, the frequent flyer program, can only be accrued on two partners – Lufthansa and Singapore Airlines. The carrier has blindly pursued Star Alliance membership and all the potential partners without evaluating further possibilities. And indeed, that may be one of the reasons why Air India has such limited support from within Star Alliance – they are only (very loosely) aligned with two carriers out of a group of 28! Then, there was the proposed cooperation with Adria Airways and a scissor hub in Ljubljana which they spent far too much time considering, but I won’t go there…

One has to wonder why Jet Airways and Air India aren’t actively pursuing deeper cooperation with strategically important partners instead of sitting back and waiting for potential alliance membership to solve all their problems. Share your thoughts in the comments below.

SriLankan Airlines To Join OneWorld

Sri Lanka’s national carrier, SriLankan Airlines, has been announced as a member-elect of oneworld alliance. This comes on the heels of the government initiating a restructuring plan which includes capacity growth and rationalization, including the addition of 9 aircraft.

The carrier has steadily been growing over the last few years, following the end of Sri Lanka’s civil war, due to the corresponding economic growth. It announced that it was interested in joining an alliance multiple times over the last few years, as part of its strategy for growth.

SriLankan is not a typical member for oneworld. It is not very large or well known, and its brand is not very prestigious. This is contrary to oneworld’s general strategy of targeting airlines known for their quality. Despite serving 34 destinations in 22 countries, SriLankan only adds 3 destinations to the oneworld network – Kochi, Trivandrum, and Tiruchirappalli.

After taking a hit in the Indian market earlier this year when Kingfisher Airlines’ membership got suspended, oneworld is clearly looking to increase Indian presence with the addition of SriLankan. The carrier brings increased connectivity to many Indian cities, and can offer competitive connections for oneworld members. Colombo is a convenient connection point to India from any city in the world. In comparison, cities currently served by only by British Airways, for example, are only accessible from Europe and North America through the oneworld network.

SriLankan’s entry into oneworld will be sponsored by Cathay Pacific, one of 2 oneworld carriers who serve SriLankan’s hub, Colombo. The other oneworld carrier which serves Colombo is Royal Jordanian. Member-elect Malaysia Airlines also serves Colombo, and SriLankan has a codeshare agreement with them. SriLankan is also persuing codeshare agreements with Royal Jordanian, Cathay Pacific, and S7 Airlines (SriLankan serves Moscow, their hub).

A timeframe for ascension to the alliance has not been officially set. A 2014 entry into the alliance is expected.

Kingfisher Airlines’ OneWorld Membership Deferred, Suspended From IATA Clearing House

 

A Kingfisher Red Aircraft Falling Apart – Parked At Delhi; Photo Credit: Sankaps

There has been a lot of coverage on this blog about Kingfisher Airlines’ financial woes, like this post

, this post

, this post

, and this post

. Now, Kingfisher Airlines has had a rough enough couple of days to warrant yet another post on the topic. Yesterday, it was suspended from the IATA clearinghouse. Today, it was announced that oneworld alliance is deferring its application until it can get its financial side in order. These are massive blows to Kingfisher from which it won’t recover easily from. 

Kingfisher Red A320 Falling Apart In Delhi; Photo Credit: Sankaps

Yesterday, it was announced that Kingfisher Airlines has been suspended from the IATA Clearing House due to non-payment of debts. The IATA Clearing House is the way that airlines do interline and service transactions with each other. Kingfisher Airlines being suspended means that other airlines have to deal directly with Kingfisher to get payment for tickets issued by Kingfisher. That means that other airlines will find it very difficult for other airlines to accept tickets issued by Kingfisher. This will certainly have an adverse effect on Kingfisher.

However, the bigger problem for Kingfisher is the fact that their membership with oneworld is being deferred. As I explained:

Joining oneworld will help the airline in many ways. Kingfisher’s King Club frequent flyer program will be fully integrated with other oneworld partners. Earning and redeeming miles will be possible on any airline throughout the alliance, and status will be recognized by all carriers. This is expected to bring a significant number of passengers to Kingfisher from other domestic airlines, as many people want to earn miles and have their status recognized. In addition, Kingfisher will gain interline and ticketing agreements with all other oneworld partners. This means that tickets from other alliance airlines will use Kingfisher for domestic segments  over competitors. Currently 7 oneworld airlines serve India. These airlines will provide feed for Kingfisher’s operations.

 

Kingfisher Will Not End Up Joining This Group Of Carriers Soon After All; Source: Kingfisher Airlines

 

All of these advantages are gone with this one decision. Kingfisher will not get the loyalty of oneworld elites flying to and within India. This will hurt Kingfisher’s load factors and revenue significantly. With the cash crunch that Kingfisher is facing today, that pain will not be easy to deal with.

Kingfisher is second airline in India to have its entrance to an alliance deferred. Air India had the same issue last year with Star Alliance. Some have been saying that the Airlines of India are jinxed, and will never be able to join an alliance. Perhaps they are right…

This decision also came on the same day that another oneworld member, Malev, ceased operations. A post about Spanair and Malev ceasing operations will be posted early next week.

Why LATAM Is Practically Guaranteed To Join OneWorld Alliance

Almost a year and a half after Chile’s LAN Airlines and Brazil’s TAM Airlines announced that they planned to merge, they have finally been approved by the aviation regulators in Brazil and Chile. Shareholders of LAN have also agreed to the merger.

LAN is a member of oneworld Alliance, as it has been for over a decade. It has strong ties with many oneworld airlines, especially American Airlines and Iberia. Many of its traffic flows are optimized for oneworld connections. There is no doubt that oneworld is an important part of LAN’s strategy. Luckily for LAN, oneworld’s strategy for South America depends on LAN. Without LAN, oneworld would be pitifully weak in South America. This means that oneworld will likely sweeten the deal quite a bit to try to retain LATAM (the planned name after merger).

In contrast, TAM is a recently joined member of Star Alliance. It joined mere months before the merger was announced. It would not surprise me if joining Star Alliance was just a way to attract LAN for the merger. Its ties with Star Alliance members have not had the time to mature, so it is not as dependent on alliance traffic as LAN is. While TAM doesn’t really need Star Alliance that badly, Star Alliance still wants LATAM. The combined airline is focused to have over 60% of market share in South America, and every alliance wants that kind of coverage. That said, losing LATAM wouldn’t be as devastating for Star Alliance as it would be for oneworld. Avianca Airlines, TACA Airlines, and Copa Airlines all are in the process of joining Star Alliance, and all of them have reasonable connectivity in South America. In addition, Star Alliance has TAP Portugal as a member. TAP serves numerous destinations is Brazil, keeping some semblance of connectivity for Europeans and Asians to Brazil.

A major factor in the alliance decision is the restrictions that regulators put on the combined airline. Chile’s anti-trust regulator, the TLDC, approved the merger in September 2011. It placed 11 conditions on the merger. The majority, such as divesture of slots and restrictions on service to Santiago, have no bearing at all on the alliance decision. The TLDC declared that LATAM must be in a single alliance – it cannot be split between oneworld and Star Alliance. In addition, it declared that LATAM cannot join an alliance that Avianca-TACA is a member, or in the process of joining. The decision also decided that LATAM cannot have any codeshares with airlines outside the alliance, but that condition is being appealed.

There is no doubt that this decision heavily favors oneworld over Star Alliance. For one, the decision mandates that LATAM cannot join Star Alliance as long as Avianca-TACA plan to join the alliance. It would be ludicrous for Star Alliance to rescind their invitation from Avianca-TACA just so that they might be chosen by LATAM. And that might is extremely unlikely, considering LAN’s close ties with oneworld airlines.

Brazil’s anti-trust regulator, the CADE, imposed a completely different set of conditions. The only one which affects alliances is that it mandated that LATAM join an alliance which is is already part of. This means that SkyTeam has no chance to pick up LATAM.

TAM’s switch from Star Alliance to oneworld would change alliance dynamics in South America drastically. oneworld will control the majority of long-haul traffic to and from South America. Star Alliance will only have Avianca-TACA and Copa to cover South America, while SkyTeam will be in worse shape with only horribly managed Aerolineas Argentinas to cover South America. oneworld is in an excellent position to take over South American market share. Of course, it is important to never say never when it comes to the aviation industry. There is always a chance that LATAM will join Star Alliance or the merger will fall through. But it seems pretty certain that oneworld will be the final destination for LATAM in the end.