Thursday, July 25, 2024

Wooing India, A Must For The Major Airline Alliances

By Bikram Vohra 

Bikram Vohra, Consulting Editor

The concept of alliances between different airlines was probably inspired by the nautical convention of linking shipping organisations with one another. In 1997, about 70% of the services on the main East-West trades were supplied by the four main strategic alliances. As of 2020, three alliances are operational globally: 2M, Ocean Alliance, and THE Alliance

The standard explanation of the way it works is: Ocean alliances are groups of ocean freight carriers who agree to pool their respective fleets of vessels, to extend their geographic coverage and service offerings. Ships at sea and at anchor as well as mega ports benefit in the form of better allocation of resources, reduced operational costs, expansion of service coverage, and optimisation at all levels, which in the end contributes to better economies of scale.

In pretty much the same fashion there was a realisation that airlines could add exponentially to their efficiency and reach if they created a club of like-minded carriers. The first airline alliance was formed in the 1930s, when Panair do Brasil and its parent company Pan American World Airways agreed to exchange routes to Latin America. Star, the biggest, was formed in 1997.There are three major airline alliances Star Alliance, oneworld and SkyTeam, each made up of different carriers which determines what routes and options are available for their respective Round the World airfares.

Members of airline alliances work together to share everything from flight routes to airport lounges, ground crews, and even their booking systems. An alliance benefits the airlines financially, but it also helps travellers by providing routes to more places in the world without you having to book separate flights. This is the single largest advantage and saves time. It also allows the passenger the convenience of a seamless journey despite his stops. Without such alliances a passenger would have to triplicate his efforts to connect and miss the passed over rewards and advantages including air miles. Add to this the advantage of extended partner routes and you get a much richer choice of city pairings.

Image: Copyright to ISBInsight

Since alliances are dynamic by nature and need to adjust to conditions the buffeting by Covid has called for a revitalisation. The old global map is being swiftly redrawn, and the smart alliance is one that looks at the chart and says, we need new members who will keep us up to date and abreast with new city pairings and routes, especially in the long haul category. 

One of the major potential players that we can safely assume will be wooed soon is the Indian carriers. Poised for a hurtling double-digit growth and now strengthened by the inclusion of two more airlines the three major alliances could become competitively chummy.

At present Air India is in an alliance with Star. However, while Star would not be remiss in seriously considering Vistara and IndiGo in their respective segments. Between the Indian diaspora of 37 million and a nation of a potential 300 million aspirants to flying what is there not to like? The arrival of Jet as a full service option and Asaka as an Ultra Low Cost carrier it is sure to spark a huge amount of interest in even the other major airline clubs.

Vistara already has a daily service into London and would like another besides seeing European terminals as a high priority.

Indigo is now the seventh largest entity by way of capacity. It holds slots at Heathrow and its access to Gulf countries is mouthwatering even as it wants more. With its plan to order 332 A320neo aircraft and 398 A321neos this massive build up would make it an asset to any alliance.

If Jet picks up speed and takes off as one hopes, it may take some time. Many of its priceless domestic slots were gobbled up by the local competitors, even leading to rather shoddy squabbling.

Spice Jet with its business class add on is also a contender though not in the Indigo league. It enjoys a prestigious partnership arrangement with Emirates and is tenacious in its corporate desire to widen its scope. In 2018, it was seriously considering a strategic tie up with a US airline.

Pretty much the same way in which Go Air has been viewing such strategic partnerships with a foreign airline as a catalyst to consolidate its presence in the Indian market and give its international presence a boost. Having said that, Go is not very keen to join any of the big alliances.

Herein lies the delicious ironies. While there is this unspoken belief that a request from an alliance will immediately spark celebrations, the Indian fleet is not that exercised.

The reasons are its unique identities, the current comfort zone, the brightness of the future, pandemics notwithstanding and ambitious expansion plans and investments that would need to be revisited if any of them integrate into a big brother alliance. Suddenly, you are being dictated to by a completely new set of rules, not always to your liking.

There are also a few other concerns. We all know the upside and as ICAO has been quoted: Alliances between airlines have become a dominant feature in air transport, and a new global phenomenon unfolding relatively quickly through multiple collaborative business arrangements. Alliance agreements took different forms and included various elements of code-sharing:

  • Share fixed costs and resources.
  • Enlarge your distribution channels.
  • Broaden your business and political contact base.
  • Gain greater knowledge of international customs and culture.
  • Enhance your image in the world marketplace. (Laurel Delaney, 2017)

Then comes the downside. As far back as 2013, ICAO listed some strong-arming tactics that go vividly into creating an uneven playing field. 

  • Alliances may not respect antitrust rules. They can result in the exclusion of some companies from the market, and violation of fair competition standards.
  • Due to their control of many key points and their competitive and marketing powers, alliances could lead to the collapse of some companies that have to compete as low-cost companies. They are bullied out of the yard.
  • Alliances have grown dramatically, making their partnerships increasingly complex. (Icao.int, 2013)

One of these complexities is the pressure of breaking up the billing with IATA acting as the clearing house for its member airlines. The pressure increases by the day.

In addition, the culture for every airline is different and finding common ground and purpose including attitude and service ambience is not easy. In a paradox, the competition for the major alliances is coming from the ULCCs and LCCs who are cutting into the full-service cake.

Perhaps the next big step for the top three is to start making best friends with these lean mean no frills you get what you see carriers.


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