Airline Consolidation and Alliances

While European airline mergers, such as Air France-KLM and Lufthansa-Austrian, have been a dominating feature of past consolidation in the airline industry, the recent global economic downturn, the spread of LCCs and rising oil prices has stimulated more widespread mergers and alliances as airlines attempt to cut costs and improve competitiveness.  Recent mergers include:

• Delta Air Lines with Northwest Airlines (both were members of the SkyTeam Alliance). The merger commenced in October 2008 and is now complete with Northwest fully integrated under the Delta name).
• British Airways with the Spanish carrier Iberia under the International Airlines Group (IAG) holding company. The two airlines retain their own brands (both are members of oneworld).
• China Eastern Airlines with Shanghai Airlines.  As a result of the merger Shanghai Airlines has left the Star Alliance, and has joined SkyTeam along with China Eastern.
• United Airlines with Continental Airlines under the United Continental Holdings holding company (both airlines are members of the Star Alliance).
• Most recently, LAN (a member of oneworld) has announced a proposed merger with TAM (a member of the Star Alliance).

Joint business agreements have also been featuring in the industry, with individual airlines continuing to operate as separate entities with separate fleets, employees and brands while sharing revenue, co-ordinating networks and schedules and co-operating commercially on routes.   Recent ventures include: 

• A Joint Business Agreement (JBA) between American Airlines and Qantas has recently received authorisation from the Australian Competition and Consumer Commission (ACCC). The airlines will coordinate operations on services between Australia/New Zealand and the United States (the trans-Pacific routes), and on their respective services which support the trans-Pacific routes
• American Airlines has formally launched a joint business with oneworld partners British Airways and Iberia, allowing the airlines to co-operate commercially on trans-Atlantic flights between the EU, Norway and Switzerland and the USA, Canada, Mexico and USA territories.
• Japan Airlines and American Airlines (both oneworld members) recently commenced their joint business, based on revenue-sharing on applicable trans-Pacific flights (and follows finalisation of the US-Japan Open Skies Agreement).
• Star Alliance members United Airlines/Continental Airlines and All Nippon Airways have received approval for their transpacific partnership enabling the carriers to execute a trans-Pacific joint venture under which they intend to jointly develop flight schedules and sales activities.

The establishment of strategic alliances are a further means for airlines to extend market penetration (without requiring financial links): 

• Virgin Australia, for example, is not currently a member of a global alliance, but has entered into strategic alliances with Air New Zealand (a member of the Star Alliance), Delta Air Lines (SkyTeam), Singapore Airlines (Star Alliance) and Etihad Airways. 
• Jetstar has a fare agreement with members of oneworld, the first time that a carrier which is not part of the alliance is being added to the oneworld-branded fare packages. The agreement covers flights operated by the Jetstar and sold under its code-share arrangement with oneworld member Qantas. 

At the same time global airline alliance membership has been growing, with the alliances recruiting new members to extend their geographic coverage and boost passenger benefits.  In 2003 the three main alliances combined had 29 member airlines; full membership now numbers 51 airlines (plus 22 affiliates/associates).

(1) As at October 2011.  (2) As at September 2011. * Mainline Fleet.  (3) As at August 2011.

The global airline alliances continue to look towards the growth markets in Asia and Latin America to boost network coverage, particularly the emerging markets of China and India. 

• The Star Alliance dominates in terms of Asian carriers.  All Nippon Airways, Korea’s Asiana, Singapore Airlines, Thai Airways International and Air China are all members. Shenzhen Airlines is joining. Shanghai Airlines terminated its membership of the Star Alliance at the end of October 2010 following its merger with China Eastern. Plans for the integration of Air India into the alliance have been suspended. 
• SkyTeam has Korean Airlines, China Airlines, China Southern Airlines, Vietnam Airlines and China Eastern Airlines (together with Shanghai Airlines) as members.  Garuda Indonesia and Xiamen Airlines are future members. 
• oneworld has Japan Airlines and Cathay Pacific Airways as full members and Dragonair as an affiliate. Malaysia Airlines and India's Kingfisher Airlines are joining.

China's three largest carriers have now all joined one of the global alliances: Air China is a member of the Star Alliance, while SkyTeam has China Southern and China Eastern as members. Shenzhen Airlines proposes to join its parent company, Air China, as part of the Star Alliance.  China's fifth largest airline, Xiamen Airlines, is joining SkyTeam.  oneworld's connection in China is via Hong Kong based Cathay Pacific.

The three alliances all support hub operations at Tokyo - the Star Alliance through All Nippon Airways, Skyteam through Delta/Northwest and oneworld through JAL. JAL was recently at the centre of a major alliance tussle between oneworld and Skyteam following its slide into bankruptcy in January 2010, but has since reaffirmed its membership of the oneworld alliance.

SkyTeam is strengthening its presence in the Middle East having signed up Saudi Arabian Airlines and Air Liban (MEA) as future members.

Earlier developments included the first “alliance switch” as Continental moved from SkyTeam to the Star Alliance, and the departure from the main alliances of the restructured airlines, Aer Lingus and Varig. Aer Lingus subsequently announced an industry-first strategic partnership linking low-fare networks with JetBlue Airways.
More recently SkyTeam's new membership program fully integrates all members. Air Europa, Kenya Airways and new member TAROM are now Member airlines rather than Associates.

The alliances are an important factor in airline development with members generating marketing and operational benefits. Frequent flyer programs and integrated route networks are amongst the benefits evident to alliance customers. Airlines not flying particular routes can offer their customers extended network benefits through alliances. Representation of airlines from the major airline alliances is considered to generate positive marketing benefits for airports. Events such as September 11, and the Global Financial Crisis, accelerate rather than create trends towards consolidation.
 
The following table lists the latest world airline alliances and their memberships:  

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