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Premier Traveler Cracks the Airline Code

Curious About How to Make the Most of Your Ticket Purchase? Read on for a Thorough Breakdown of Airline Alliances and What They Mean

NEW YORK, NY -- (Marketwire) -- 10/11/12 -- Booking an airline ticket used to be easy -- no perks (except smoking on board, of course). But now with frequent flyer points, airline statuses, baggage fees, priority security clearance/boarding and sumptuous lounges on offer, how can anyone know how to make the most of it all?

At the center of all this confusion are airline alliances, first introduced just 15 years ago. But while cracking their code can be baffling, determining which one is best for you may not even be your choice.

Premier Traveler's features editor and award-winning reporter Janet Forman spoke with airline executives to dissect the major alliances (Star Alliance, SkyTeam and oneworld) -- along with the "young bucks" forging their own way -- to outline the pros and cons of these strategic partnerships. Read on to learn how airlines are making the most of these arrangements, and how that affects your travels in Premier Traveler's special report.

Click here for full story.

Premier Traveler, Special Report

Buddy Up

In today's crowded skies, no airline stands alone. Premier Traveler looks closely at airline partnerships and discovers why even competitors must sometimes be the best of friends.

The jumbo jet transformed travel in the 1970s, bringing air transport to the masses. The Internet changed the landscape again, letting us view, book and fly to remote corners of the world with a finger tap. A third innovation, less technological than commercial, also changed travel in a way that was both subtle and profound: the airline alliance. "Before alliances we had a world of major destinations, which didn't include the villages around them," recalls Michael Wisbrun, managing director of SkyTeam. "You did your business and took your holiday around the destinations of the airline on which you bought your ticket, and that was it. Now the connectivity created by alliances makes the Global Village real."

Codeshares were still a novelty in 1989 when KLM and Northwest picked up the idea, but by the end of the twentieth century business travelers needed more: to check in once for a long-haul multi-country flight, schedules coordinated to let them sleep soundly on the plane (not fitfully at the airport), access to a lounge where they could take care of business, then kick back with a cocktail until boarding at a nearby gate, and a sea of frequent-flier miles -- "What are those?" our Mad Men counterparts would have wondered -- in a few neat piles; stardust for a dream trip to come. In response, three massive alliances were born: Star Alliance in 1997, oneworld in 1999 and SkyTeam in 2000.

The alliances that now fly two-thirds of the world's consumer air traffic were formed to counter the aviation industry's unique constraints: "The airline business is different from other industries," explains Michael Blunt, corporate communications vice-president for oneworld. "International aviation is controlled by a network of treaties between governments, which makes it difficult for airlines to operate like businesses in other sectors; to buy each other out, to expand their brands, to gain international territories. While foreign automotive operators can manufacture and sell cars in the U.S., and petrochemical companies can explore in the Gulf of Mexico and sell Americans oil and gas, at the moment, if American Airlines, for example, wants to fly its customers between London and India with all the benefits that they enjoy when flying on their own planes, it needs likeminded partners to do so."

These days, regulatory systems are beginning to catch up with the realities of commerce. As more airlines receive bilateral agreements, freedom from the nationalistic system that governs international air services, and immunization from antitrust restrictions that prohibit monopolies, a constellation of arrangements between airlines has emerged. Moving far beyond traditional interline agreements that allow passengers to fly two airlines on one ticket, and codeshares, where airlines place their own codes on one another's flights (you've seen it on the departure board -- one flight with four different numbers from four different airlines), cooperation is even closer in alliances and joint ventures, or "JVs," in airline lingo. JVs can range from simple marketing agreements to intense collaboration on many fronts: from pricing to schedules, to "metal neutral" deals like the one between American Airlines and JAL, where the bottom line is shared no matter whose plane, or "metal," a passenger flies. Part ownership is another route: Right now the Abu Dhabi flag carrier Etihad owns 30 percent of airberlin, 40 percent of Air Seychelles, nearly 3 percent of Aer Lingus, and is cleared to increase its share of Virgin Australia from 6.1 percent to 10 percent. The playing field also shifts when airlines from different alliances merge: Witness SkyTeam's Continental moving to Star Alliance upon its union with United, and at year's end we'll know the landing spot for the new South American behemoth LATAM, oneworld's LAN combined with Star Alliance's TAM.

"If you assume that the alliances will change, you're right," declares SkyTeam's Wisbrun. "As the wishes of customers change, the alliances will move." In the future, he feels "scale won't be the priority." The quest to add more airlines to the roster, each with its own customs, corporate culture and IT system, will be replaced by better synchronization. SkyTeam's current effort to create seamless connections for the time zone-battered business traveler is SkyPriority, an idea they picked up from Delta: a distinctive logo and attentive ground personnel to speed Elite Plus, First- and Business-Class passengers through check-in, bag drop, security, boarding and baggage handling; even passport clearance, when governments allow.

As in many businesses, careful consolidation can streamline systems, which benefits the traveler as well as the airlines' bottom line. When airlines cooperate to fill seats, share check-in counters and standardize IT systems, costs go down for everyone: IATA studies show that passengers flying airlines with antitrustimmunized alliances save 27 percent over flying non-aligned carriers. Alliance carriers also pool resources for research and development.

Star Alliance members have been collaborating since 2008 to create a coach seat that is more comfortable, lighter, and less expensive to buy and maintain, with variable parts to accommodate different plane configurations and branding specs. Okay, they're still working on it -- seats will be delivered in late 2012, with the first aircraft in service by early 2013 -- but it's certainly a big step in the right direction. Star Alliance's endeavors on the ground are already paying off: Move under one Roof (MuoR) aspires to eliminate the Olympic-style airport sprint by bringing member airlines' check-in counters and gates closer together. Indeed, the first Star Alliance Integrated Terminal (SAIT, for acronym fans) is slated for 2014 at Heathrow Terminal 2. Star Alliance is also perfecting "through-check-in," or TCI, to let customers check in remotely for all legs of their long-haul international flights, with every boarding card delivered at the trip's start and bags checked through to the final destination.

"We are getting there step by step, as we continue to identify the kinks between the airlines' IT systems and government's regulation," says Anita Elste, Star Alliance manager of products and services.

As for the bewitching lure of frequent flier miles, now alliances and joint venture partners let travelers freely mix and match their accounts. A unified policy on upgrades, however, remains a Holy Grail.

Still, some airlines eschew the alliances. Low-cost carriers, or LCCs, don't wish to add all the bells and whistles alliances require, although a wave of new model hybrid low-cost carriers -- that's an HLCC -- such as airberlin, are adding services and moving under the alliance umbrella. At the other end of the spectrum, the three powerful Middle East carriers are "young bucks," growing so quickly they prefer to forge partnerships in their own ways, through codeshares, marketing efforts, and enhanced frequent flyer programs, such as Etihad's reciprocal "earn and burn" agreements with airlines that include American Airlines, airberlin, Air New Zealand and Asiana Airlines. And of course those equity purchases bring partners very close indeed.

While Aer Lingus made the decision to leave oneworld in 2006, they continue to work with individual members of the three major alliances, in addition to JetBlue Airways, whose terminal they'll share in 2013.

"We do recognize that we need airline partnerships to provide support to our network," notes Aer Lingus spokesperson Helen Maguire, "but we prefer the hybrid approach of choosing partners with a good brand-fit and network-fit, as opposed to having to embrace the whole team that comes along with an alliance."

The Virgin Group prizes its singular identity above all. "Virgin got into the airline business three decades ago to offer great value and a brilliant experience," declares Virgin Group founder Sir Richard Branson. "Today's travelers still choose Virgin for the same reason: because we do things differently." This year Virgin America, Virgin Atlantic and Virgin Australia fully linked their frequent flyer programs so members can fly to any Virgin destination around the world.

Still, Virgin America president and CEO David Cush is well aware that "the primary criteria most guests look at when evaluating an airline alliance is probably the reach of its network." So in the last six months Virgin America has signed more than half a dozen additional partners for a roster that includes Air New Zealand, Cathay Pacific, El Al, Emirates, Ethiopian Airlines, Singapore Airlines, South African Airways and Qantas.

Yet even as the alliances grow and mature, one distinctive airline, El Al, has not yet found its place. "We want very much to join one of the alliances," maintains Danny Saadon, vice president of North and Central America, "but so far we have not been successful. I think it would be a big advantage for us: An alliance would open a lot of new routes we can't ticket today, which would make life much easier for our customers." El Al has codeshare and interline agreements with several airlines, exchanges frequent flyer points with American Airlines and claims over a million frequent fliers of its own. "But these days you're not competing against one airline, you're competing against a whole alliance with twenty partners, so we have to be very creative and come up with bright marketing ideas every day."

Cumbersome as they may appear on the surface, these massive alliances can make the airlines more nimble and responsive. Adding destinations by selling seats on a partner's aircraft is far more cost-effective than developing new routes far from home; small airlines benefit from brand recognition of larger ones; and all airlines can learn something from one another. So if air travel appears ever more complicated these days as airlines sprout, merge or sometimes fall by the wayside, the alliances have their work cut out: to simplify, to provide a fallback position when plans go awry and, in that perfect world, to provide a comfortable lounge with powerful Wi-Fi right near the gate.

Alliances at a Glance
Business travelers don't really choose an airline alliance: In practical terms, an alliance chooses you, according to your home base and most frequent ports of call. When you do have a choice, you won't find the kind of rating system that works for hotels, restaurants or wines. Each alliance wins its share of awards and each has "white spots" -- places where service is sparse -- balanced by regions where the network is dense. All three are keen to expand in fast-growing economic regions -- Latin America, Asia, the Middle East -- and all three have major hubs in North America and Europe. What follows are notes on each alliance -- statistics, new developments, cultural sidelights -- that may be of some use when choosing a flight, but will likely have more impact on cocktail party conversation.

  • Star Alliance - The oldest, formed in 1997, and largest by a good stretch, with 27 members serving 1,356 destinations in 193 countries. Boldface airlines include United and Air Canada in North America, Singapore Airlines and Asiana Airlines in Asia, Lufthansa in Europe, and South African Airways in Africa. Airlines serving lesser-known spots are Adria Airways in Slovenia, Blue1 in Finland and Aegean Airlines in Greece, with Shenzhen Airlines and EVA Airways coming soon. Beyond the charitable and cultural programs of its member airlines, Star Alliance's own initiatives include: Biosphere Connections, to promote environmental sustainability; the China Advocacy Program, to build communications with Chinese business travelers; Meeting of Minds, to highlight the work of young entrepreneurs; and Undiscovered Business Entrepreneurs, to focus on breakthrough business concepts around the world. staralliance.com
  • SkyTeam - The midsized alliance, founded in 2000, has 18 members, serving 993 destinations in 186 countries. Its anchor members include Delta Air Lines in North America, Air France-KLM in Europe and Korean Air in Asia. It now blankets China with three airlines -- China Airlines in Taiwan, China Eastern Airlines out of Shanghai and China Southern Airlines in Guangzhou, with Xiamen Airlines coming on board shortly. Two airlines represent the Middle East: Lebanon's Middle East Airlines and Saudi Arabia's Saudia Airlines, while Kenya Airways links Africa. From South America, Aerolíneas Argentinas has just joined, and Indonesia's Garuda is scheduled to become a member in 2013. skyteam.com
  • oneworld - Founded in 1999, the smallest alliance by just a few strokes has 12 members, who serve 810 destinations in 149 countries. American Airlines covers North America, British Airways is the big name in Europe, Cathay Pacific and Japan Airlines are the Asia hubs, Qantas covers Australia, S7 serves destinations in Russia and Royal Jordanian brings passengers to the Middle East. oneworld.com

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