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Perspective on industrys-shaping developments

Airline joint ventures, alliances becoming more commonplace | April 2012

While the airline industry remains a highly competitive market, more and more airlines around the world have been finding ways to work with one another via joint ventures (JVs) and alliances, for their mutual benefit and to ensure their long-term viability.

The alliance landscape that is now considered commonplace in the travel industry is actually relatively young: the three major global alliances – Star Alliance, SkyTeam, and Oneworld – each were created in the past 15 years. Since then, more than 50 individual airlines have partnered with one of these alliances, and more are being added continually. Today, these three alliances account for more than 60 percent of total passenger traffic. It is due to this increased activity that the CWT Solutions Group provides the below updates and recommendations to assist travel buyers when working with airlines in an alliance or JV capacity.

Understanding the difference
Apart from the basic naming classifications, in practice it can be difficult to determine the difference between airline JVs and alliances, especially because they can be structured differently around the world, and because the many existing partnerships vary in terms of maturity, sophistication, and transparency to the buyer.

The focus for airlines in an alliance is to combine their respective footprints to create expanded global networks, to align schedules for maximum efficiency, to engage in some combined marketing efforts, and in some cases, to share revenue. Conversely, airlines participating in a JV are aligned quite closely as part of a narrower relationship that includes fewer total carriers. Some JVs consist of just two carriers, whereas others are slightly broader, such as the Delta-Air France-KLM-Alitalia JV. Many JVs choose to concentrate on specific markets, such as Delta-Air France-KLM-Alitalia’s emphasis on transatlantic routes, allowing Delta to promote nearly 250 daily flights to nearly 500 destinations on its homepage – something it could not do without leveraging the network of its JV partners. The same is true of Air Canada-Lufthansa-United Airlines's "Atlantic Plus Plus" JV.

JV partners often share revenue as well as costs, and may fly under a shared operating certificate, making the partnership transparent to travel buyers and travelers. It is because of this close alignment, including the ability to align pricing and scheduling and market themselves as a single entity, that it is often said JVs offer many of the benefits of a merger without nearly the same costs. This option is particularly attractive given airlines have historically struggled to be profitable and are greatly impacted by poor economic conditions, the price of oil, and more. It is also worth noting that many JVs operate within the framework of existing global alliances, and in doing so benefit from the pre-existing anti-trust immunity between the carriers involved. Anti-trust immunity provides some exemption from anti-trust laws to partnered airlines in cases where governmental bodies have decided the partnerships do not threaten businesses or consumers and do not present ethical concerns.

In other words, joint ventures and alliances each represent additional types of airline industry consolidation, beyond official mergers or acquisitions among carriers.

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