Marketing alliances based on extensive code-share agreements among member carriers have been a pervasive presence within the airline industry for many years. Participation in an alliance enables an airline to realize the operating efficiency and cost-reduction benefits of working in concert with other airlines to increase profitability and market share.
And, with various governments around the world imposing legal restrictions on foreign ownership of airlines, alliance membership allows affected carriers to access some of the efficiencies and benefits that might otherwise be obtainable through cross-border mergers.
Air passengers also receive benefits from airline alliances, such as quick and seamless connections between flights, lower ticket prices, easy transfer of frequent flyer rewards, and wider access to airport lounges.
The three main global alliances in existence today are the Star Alliance, oneworld, and SkyTeam. Combined, the Big Three alliances represent most of the world’s airline capacity. For the most part, the airlines that belong to these alliances are full-service network carriers. Low-fare carriers have traditionally avoided joining alliances.
No independent low-fare carrier is currently a member of any of the Big Three. The German carrier airberlin did join oneworld in 2012, but airberlin is generally viewed as a hybrid airline rather than a low-fare carrier.
The low-fare sector continues to grow, however, and low-fare carriers are increasingly being impacted by many of the business difficulties that have long faced mainline airlines. In some parts of the low-fare airline segment, alliance membership is beginning to be looked upon more favorably.
Some low-fare carriers are forming alliances among themselves. In January 2016, four low-fare affiliates of China’s HNA Group established the U-FLY alliance. The four airlines are HK Express, Lucky Air, Urumqi Air, and West Air. The U-FLY member carriers are coordinating ticket sales and flight schedules, and are working to facilitate connections across their route networks.
In May 2016, eight low-fare airlines in Asia formed the Value Alliance. The eight airlines are Cebu Pacific (of the Philippines), Jeju Air (of South Korea), Tigerair Australia, Nok Air (of Thailand), NokScoot (of Thailand), ANA subsidiary Vanilla Air (of Japan), and two Singapore Airlines subsidiaries: Scoot and Tigerair Singapore. Combined, these carriers serve 160 destinations and operate 176 aircraft.
At present, the cooperation within the Value Alliance mainly involves coordinated ticket selling and ancillary services booking, and so far does not extend to integration of flight schedules or linking of frequent flyer and loyalty programs.
Another way of accessing the benefits of alliance membership would be for a low-fare carrier to forge a link to one of the Big Three alliances. In December 2015, Star launched its new Connecting Partner Model. Under this concept, Star intends to establish cooperative partnerships with low-fare and hybrid carriers in order to enable passengers to make connections between flights on those carriers and flights on Star member airlines.
Becoming a Star Connecting Partner would enable a low-fare carrier to immediately expand its market presence. From Star’s perspective, the arrangement would provide Star customers with a wider choice of destinations and flights, and enable the alliance to access, and leverage the success of, the thriving low-fare carrier sector.
The South African low-fare carrier Mango has been selected as the first airline to become a Star Connecting Partner.
Star’s Connecting Partners will not become members of the alliance itself. In practice, though, this distinction could become moot. In any event, it could certainly lead to official alliance membership sometime in the future.
Should Star’s Connecting Partners Model prove to be a success, oneworld and SkyTeam could feel forced to pursue a similar strategy.
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