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Navigate the murky waters of airline partnerships, part 2

SmarterTravel

Partners in the sky— the benefits and drawbacks

Now that you know how to navigate your codeshare flight, you might have questions about why these alliances exist and how they will affect your overall travel experience. Here, we take a closer look at why partnerships are a good deal for both airlines and consumers.

Why do airlines form alliances?

Airlines form alliances mainly to increase revenue by attracting passengers who wouldn’t otherwise fly with them. Take a carrier that does not fly internationally. Most passengers would not want to complete the domestic portion of their travel with that airline, only to deal with the hassle of switching airlines and then re-checking in before their international flight. But with an alliance partner, the airline can now offer the convenience of a single check-in and smoother connections between flights, though it still does not fly internationally. The revenue the airline gets from its portion of that ticket is money it most likely would not have received without the partner. So without increasing flights, the airline has raised its profits.

An alliance like the Air France-KLM merger also allows cost cutting, because the merger allows the airlines to streamline their systems. With the two airlines operating as one, Air France can grow its business while reducing the number of planes and people it needs and avoiding duplication in areas such as maintenance.

These days, airlines are also forming partnerships to remain competitive with other airlines already in alliances. Darryl Jenkins, director of the Aviation Institute at George Washington University, says, “The Continental-Delta-Northwest alliance was a competitive response to the United and US Airways alliance.” Delta did not have the resources to compete against the allied airlines once they’d partnered up, and so reached out to Northwest and Continental to give it a lift.

How will an alliance benefit you?

Although the real winners in the alliance game are the airlines, customers will still benefit from these partnerships. Travelers flying multiple carriers on one trip will be able to check in once and get their boarding passes for all of their flights, as well as check their luggage through to their final destination. Connections between flights will be smoother, as the partner airlines can arrange to line up arrival and departure times to reduce airport waits, and move their gates closer together, to shorten the distance between arrival and departure gates. Members of frequent flyer programs will also be able to earn and redeem miles on more airlines, giving them more ways to earn miles and a greater choice of award destinations and flight times.

Jan Brueckner, professor of economics at the University of Illinois at Urbana-Champaign, has conducted research that shows that alliances will save you money as well. Because many airlines gain antitrust immunity on noncompeting routes, they can discuss and coordinate pricing on itineraries that they jointly fly. “When airlines cooperate, the fares go down by roughly 25 percent compared to the same route operated by non-allied airlines,” Brueckner says. Combine the lower fare with the smoother flight connections and added convenience of one-stop check-in, and the alliance can be a pretty good deal for the traveling public.

Won’t these alliances reduce competition, resulting in increased fares?

You might think that the more airlines cooperate, the less they would compete with each other—potentially driving up fares—or that they would gang up on smaller carriers and block them from entering into markets where the allied airlines are dominant. You’d have good reason to be concerned, considering that the Department of Transportation (DOT) stated that the Continental-Delta-Northwest alliance would “create a potential for collusion among the three partners;…force unaffiliated airlines to exit the markets and deter entry by other airlines;…reduce competition between the partners and preclude effective competition from unaffiliated airlines;…[and] lead to a ‘hoarding’ of airport facilities” if the airlines did not adjust their alliance proposal according to the DOT’s conditions, which the airlines eventually agreed to do.

In reality, industry experts see only benefits for consumers as the result of these alliances. Brueckner concedes that if Northwest and KLM join SkyTeam as a result of their alliances with Delta and Air France, that there will be less competition between KLM-Northwest and Delta-Air France on their shared routes. However, the larger SkyTeam alliance would now be more on par with the Star Alliance, creating competition on a different scale and preventing fares from rising.

Within the U.S., the Department of Justice does not grant antitrust immunity to partner airlines on the routes they both fly. The partners can’t make joint decisions on pricing or schedules on these routes, and therefore have good business reasons to continue competing with each other. But as no one has clearly defined competition, nor studied whether domestic alliances impact competition or not, there’s no clear answer as to whether customers will see price increases as the result of alliances.

Jenkins likens all of these alliances to professional wrestling, with its stars’ partners of the week, saying that he does not believe that these alliances will last. “These alliances are farely unstable,” he says. “They’re all having cultural problems and haven’t figured out how to make things work.” He cites the Northwest-KLM and Star Alliance as the most stable alliances at the moment, but guesses that we will see many airlines get together, break up, then form new alliances with other carriers. With all this upheaval and partner switching, no two airlines will be together long enough to hurt competition.

What’s the only drawback anyone will mention? “Growing pains,” says Jenkins. “At first, no one will take responsibility for lost baggage or other problems on codeshare flights.” But after the first year of an alliance, most of these kinks will be worked out. So as far as anyone can predict, you should be able to enjoy the alliance perks without worrying that the cost of airfare will rise.

Partner up

Despite some uncertainty about the future, it seems that there’s only good news for both consumers and carriers in the world of airline alliances. Now that you know how the system works, you should be able to confidently navigate the airports and the skies on any combination of airlines. Just be sure to keep up with the news to find out which airlines will be the next to court each other, and which will bid their partnership goodbye.

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