You hear a lot about alliances among the world's giant airlines these days. To hear them tell it, those alliances provide improved "seamless" service throughout the world and are a great benefit for consumers. Many industry financial analysts claim that they're necessary for the older "legacy" lines to survive in a world increasingly driven by low-cost competitors. And consumer advocates say they're thinly disguised attempts to stifle competition and hike prices. Who's right? In my view, all of them are partly right.

What are airline alliances? Alliances among airlines are agreements to provide and coordinate a range of mutual support functions. In many ways, they're the only way large airlines can combine at least some of their services across national boundaries. In most large industries, mergers among companies based in different countries are commonplace, but national laws in the United States and many other countries prevent outright cross-border mergers. Alliances have emerged as the only feasible way to provide a degree of cross-border integration and coordination.

Who are they? Three big alliances dominate the current scene -- and I don't expect to see any new ones anytime soon:

-- Star Alliance, the biggest, includes Continental, United, US Airways, and Air Canada in North America plus Adria, Air China, Air New Zealand, ANA, Asiana, Austrian, Blue1, BMI, Brussels, Croatia, Egyptair, LOT, Lufthansa, SAS, Shanghai, Singapore, South African, Spanair, Swiss, TAM, TAP, Turkish, and Thai, with Aegean and Air India as future members.

-- SkyTeam includes Delta, Aeroflot, Aeromexico, Air France, Alitalia, China Southern, Czech, Delta, KLM, Korean, Tarom, and Vietnam, two Associate carriers -- Air Europa and Kenya -- and Airways, plus Air China expected.

-- OneWorld includes American, British Airways, Cathay Pacific, Finnair, Iberia, JAL, LAN, Malev, Mexicana, Qantas, and Royal Jordanian, plus affiliates, and Russia's S7 and India's Kingfisher joining soon.

So far, the alliances have done a pretty good job of mutual frequent flyer and elite status recognition, although it's not perfect -- you still find plenty of cases where if you're on a cheap ticket you earn no miles on a "partner" flight. And according to press reports, they still may favor their own members over partner members for frequent flyer seat allocations, upgrades, and such. They've coordinated many schedules for worldwide connecting itineraries. They code-share many flights but by no means all flights or among all members. Each alliance is trying to group all members into a single terminal at such big, decentralized airports as Boston and London/Heathrow, but that's very much a work in progress, and many connections still require a terminal change.

They have not yet made any meaningful attempt to standardize product. That means, for example, that Air New Zealand's economy product remains significantly better than any other Star Alliance line's, and no other Star Alliance member has adopted United's popular "Economy Plus" product. They haven't even standardized fees for baggage and other extras.

Normally, collusion on pricing between two independent companies violates antitrust laws in the US and equivalent laws elsewhere. Only a few alliance partner-line pairs, including Delta/KLM/Air France and United/Lufthansa are openly able to set fares jointly. American and British have asked for such immunity, but that's pending. Meanwhile, you can often find fare differences among partners -- sometimes even for the same code-shared flight.

The bottom line: Airline alliances have a long way to go to provide genuinely "seamless" worldwide service. So far, nobody has yet shown that alliances lead to higher fares, but that could still come. One thing sure: Alliances have done nothing to improve the almost-universally-lousy product in economy class. And I don't expect that to change any time soon.

 

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(c) 2010 Ed Perkins