Benefits and costs
Benefits can consist of:
An extended and optimized network: this is often realised through code sharing agreements. Many alliances started as only a code sharing network. Cost reduction from sharing of:
Operational facilities, e.g. catering or computer systems.
Operational staff, e.g. ground handling personnel, at check-in and boarding desks. Investments and purchases, e.g. in order to negotiate extra volume discounts. Traveler benefits can include:
Lower prices due to lowered operational costs for a given route. More departure times to choose from on a given route.
More destinations within easy reach.
Shorter travel times as a result of optimised transfers.
A wider range of airport lounges shared with alliance members Faster mileage rewards by earning miles for a single account on several different carriers. Round-the-world tickets, enabling travelers to fly over the world for a relatively low price. Airline alliances may also create disadvantages for the traveler, such as:
Higher prices when all competition is erased on a certain route. Less frequent flights, for instance when two airlines fly each three times a day on a given route, the alliance might fly only four times on the same route (this might be especially true between cities that are hubs for each airline, e.g., flights between Detroit, where Northwest has a fortress hub, and Amsterdam, where KLM has a fortress hub).
The ability of an airline to join an alliance is often restricted by laws and regulations or subject to approval by authorities. Antitrust laws play a large role.
Landing rights may not be owned by the airlines themselves but by the nation in which their head office resides. If an airline loses its national identity by merging to a large extent with a foreign company, existing agreements may be declared void by a country which objects to the merger.
The first airline alliance started in the 1930s, when Pan American Grace Airways and parent company Pan American World Airways agreed to exchange routes to Latin America. The first large alliance which is still functioning started in 1989, when Northwest and KLM Royal Dutch Airlines agreed to code sharing on a large scale. A huge step was taken in 1992 when The Netherlands signed the first open skies agreement with the United States, in spite of objections from the European Union authorities. This gave both countries unrestricted landing rights on each others' soil. Normally landing rights are granted for a fixed number of flights per week to a fixed destination. Each adjustment takes negotiating, often between governments rather than between the companies involved. The United States was so pleased with the independent position that the Dutch took versus the E.U. that it granted anti-trust immunity to the alliance between Northwest and KLM. Other alliances would struggle for years to overcome transnational barriers or still do so. An alliance of Arab airline companies will be launched in 2008 and is to be called Arabesk, it will be the fourth global alliance.
Membership and market date for the largest airline alliances (as of December 2007):
Star Alliance SkyTeam Oneworld Rest of Industry
Passengers per year 433.4 million 375.6 million 288.5 million 489 million Destinations 975 841 664
Revenue (Billion US$) 123.4 97.9 86.8 113
Market share 29.3% 20.6% 23.2% 26.9%
Participants¹ (JP) Adria Airways
(AC) Air Canada
(CA) Air China
(NZ) Air New Zealand