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ANALYSIS: The 20-year history of global airline alliances

Since the first global alliance was established 20 years ago, these airline groupings have become a central part of the industry and travel offering.

Alliances have matured, from the five carriers that established Star Alliance on 14 May 1997 to the 62 airlines now spanned by Star, Oneworld and SkyTeam.

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As Star marks its 20th anniversary, FlightGlobal schedules data shows that carriers in these three alliances account for 57.7% of capacity, in terms of ASKs, in May.

But with this maturity has come a slowing in the pace of airline member recruitment. Only one carrier has joined as a full member of any global alliance in the last three years – and that was the relatively small addition ofAvianca Brazilto Star two years ago.

And as the faster-growing low-cost carrier sector remains outside these alliances – and the restructuring and retrenching of several networks of carriers within them continues – the capacity market share of these alliances has actually fallen from almost 60% in September 2015.

However, moves to grow the alliances – and address existing white spots through the development of affiliate membership options – continue. Indeed, Star has now confirmed that Chinese carrierJuneyao Airlineshas completed the integration process for it to join up under Star's new Connecting member programme.

ORIGINS OF ALLIANCES

Global alliances have provided, and arguably helped, drive deeper consolidation and co-operation within the industry, helping to spawn many of the joint ventures now in place across key markets. While these do not operate exclusively on alliance lines, many of them do draw on existing partnerships from within the global alliances.

Air Canada,Lufthansa,United Airlines, Thai Airways and Varig – the Brazilian carrier one of several carriers to have left alliances, either of their own accord or through their demise – were the first to show their hand in establishing the Star Alliance in May 1997.

Little more than a year later, partnersAmerican Airlines,British Airways, Canadian Airlines,Cathay PacificandQantasestablished the Oneworld alliance. Canadian Airlines was to prove only a brief member – within two years it was Star-bound after its merger withAir Canada– but Oneworld had been bolstered since 2000 withAer Lingus,Finnair,IberiaandLAN Airlines.

Star too continued to recruit.All NipponAirways,Air New Zealand,Ansett Australia– albeit briefly – andSingapore Airlineswere among the early additions.

Singapore joined after ditching its role in the Global Excellence three-way alliance it had been in withDelta Air LinesandSwissair. Two years later the Atlantic Excellence partnership was dissolved whenDeltaquit after agreeing a co-operation withAir France. That proved the precursor to the creation, in 2000, of SkyTeam – established byAir FranceandDeltawithAeromexicoandKorean Air, and swiftly joined byAlitaliaandCzech Airlines.

Over the following years, membership of all three groupings has continued to swell. Star has always been the largest alliance in terms of members – it has 28 airlines today. SkyTeam has 20 airlines and Oneworld 14 full members.

Most of the more recent recruitment has focused on emerging markets – Asia-Pacific, Latin America and the Middle East – with limited new member activity in maturer markets.Air Berlinwas the last new European member, joining Oneworld five years ago, while moves by North American carriers – such asUS Airways' switch to Oneworld – have been aligned to consolidation in the country.

All continents are covered, and almost every major country, by at least one of the alliances – the most notable absentee, India, being addressed whenAir India's protracted membership of Star finally came to fruition in 2014.

HAVE ALLIANCES REACHED FULL SIZE?

"We will never say no, but we are pretty comprehensive in our network today," said Star chief executive Jeffrey Goh when asked by FlightGlobal about the prospect of adding the alliance's ranks, during a media event in Frankfurt marking the 20th anniversary of the grouping.

"There are not many parts of the world to which we do not serve. Clearly if you look at the map, there are parts which are white spots for Star. But it doesn't mean we are just going to start running out there recruiting. They have got to make sense for us and in some markets there may not be airlines that make sense for us or there may not be any airlines."

This echoes similar comments from the other two alliances. "Although there are a few regions where we are interested in building our presence further, with few of the sort of airlines that Oneworld has traditionally targeted as potential candidates now available the scope for adding recruits along the lines we have done in the past is limited," said Oneworld chief executive Rob Gurney at the Aviation Club in London in February.

But despite their wide coverage areas, each alliance has markets where it have struggled – or continues to struggle – to make its mark.

In India, for example, neither Oneworld nor SkyTeam has an airline partner – the former having initially lined upKingfisher Airlinesprior to its collapse. Oneworld also lacks a partner in another key Asian market – mainland China. Hong Kong carrierCathay Pacifichas been a member from the outset, but the major Chinese carriers have been recruited by SkyTeam and Star.

Neither does Oneworld have a full member in Africa – though BA franchise partnerComairgives it an affiliate member in South Africa. By contrast, Star has three African members and SkyTeam hasKenya Airways.

Brazil was also a market where Oneworld struggled, untilTAMwas tempted over through its merger with long-time Oneworld operator LAN.

That, in turn, dealt another blow to Star in the country, where the alliance had already lost one partner airline with the collapse of Varig. Star has since turned toAvianca Brazil– sister carrier to existing memberAvianca– and has been courting Brazilian low-cost operatorAzul.

SkyTeam also lacks a full Brazilian partner, though several of its members – including Air France-KLM andDelta– have co-operation deals with Gol.

In Russia, SkyTeam is served by Aeroflot and Oneworld byS7, but Star has no member. "If you look at Russia, clearly we have a white spot there," acknowledges Goh. "But are there any airlines that make sense to be a member of Star Alliance?"

Faced with little prospect of securing a home carrier in a market, all three alliances have made much of the access and service their existing members can provide. "If you take the market of Australia, we don’'t have a member in Australia, but we are so well served by many of our established members – Air New Zealand; Singapore;Air Chinahas just announced a spate of flights into Australia," says Goh.

LOW-COST CONNECTIONS

That lack of traditional options also reflects the blurring nature of the industry. The lines of demarcation between network and low-cost carriers were clear when the alliances were established. Key areas of co-operation around IT systems, codesharing, lounges and frequent-flyer programmes were anathemas to budget-sector operators.

As a result low-cost carriers, alongside Gulf carriersEmiratesandEtihad, are among the most notable of the world's biggest carriers not to feature in the global alliances.

Those lines between modesl have since blurred, however – at least in terms of co-operation between the two – amid changing models and LCCs' increasing share. SkyTeam carriers' co-operation with Gol, for example, both reflects the Brazilian carrier's move towards catering for business traffic and its strength in the market – it became the biggest carrier in its home domestic market for the first time in 2016.

Aware of the changing market conditions, all three alliances have been working on new affiliate-membership options aimed at accommodating strong local players without a need for full membership.

"What we have today is our connecting-member model which we announced last year that now gives us the flexibility to address local and regional areas, where we do not necessary require a full-service carrier to be part of the alliance," says Goh.

Shanghai-basedJuneyao Airlineshas now completed the integration process and will this month become the first carrier to join as a connecting member. "We are proud to be back in Shanghai," Goh told an audience of Star executives and frequent flyers at a dinner marking the alliance's 20th anniversary. Star had originally countedShanghai Airlinesamong its ranks before the carrier followed partnerChina Easterninto SkyTeam.

Such schemes provide the potential for low-cost carriers to play a role of some kind with the global alliances. Multi-model operatorAir Berlinhas thus far been the only airline with a low-cost background to enter an alliance – and, after shedding its leisure and low-cost activities in the course of several restructurings, the Oneworld carrier is now pitching itself fully as a network airline.

"If any low-cost carriers is going to be part of any global alliance, it will have to be a strategy pretty similar or corresponding to our connecting-partner model. We have designed this model in a way which caters to be able to accommodate that segment of the industry."

Indeed,South African Airways' low-cost unitMangowas originally to be the first Star Connecting partner – though that has not yet progressed amid management changes at the carrier.

Oneworld's Gurney also recognises a need to be open to working with different types of carriers. "There are some markets where they have skipped a cycle, and if we want to have a partner that's operating in those markets we have to rethink how we collaborate with them," he says. "Now we do collaborate with a number of airlines already that operate hybrid or LCC platforms, and we've had some success in that, but we have to look to all opportunities."

FRESH CHALLENGES

Amid the changing mission of alliances, all three have seen new leaders take the helm in the last year. Perry Cantarutti took over of SkyTeam last September, Gurney took office at Oneworld in October, and Goh succeeded Mark Schwab as SkyTeam boss at the start of the year.

All three have put the emphasis on improving the traveller experience across members, especially through the use of technology.

Late last year, Oneworld introduced new automated pricing for its round-the-world and multi-continent fares offered across member carriers.

SkyTeam rolled out an online, retroactive credit tool to make it easier for frequent flyers to keep their account balances up to date. A similar initiative was among those outlined by Star as its unveiled its planned direction over the coming years.

"You are always connected. We have to respond to that new norm and we are well on the way to developing a digital services platform for the alliance," says Goh. "This allows the digital services of our members to be connected across the alliance. This could be something as simple as seat selection when you travel across the alliance.

"Today, if you travel on, say, aLufthansaflight and connect to aSingapore Airlinesflight, you may well be able to seat-select on theLufthansaapp on the first flight, but you are very unlikely to be able to select your seat on the second.

"We are moving in the digital direction. That is the new norm, and that is what the customer expects."

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