How joint ven­tures are chang­ing the face of the air­line in­dus­try

Polygamy has be­come the se­cret to suc­cess among legacy car­ri­ers. Jenny Southan re­ports on why air­lines are join­ing forces and what it means for trav­ellers

Business Traveller - - NEWS -

Ex­chang­ing vows with your arch ri­val is not com­mon among peo­ple, but for air­lines, strate­gic knot-ty­ing cer­e­monies have be­come more and more pop­u­lar. Stronger than a code­share but weaker than a merger, the first joint ven­ture (JV) was be­tween North­west Air­lines and KLM in 1997, and since then the wed­ding bells have rung non­stop, al­though there’s been a fair amount of in­fi­delity on the way.

Ac­cord­ing to re­search from global man­age­ment con­sult­ing firm LEK, JVs made up only 5 per cent of global long-haul air­line traf­fic a decade ago, yet by the end of 2016 it was 25 per cent. In its re­port Reach­ing New Heights To­gether in 2017: How Air­lines Can Max­imise the Value of Joint Ven­tures it states: “We be­lieve that deeper in­te­gra­tion be­tween JV part­ners of all sizes is in­evitable, and that ‘vir­tual merg­ers’ will be­come in­creas­ingly pop­u­lar. By 2021, 35 per cent of all global long­haul traf­fic could be part of an im­mu­nised joint ven­ture.” Some ex­perts be­lieve it could reach 50 per cent. What­ever hap­pens, con­sol­i­da­tion will con­tinue.

What are the ben­e­fits? For air­lines, many. Mar­cel Fuchs is vice-pres­i­dent of Atlantic and Pa­cific sales for United, which has joint ven­tures with ANA, Air New Zealand and Lufthansa. “Through th­ese gov­ern­men­tap­proved part­ner­ships, we jointly co-or­di­nate our sched­ules, sales, mar­ket­ing and cus­tomer ser­vice to of­fer many more travel op­tions than we would oth­er­wise be able to by our­selves. By co-op­er­at­ing closely and shar­ing the eco­nomic ben­e­fits in th­ese re­la­tion­ships, we pro­vide much bet­ter ac­cess for all cus­tomers.”

A spokesper­son for BA agrees: “Joint ven­tures al­low car­ri­ers to launch new routes that oth­er­wise would not be vi­able if only op­er­ated by one car­rier – for ex­am­ple, some of our re­cently launched ser­vices to the US [San Jose, New Or­leans and Austin] are as a re­sult of our joint busi­ness with Amer­i­can Air­lines. They also en­sure bet­ter com­pe­ti­tion in cer­tain mar­kets, which is good for cus­tomers.”

Lufthansa is equally reap­ing the ben­e­fits of a transat­lantic part­ner­ship with United, with new up­com­ing joint ven­ture routes from Frank­furt to San Diego and San Jose in Costa Rica in 2018.

New routes, co-or­di­nated sched­ules, more choice, and a greater va­ri­ety of fares are all

JV ad­van­tages for trav­ellers, says Ig­nazio Strano, vice-pres­i­dent, head of joint ven­tures and Star Al­liance for the Lufthansa Group. “We are able to of­fer the con­sumer a whole range of fares ir­re­spec­tive of whether they are fly­ing with United or Lufthansa. In a code­share en­vi­ron­ment, when you put the Lufthansa code on a Thai Air­ways flight, for ex­am­ple, I can only of­fer what Thai of­fers me to sell. In a JV, you are talk­ing to each other about prices and ty­ing up con­tracts that al­low each other to ac­tu­ally sell from the high­est to the very low­est prices. This gives more op­por­tu­nity to cus­tomers to travel on low fares on both air­lines.”

GREATER FLEX­I­BIL­ITY Like mar­riages, not all JVs are the same. In fact, whis­per it, they are not al­ways the mar­riage of equals. They can be ma­jor, head­line­grab­bing tie-ups be­tween air­lines – such as Qan­tas and Emi­rates, which be­tween them have the big­gest fleets of A380 su­per­jum­bos in the world and a com­bined net­work of 2,000 routes – or they can be smaller, more strate­gic part­ner­ships be­tween the likes of Delta and Korean Air, for ex­am­ple. For the pas­sen­ger, they prom­ise “any­where to any­where” tick­ets, with con­nec­tions avail­able on mul­ti­ple air­lines through just one book­ing chan­nel, as well as re­cip­ro­cal fre­quent flyer ben­e­fits such as lounge ac­cess and miles earn­ing and re­demp­tion.

BA says: “Joint ven­tures al­low cus­tomers to mix and match book­ings on a wider net­work to best suit their travel needs. For ex­am­ple, if you are search­ing for a flight from Lon­don to New York on, it will give you up to 16 choices of flights be­tween BA and AA – this al­lows you to get the best pos­si­ble com­bi­na­tion of air­port, flight times and price.

“Once you pur­chase a ticket, you can use ei­ther of the air­lines’ web­sites to check in. If you are a trans­fer cus­tomer mov­ing be­tween the two air­lines at one of the big hub air­ports such as Lon­don Heathrow or New York JFK, then there are ded­i­cated fa­cil­i­ties and global sup­port teams on hand.”

Strangely, for air­lines that spend so much mar­ket­ing their dis­tinc­tive brand, in a JV you of­ten don’t know which air­line you are fly­ing on. Known as “metal neu­tral­ity”, for trade body IATA, this is “per­haps the defin­ing fea­ture of a JV; the air­lines in­volved share rev­enue and costs on a given route no mat­ter which is do­ing the ac­tual fly­ing”.

It has been es­ti­mated that last year’s sum­mer flight sched­ule saw al­most 80 per cent of avail­able seat kilo­me­tres across the North Atlantic flown by air­lines in joint ven­tures.

We’ve listed ten sig­nif­i­cant JVs on page 26 (for the full list, see busi­nesstrav­ but it is a fast-mov­ing space. To take one ex­am­ple, in 2012, Vir­gin sold a 49 per cent stake to Delta; this year it handed Air France-KLM an ad­di­tional 31 per cent of the pie in re­turn for £220 mil­lion, leav­ing Vir­gin with only 20 per cent, and no ma­jor­ity con­trol. (To com­plete the cir­cle, Delta is buy­ing a 10 per cent stake in Air France-KLM.)

‘Joint ven­tures al­low cus­tomers to mix and match book­ings on a wider net­work to best suit their needs’

What does this mean for trav­ellers? Shai Weiss, chief com­mer­cial of­fi­cer for Vir­gin Atlantic, says: “Be­fore the Delta joint ven­ture we were sim­ply a point-to-point car­rier be­tween the UK and North Amer­ica. Post­trans­ac­tion, we can con­nect to over 200 des­ti­na­tions in the US out of the ma­jor hubs both in New York, At­lanta and newly launched Port­land, Seat­tle, San Fran­cisco and Los An­ge­les. For Vir­gin and Delta con­sumers, we will also be the first JV air­line to of­fer wifi across all its long-haul fleets.”

De­spite los­ing ma­jor­ity con­trol of his air­line, Sir Richard Bran­son was clear about the ef­fect for trav­ellers. In an open let­ter on vir­ on July 27, he wrote: “One of the best moves we made nearly five years ago was ty­ing up with Delta Air Lines, to cre­ate a joint ven­ture across the Atlantic. Part of the rationale was to pro­vide a com­pet­i­tive al­ter­na­tive to BA and Amer­i­can Air­lines’ al­liance and it has cre­ated a strong plat­form for us to pro­mote and sup­port our brand in this highly com­pet­i­tive mar­ket.

“Delta has helped us con­sid­er­ably with feed from Amer­ica, but be­cause we don’t have more slots at Heathrow or Gatwick we’re un­able to en­joy feed from Europe or pro­vide ex­tra on­ward jour­neys for those cus­tomers we are now car­ry­ing to Lon­don. To­day, I’m de­lighted to say that we’ve agreed with Air France-KLM and Delta our col­lec­tive in­ten­tion to form an en­hanced joint ven­ture, in­clud­ing Al­i­talia, which will be ex­tremely ben­e­fi­cial to our air­line, our cus­tomers and the brand.”

LOW-COST RI­VALS While JVs have been used to com­bat com­pe­ti­tion from Gulf air­lines for some years, they are now also a re­ac­tion to ri­valry from

Th­ese mar­riages of con­ve­nience are also a re­ac­tion to com­pe­ti­tion from low-cost car­ri­ers

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