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
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 ba.com, 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 businesstraveller.com) 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 virgin.com 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