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Ten years ago last month, five airlines formed the Star Alliance and ushered in the age of multilateral, global carrier partnerships. Star, and followers Oneworld and SkyTeam, for much of their histories focused on branding and familiarization--both internally and externally. Initially, all were seen primarily as marketing groups capable of providing worthwhile contracts to only a handful of multinational corporate customers. Today, the three carrier partnerships have evolved into viable suppliers for a growing number of companies, said representatives of each alliance, speaking during the Association of Corporate Travel Executives conference last month.
After supplanting or assimilating predecessor groups and overcoming growing pains, alliances today include most large carriers cooperating within global networks. On many business-heavy routes, their members account for the vast majority of passenger traffic. They have marked tangible progress by integrating sales and operations, sometimes including joint ventures and antitrust immunity.
There still are many skeptics in corporate travel circles, owing partly to the perception that most buyers still can extract more favorable contract terms by negotiating individually with airlines. Alliance executives themselves acknowledged that joint bids are not appropriate for many companies. When they are, much effort is required by both buyer and seller to navigate through legal complexities and other challenges.
Yet the gradual deregulation of the airline industry and the inexorable move toward globalization--among both member carriers and the corporate clientele they pursue--suggest Star, Oneworld and SkyTeam will be long-term participants in the competitive skyscape.
[Star partners ANA of Japan and Korea's Asiana in May announced a far-reaching deal including "joint corporate sales efforts," expanded code sharing, mutual operational support at common overseas airports, cooperative staff training, co-development on inflight products, joint fuel purchasing and a US$12 million cross-shareholding by each company. British Airways currently is evaluating "a possible consortium offer" for Oneworld partner Iberia (in which it holds a minority share), though BA has "ruled out" further capital investment.]
"In the beginning, airline alliances negotiated contracts with corporates in a structure of individual contracts plus an overall alliance contract. All contracts still bore the basic symptoms of not being measurable, comparing tickets issued to flown revenue and focusing on affinity or loyalty rather than on accountability," said session moderator Herman Mensink, vice president for Europe, the Middle East and Africa at the Prism Group, which provides corporate client data aggregation and decision support systems for a number of alliance participants. "Those days are now long past. Oneworld, Star, SkyTeam ... are creating stronger ties that should bind the corporate world to their members' respective airlines."
The three alliances generally seek corporate clients with similar characteristics: a consolidated travel management program that can produce aggregated data, high compliance to travel policies, traffic patterns with multiple points of sale and sizable international ticket revenue that can be spread across three or more members.
They also tout many of the same benefits: a single point of contact, a consolidated contract often including alliance goals, unified performance reporting and account management, and global brand familiarity for business travelers. In the right situations, all three claim to offer financial advantages over sets of individual airlines deals.
"If you do an alliance program, you will end up overall with better cost savings and better value globally," said Nanci Cheberenchick, director of sales and market development in the Americas for Star Alliance Services. Star Alliance now has 17 members, anchored by United in North America, Lufthansa in Europe and Singapore Airlines in Asia. "There are certain airlines in our alliance that will give slightly better discounts as part of an alliance agreement because they are very supportive of the alliance."
While that may be true for certain members of the other partnerships, there are differences in how alliances approach the corporate market, as well as their level of permissible integration. At SkyTeam--formed in 2000 by Air France, Delta and a few others, and since joined by Continental, KLM and Northwest--"we would ultimately like to see partners working together in a joint venture, where we actually work together and share in the revenues," said Tom Milano, Delta general manager of global corporate sales.
In terms of contracting, SkyTeam has an "opt-in/opt-out process" which allows each member to decide whether to participate in a corporate program. "We then have a lead carrier designated by committee that facilitates everything that is going on," Milano said. He also suggested that SkyTeam clients need not be Fortune100 companies. Given globalization and mergers and acquisitions, midsize organizations could be candidates: "We now look at accounts a little differently," he said.
Oneworld has developed the Businessflyer program for small and medium-size accounts, which now counts 5,500 organizations as clients. Oneworld said Businessflyer revenue in 2006 doubled from 2005 totals, contributing to "particularly strong" corporate revenue and overall alliance revenue of US$675 million, up 10 percent year-over-year.
For larger accounts, "We don't brand our products as a Oneworld program," said Eileen Yeager, manager of global corporate sales within the Oneworld Management Company, which she described as a "neutral" third party. "There is no Oneworld goal ... Each airline owns its level of participation and pricing."
Star Alliance, which enjoys a fair level of antitrust immunity between members, brands corporate products under Corporate Plus. It also has come farthest in aligning technology. Austrian Airlines, for example, will migrate its inventory and check-in systems to a common Star Alliance IT platform, furnished by Amadeus and designed to "improve customer service and maximize operational efficiencies ... for sales and airport environments, including such transactions as schedule, availability, inventory, reservations, fare quote and ticketing, as well as passenger check-in."
Lufthansa, United and two regional Star participants already have signed on to use the system. When United's participation was announced in Sept. 2005, its transition was expected to "stretch into" 2008, an executive said. Austrian plans to complete the project by mid-2009.
From the corporate buyer's standpoint--despite progress in integrating technology, airport operations and other customer-facing components--an alliance's relevance largely is a function of how well its network can accommodate the company's travel patterns and the degree of incremental savings it can offer.
"The stumbling block for a lot of companies is how you make that decision [to contract with an alliance]," said Barry Rogers of TCG Consulting. "Until you actually get proposals and stack them up against individual airlines, it may not make sense to contract with an alliance. Letters of authorization [to allow alliances to bid jointly] need to be made fairly early on in the sourcing process, but it may not be [until] toward the end that you really understand whether that is likely to make sense or not."
"It's always a dilemma for us. Sometimes it can be difficult, and sometimes it can be counterproductive to what we are trying to do," replied Delta's Milano. "We have heard from corporations that one carrier wants this and one carrier wants that, and sometimes it is overlapping and conflicting. Sometimes in a global environment, complexity always works its way back in, but we will come together as cooperative competitors to bring our networks together to benefit you.
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