Airline alliance realities: airlines win, consumers lose
by Charlie Leocha
The big boys in the airline industry are in full huff-and-puff mode in response to federal legislation HR 831 by Rep. James Oberstar, D-Minn. that will force a restudy of the airline alliances’ benefits to the public.

The Air Transport Association, representing the airlines, noted,

International alliances are a vital element of a global economy and produce enormous benefits for travelers, businesses, shippers and others. The U.S. Department of Transportation (DOT) has historically approved international airline alliances because of the substantial benefits that they provide both to passengers, and to European and U.S. airlines. H.R. 831 could destroy important service and public benefits such as competitive fares and new routes by withdrawing previously granted rights for carriers to participate in alliances.

The basic question remains, are these alliances good for the industry or good for the consumers? Almost all of the evidence shows that these alliances work strongly in favor of the airlines and their bottom lines. Unfortunately, the same can’t be said of the benefits for consumers, the traveling public.

Even though the ATA release claims benefits of competitive fares, alliances have never created competition and many experts feel they lead to higher fares. And as for the second benefit noted in the ATA release of new routes, these are illusory — simply slapping an AA flight number on a BA route that already exists doesn’t create anything new. It only renames it.

Slowly but surely over the past two decades, the airline world has been de facto carved into three major alliance players — Oneworld, SkyTeam and the Star Alliance. In some ways they function as though they were three mega-companies. Alliances can be seen as de facto mergers.

The alliances compete with each other like a giant oligopoly, in the interest of the industry, not the consumer. Their relationships can be seen as more of a peaceful coexistence rather than real competition — an airline bonhomie.

Oberstar’s legislation, introduced in early February, directs the General Accounting Office to study the impact of these super-alliances on the end users. He wants studies completed focused on competition, air fares, airline service, etc. He claims there’s evidence that the alliances are having bad effects.

These “bad effects” spill over not only into consumer protection, but reduced competition for business travel, suppliers, GDS providers and travel agencies.

Insiders who worked with the initial alliances, inaugurated in the late 1980s between Northwest Airlines and KLM, admit to me that they have not seen any benefits (with the possible exception of accumulating frequent flier miles) for passengers, businesses, suppliers or travel agencies from the steady move towards more and more alliances.

At the same time these insiders freely acknowledge that both KLM and Northwest realized surprisingly good economic benefits from integrating schedules and coordinating marketing. Eventually both airlines blended their transatlantic marketing departments in one. Northwest took over KLM’s marketing and PR efforts in the U.S. and KLM assumed the same work for Northwest in Europe.

I haven’t even delved into the effects of these alliances on other parts of the airline world food chain. Surely there are unexplored effects on suppliers such as caterers, cleaning crews, airports and so forth. There are ramifications on travel agencies and corporate travel managers when alliances have the ability to shape schedules and flight availabilities.

I’ll bet these ramifications are not supplier- or agency-friendly.

In a recent series of communications between the Oneworld Alliance and the Department of Transportation concerning the extension of alliance arrangements, the airlines submitted statements that were more than 70 percent redacted. To we non-lawyers, that translates to secret. Plus, they added a requirement that only lawyers would be able to see these statements.

What are they hiding? Why were they trying to sneak (fast track) the alliance approvals into the final actions of the last administration?

Rep. Oberstar has hit the nail on the head with this bill and its sunset provision that requires all airlines reapply for their antitrust exemption after the government has three years to reformulate the rules and regulations for these super-alliances.