Seek out strategic alliances; they are essential to growth and provide resistance to bigger competition.
Since no one airline can fly to every destination, airlines have to form alliances with other carriers to facilitate passengers’ connections and baggage between different airlines. That way, passengers and their luggage can travel relatively seamlessly between any two places on Earth.
The three most common airline alliances are Star Alliance, Oneworld, and SkyTeam.
Delta (Sky Team), American (Oneworld), and United (Star Alliance) are each integral members of their respective alliance. Being part of an alliance is an important reason to join a Frequent Flyer program.
What Are the Benefits of Airline Alliances?
These alliances are highly beneficial for airlines. They allow an airline to:
- Quickly fill seats by selling tickets on each other’s airplanes; and
- Share the costs for:
- Airline maintenance,
- Baggage transfers
- Sales offices,
- Maintenance facilities,
- Computer systems,
- Staff including ground crews and check-in counter agents,
- Bulk purchases
- Provide considerable consumer benefits, including:
- Allowing airlines to charge consumers lower prices due to reducing operational costs;
- Shortening travel times as a result of ease of transfers;
- Enabling airlines to give customers access to more airport lounges and frequent flyer benefits;
- Making it easy to offer round-the-world tickets.
The Negative Consumer Effects of Airline Alliances
Even with all these benefits, it is difficult to say that consumers benefit overall. Here are some ways they hurt consumers:
- Alliances limit competition. Airlines that do not join an alliance (usually small, budget carriers) have difficulties filling their flights and operating their planes. Plus, airlines can merge with other members relatively easily. (They already share considerable parts of their operation).
- Airlines can consolidate services on specific routes. Instead of having two members flying the same route, airlines often reduce flights. Combining routes eliminates competition and results in higher ticket costs. It also limits the number of flights available to consumers on a given route.
The Future of Airline Alliances
Laws and regulations may restrict the ability of an airline to join an alliance. Many times airlines need to seek approval from authorities before they can join an alliance.
However, more airlines have joined in alliance with each other in recent years, partially based on the rise of open-air agreements between governments. Open Skies Agreements, according to the United State’s Department of State, are:
¨Bilateral agreements that the U.S. government negotiates with other countries to provide rights for airlines to offer international passenger and cargo services. They are pro-consumer, pro-competition, and pro-growth. They expand international passenger and cargo flights by eliminating government interference in commercial airline decisions about routes, capacity, and pricing,..¨
The Travel Economics 101 Posts
Here are several posts designed to give Fifty-Plus Nomads a basic idea of how Travel Economics works. Being armed with a better economics education should make you a better travel consumer. (These can be read in any order)
- Why Alliances are Essential to Travel Providers. Are they Good or Bad for Consumers?Travel industry alliances are essential to the business´s survival. However, alliances have both good and bad implications for consumers
- Extra Fees: What are Ancillary (Extra) Fees and Why Are They Increasingly Becoming A Travel Industry Lifeline?More and more the travel industry depends on the sale of other products to expand and maintain its profitability. Expect to be bombarded with hints to buy other things (ancillaries) on your next cruise, flight, etc.
- The Internet Has Changed the Face of the Travel Industry More than Any Other Major IndustryThe internet has changed the travel industry probably more than another industry. This article discusses how these changes affect the consumer.
- Travel Industry Cost Saving Techniques: The Good, the Bad, and the UglyThe travel industry has made several changes to save costs in recent times. Some like using more fuel-efficient planes do not affect consumers that much. Others like reducing staff have made the experience worse for consumers.
- Business Travelers Versus Leisure TravelersThe travel industry gets most of its clients from leisure travelers. However, it makes more money from business than leisure passengers. The airlines put up with us leisure travelers because they couldn’t survive without us. However, they don’t hide their preference for business travelers.
- Why Are There So Many Connecting Flights? A Discussion of Why Airlines Love the Hub-Spoke Model More than ConsumersUnbeknownst to most consumers, the cause of most of our airline-related complaints is the hub-spoke model. Unfortunately, however, the hub-spoke model is also essential to the airline industry’s financial viability.
- Airline Schedule Changes: Why Don’t Airlines Keep their Promises?Learn why airlines change their schedules after you buy your tickets and what you can do about it.
- How Many Taxes, Fees, and Other Charges Do Consumers Pay For Airfare, Hotels, and Other Travel Services?The amount and number of travel taxes, fees, and other charges added to your bill will probably surprise you. Many are hidden and like everything else, taxes keep going up.
- Airline Consolidation: What Are the Disadvantages and Advantages For the Consumer?The airlines have consolidated so fast in the USA and Canada that only 5 players dominate the market. Learn what this means for consumers.
- Travel Industry Consolidations (Non-Airlines): The Effect on Consumers (Negative or Positive)?Probably the most significant change in the travel industry in the past couple of decades has been the industry’s rapid consolidation. Read this post to discover how few travel players really exist in the market today. and how this rapid consolidation has affected consumers.
- Why the Sharing Economy Has Become So Popular in the Travel Industry?The sharing economy like Uber and Airbnb has made a major influence on the travel industry and will continue to affect the industry far into the future.
- Third World and Chinese Travelers: The Biggest Future Travel TrendThe biggest change affecting the travel industry is the gigantic increase in emerging countries and Chinese travelers. These travelers will change the future face of tourism more than anything else.
- The 3 Reasons Travel Prices Are So Radically Different than Other Products: Perishability, Capital Costs, and Yield ManagementHave you ever wondered why travel products seem to be priced so crazily? Learn the three economic factors that contribute to the pricing of travel products: perishability, high capital costs, and yield management.
- Travel Economics 101: Learn How the Industry Works and Save Yourself Money and HeadachesPaul Heller, the Fifty-Plus Nomad founder, has developed a series of posts about travel economics. Reading these posts will help Fifty-Plus Nomads deal with some of the problems with the travel industry they are likely to encounter during their long-term, round-the-world journeys.