25. As the global aviation market has grown in size,
airlines have inexorably been drawn together through the need
to improve their efficiency and to develop a more 'seamless' service.
They have sought to do so by offering such benefits as integrated
time-tabling of services, through-ticketing from point of departure
to destination, shared fare offers and marketing campaigns, and
common branding in terms of facilities, loyalty schemes, and so
on. The simplest way to co-ordinate airline activities would be
through acquisition and merger, but attempts at consolidation,
at least until recently, have not generally been successful. In
part this is because airlines have had a 'national' identity,
particularly for the purposes of air service agreements, and are
governed by rules affecting their ownership and control: no more
than 25 per cent of a US carrier may be foreign-owned, and the
equivalent limit in the European Union is 49 per cent.
In addition, Governments and other regulatory authorities have
generally sought on competition grounds to discourage airlines
from working too closely together. Thus, for example, attempts
by British Airways in recent years to merge with USAir and then
with American Airlines have failed, in part because of the attitude
of competition authorities in the United States and in Brussels.
26. Instead of formally merging, or taking each other
over, airlines have attempted better to co-ordinate their activities
through alliances and groupings. They have developed 'code-sharing'
arrangements, under which two or more airlines agree to operate
services which connect well with each other, and which fly under
a single flight code, and have put in place other forms of co-operation.
In recent years five major airline groupings have come to the
fore: KLM/Northwest, the Star Alliance, Qualiflyer, oneworld,
and SkyTeam, which between them control approximately half of
the world's aviation market.
27. The oldest alliance is between Northwest and
KLM which, together with Continental Airlines, reached an agreement
in 1989 which has led to common branding, purchasing, management
and marketing. The ties between KLM and Northwest were reinforced
by the conclusion of a liberal bilateral deal between the Netherlands
and the United States in October 1992, and also by an exchange
of equity between the parties: Northwest has taken a 14 per cent
stake in Continental Airlines,
and at one time KLM held equity in Northwest, although that has
since been sold. The KLM/Northwest grouping has annual sales of
$16.8 billion, and a 4.6 per cent share of the world market.
28. Next to be established, in May 1997, was the
Star Alliance, now the biggest airline grouping, which was founded
on the decision of the US competition authorities not to object
to co-operation between Lufthansa and United Airlines in the market
between Germany and the United States. In addition to those airlines,
the Alliance includes Singapore Airlines, All Nippon Airways,
Air Canada, Thai International, Varig (Brazil), SAS (Scandinavia),
Air New Zealand, Ansett Australia, Mexicana, Austrian Airlines
and British Midland. Members of the alliance are linked through
code-share agreements bolstered by bilateral agreements between
individual airlines, and, to a limited extent, through the exchange
of equity: Air New Zealand owns 100 per cent of Ansett Australia,
and is itself 25 per cent owned by Singapore Airlines, and Lufthansa
and SAS own 20 per cent each of British Midland.
As well as code-sharing, attempts have also been made to consolidate
fares, and to provide common branding, for example, through the
use of airline lounges, loyalty programmes and joint check-ins.
It is intended that co-operation will be strengthened over cargo,
joint purchasing, advertising and promotions. The Star Alliance
has annual sales of $69.6 billion, and 18.8 per cent of the global
29. In March 1998, the SAirGroup, a Swiss Company
which owns Swissair, launched the Qualiflyer Group, building on
its ties with Austrian Airlines and its then minority stake in
Sabena (Belgium), and incorporating Turkish Airlines, TAP (Portugal)
and AOM (France). It has since attracted support from Air Europe
(Italy), LOT Polish Airlines, LTU (Germany), Air Littoral (France),
Portugalia and Volare (Italy), in which SAirGroup has taken equity:
as well as owning 85 per cent of Sabena and 70.9 per cent of Crossair,
it owns 49.9 per cent of LTU, 49 per cent each of Air Europe,
AOM French Airlines and Air Littoral, 42 per cent of Portugalia,
37.6 per cent of LOT Polish Airlines, 34 per cent of TAP Air Portugal
and 34 per cent of Volare.
It also owns 20 per cent of South African Airways, although that
airline is not yet a member of Qualiflyer. Thus the alliance is
currently focussed wholly on Europe. It has linked sales and services,
ranging from a joint ground handling company to call centres.
There is also much co-operation on computer systems, baggage handling,
sales, training, cargo and maintenance.
Qualiflyer has annual sales of $16.2 billion, and has a 3.4 per
cent share of the world market.
30. The oneworld alliance was launched in
September 1998. At its core are British Airways and American Airlines,
but, because of the fact that the airlines do not enjoy immunity
from US anti-trust legislation, they cannot code-share on trans-Atlantic
routes. Thus the alliance has concentrated on global marketing,
and the co-ordination of benefits such as airport lounges, transfers
between carriers, and fares through the 'oneworld Explorer'
product. However, code-sharing has been possible with other recruits
to the alliance, namely Qantas (Australia), Cathay Pacific (Hong
Kong), Iberia (Spain), LanChile, Finnair and Aer Lingus. There
has been some exchange of equity between the alliance partners:
American Airlines owns 1 per cent of Iberia, and British Airways
a further 9 per cent of Iberia, as well as 25 per cent of Qantas.
The alliance now has a 12.8 per cent share of the world market,
on sales of $50 billion each year.
31. The most recent alliance to be established is
SkyTeam. It has grown from an initial deal between Air France
and Delta Airlines in June 1999, which was supplemented by an
agreement with Aeromexico in September 1999. In June 2000, the
three airlines were joined by Korean Air to form SkyTeam. As well
as introducing common branding, the alliance aims to integrate
information technology between the airlines, allowing ticketing,
checking-in and other services to be integrated. In addition,
passengers on each airline will be able to access any of the alliance
members' lounges and other facilities, and in the future there
will be co-operation over cargo services, and other benefits will
The alliance has annual sales of $29.4 billion, and an 11.2 per
cent share of the global market.
32. Since their inception, membership of the alliances
has frequently changed, often as the ownership of airlines has
for example, Air Canada, a member of the Star Alliance, has purchased
82 per cent of Canadian Airlines, and as a result Canadian has
left the oneworld alliance.
Austrian Airlines, one of the original members of the Qualiflyer
grouping, has since left to join the Star Alliance, despite the
fact that SAirGroup continues to own 10 per cent of the airline,
and Air France holds a 1.5 per cent stake.
Delta Airlines, in which the SAirGroup holds a 4.6 per cent stake,
has nonetheless left the Qualiflyer Group to join Air France in
SkyTeam: likewise, Singapore Airlines has left the Group to become
part of the Star Alliance. Now also associated with, although
not part of, the Star Alliance are USAir, currently the subject
of a possible merger with United Airlines, Virgin Atlantic, in
which Singapore Airlines has taken a 49 per cent stake, and Spanair
(Spain), in which SAS has a substantial share. Finally, the development
likely to cause the most upheaval is British Airways's proposal
to merge with KLM: that would have significant implications not
only for the companies involved, but their partners, including
American Airlines, Northwest and Continental Airlines.