124 AUSTRALIAN AVIATION
oneworld member Malaysia
Airlines has just taken delivery
of its first Airbus A350.AIRBUS
There’s nothing like a good rumour
for setting tongues wagging
around the airline industry.
And while this writer doesn’t
make a habit of spreading them, this
one is certainly worth some serious
consideration. Not only because it is
extremely interesting, but because there
are several indicators suggesting it could
actually have some legs.
Word is – and there has been some
talk about it for several months – that
there may be some significant changes
afoot in the makeup of Asian airline
membership in the various global
alliances. It has been reported, in the
China Morning Post and elsewhere,
that the region’s biggest carrier,
Guangzhou-based China Southern
Airlines (CSA), is set to ditch its
membership in SkyTeam to join
rival oneworld and that Hong Kong’s
Cathay Pacific could even opt out
of oneworld and move into the Star
Alliance.
Considering what it costs to get
into alliances, the relationships that
are built up while there and the high
cost of opting out, on the surface this
seems like a big step to take for either
of these operators. On the other hand,
airlines are extremely pragmatic
these days about partnering with
whomsoever they think will best profit
their bottom lines, no matter what
alliance ties they have.
For example, Qantas (oneworld)
has a deep partnership with China
Southern (SkyTeam) and with
Shanghai-based China Eastern
Airlines (also SkyTeam). Clearly, sinceoneworld doesn’t have a mainland
Chinese member, the Australian
carrier had to throw oneworld loyalties
aside in order to better penetrate the
Chinese market. It did the same when
it came to that once controversial but
now highly successful and profitable
partnership with Emirates Airline (a
non-alliance player).
Another case is Cathay Pacific
(oneworld), which has codeshares with
Air New Zealand (Star).
But there are deeper reasons
why China Southern should be
considering change. The operators
which effectively lead SkyTeam are
America’s Delta Air Lines and the Air
France/KLM group. Back in 2015,
Delta forked out US$450 million for
a 3.55 percent stake in China Eastern
(also in SkyTeam), CSA’s major local
rival. It has become increasingly clear
that CSA is being treated as the poor
cousin within the alliance structure
and it is feeling the pinch. So much so
that CSA President Tan Wangeng was
recently quoted as saying the future
of its alliance membership was “a
sensitive topic”.
That in itself amounted to a
clear expression of disquiet with the
situation. Besides, Dallas/Fort Worth-
based American Airlines (oneworld)
earlier this year moved to strengthen
its position in China by agreeing to
pay $200 million for a stake in China
Southern. The two plan to codeshare
extensively and are exploring co-
operation in other areas. Along with
the partnership it already has with
Qantas, it would seem to make a lotof sense for the three to end up in the
same alliance.
As for Cathay Pacific, its desertion
from oneworld would seem more
unlikely, even though its relationship
with alliance partner Qantas hasn’t
exactly been the smoothest over
the years. Much of the talk revolves
around the fact that Beijing-based
Air China (a Star member) has a 30
per cent stake in Cathay, therefore it
would make sense for them to be in
the same alliance.
However, that has been
complicated in recent times following
the arrival of Qatar Airways
(oneworld) onto Cathay’s share
register as its third biggest investor.
Talk that global airline alliances
are approaching their use-by date,
given that most member airlines
now freely get into bed with other
partners, is nothing new. But airline
chief executives who are involved
unanimously reject that view. They
still see benefit in membership,
particularly through areas such as
joint marketing, alignment of IT
systems and, to a certain extent,
joint purchasing in various areas. In
the latter case that hasn’t extended
to critical high value buys such as
aircraft and fuel, which it was hoped
would be in the early days of alliances.
Nevertheless, they are still seen as
a valuable part of the fabric of their
overall operations and network
strength.
And the alliance managements
themselves have adapted to changing
times. Star, for instance, used to
be fairly strict in not allowing its
members to stray outside the structure
when it came to serious co-operation.
That is no longer the case and Star
members, like those in oneworld and
SkyTeam, are free to tie the knot with
whoever fits their individual plans, in
or out of the alliance.
The bottom line? If you were a
betting man, or woman, a small wager
on China Southern jumping ship will
probably be worthwhile. But when
it comes to Cathay Pacific, keep your
coins in your pocket.
Of course, when it comes to
speculation in the airline industry, the
best approach is to figure out what is
the most unlikely and put your money
on that.‘Airlines are
extremely
pragmatic
these days.’
Alliances of convenience
Are Asia’s airlines about to shift their alliance allegiances?
ASIA WATCH
TOM BALLANTYNE