Over the past few weeks, a series of trustworthy news sources have leaked rumors that Doha-based Qatar Airways is expected to join the Oneworld alliance. According to the Arabian Aerospace magazine, Oneworld is expected to announce “a significant membership development” that will take place in New York, the headquarters of Oneworld, on October 8. The online news services said that the meeting would include Bruce Ashby, the Chief Executive of Oneworld, Tom Horton, CEO and Chief Executive of American Airlines, and Willie Walsh, Chief Executive of International Airlines Group (IAG), the parent holding company of British Airways and Iberia Airlines.
Yesterday, Reuters did confirm that Qatar, which is lead by Chief Executive Akbar Al Baker, will indeed be incorporated into the alliance as part of the announcement early next week, according to sources close to the alliance. Qatar Airways has declined to comment on the situation.
If the rumor is indeed true, this will represent a very dynamic upheaval in the in the world of global marketing alliances, which are dominated by three major forces: New York-based Oneworld, established in 1999, Frankfurt-based Star Alliance, established in 1997, and Amsterdam-based SkyTeam, founded in 2000. In the ten plus years since the first major alliance was formed, memberships in each of the three alliances have become the norm for virtually every single network carrier worldwide, both global and regional, as a means of extending partnerships and cooperation agreements for the sake of enhanced connectivity, convenience and branding. The benefits of a global alliance are a win-win for airlines and their customers, by achieving the following:
- Scaling through cost reduction (sales, maintenance, operations, staff and capital)
- Generating additional profit streams through joint-services agreements (schedule coordination and revenue sharing)
- Providing more options for the traveler (cheaper prices through lowered operational costs for a route, access to more destination, mileage redemption and accrual to use for award travel or gaining elite status, reciprocal lounge access, and round-the-world tickets)
At the time of the formation of each of the three alliances, major Middle Eastern players, such as Qatar, as well as UAE-based Emirates Airline of Dubai and Etihad Airways of Abu Dhabi, were mere network carriers (or nonexistent, in Etihad’s case) and not given much afterthought by the likes of British Airways, American, Air France, United Airlines, Lufthansa, etc. who were the so-called “founding fathers” of Oneworld, SkyTeam or Star. During those days, oil was cheaper, economic conditions were brighter, and competitive threats were low.
However, the industry did an about face immediately proceeding the September 11, 2001 terrorist attacks. In the years following, global network carriers have shrunk, restructured or liquidated altogether facing unprecedented challenges which have squeezed their operating margins to almost nothing. While not numb to such challenges, the Middle Eastern power players have capitalized on advantageous geographic positioning and lower operating costs to grow their networks into territories previously dominated by older network airlines. European carriers, in particular, suffer in midst of major economic turmoil as they watch the Gulf airlines grow in lucrative developing and emerging markets across Asia, Africa and Eastern Europe, swallowing up market share and customer loyalty at levels that the EU airlines may never be able to capture.
Typified by predominantly Western influences, the global alliances have subsequently “shunned” from forming deep-partnerships and cooperations with the Gulf carriers, going as far as to influence geo-political spheres to impose bilateral restrictions to limit the growth of the Middle East carriers in countries such as Canada and Germany (initiatives spearheaded by national flag carriers and Star Alliance founders Air Canada and Lufthansa). Membership appears to be “touted” as a close federation of exclusivity and strategic positioning: aircraft were painted in special livery themes promulgating allegiance to one of the major three alliances, lounges were branded and even deeper intra-alliance connections were formed between some member carriers (such as the mergers between United and Continental, Air France-KLM and the formation of IAG). Alliance membership even saved a few flag carriers such as Swiss International Airlines and Austrian Airlines, both of which were on the brink of financial collapse before they were acquired by the Lufthansa Group.
But challenging times have demanded shakeups. Last month, Qantas Airways of Australia, which was a founding member of the Oneworld alliance along with British Airways, Cathay Pacific and American, announced that it was dumping its 17-year joint services agreement with British Airways in favor of a new strategic partnership with Emirates. Not long after, it was reported that Emirates was courting American as well in partnership discussions.
All in all, lots of moving parts for Oneworld.
Such paradigm shifts bring the overall aims of the Oneworld, as a group, into the spotlight. Without question, it is the smallest and the loosest of the big three marketing alliances, and has missed out on several opportunities to expand its presence in key business markets: India, mainland China and Africa, in particular. As such, perhaps the invitation extended to Qatar could be viewed as establishing a “network anchor,” a phrase coined by CAPA, as a means of placing strategic importance on the Middle East.
Of course, adding Qatar to Oneworld’s network will not propel the alliance into first place necessarily in terms of global market share. In fact, the additions that Qatar would bring to the table would create a small nudge shifting Oneworlds global share a mere 0.6% from 11.6 percentage points to 12.2 ppts (Star and SkyTeam each hold 24.8% and 18.3% of global capacity, respectively).
Moreover, most of the destinations that Qatar adds to the Oneworld network are already served by SkyTeam or Star Alliance, and are not necessarily considered “first-tier” cities. However, the advantage that Qatar brings isn’t drastic network additions, but rather better connections via the geographic location of its Doha hub versus the likes of London Heathrow on British, Hong Kong on Cathay, etc which are not as conveniently located to funnel such passenger flows.
One might ask, what are the value propositions driving the decision from both sides? Well, as stated above, previous patterns indicate Oneworld is warming up to the Middle East, and of the “big three” major Gulf carriers as likely candidates, Qatar seems to be the best fit. Emirates has grown to such a degree that it can sustain itself independently of global alliance membership, and cultural and cosmic variations in operating style would render an integration into the cookie-cutter nature of Oneworld, Star or SkyTeam to be fairly complex.
Etihad is the smallest, and newest, of the big three, and interestingly already has existing relations with American Airlines and airberlin, the latter of which joined Oneworld earlier this year. Etihad codeshares with American on routes operated on Etihad metal to the United States from its Abu Dhabi hub, as well as transatlantic routes operated on American between the U.S. and Europe. Etihad also holds an equity stake with airberlin. However, Etihad also has partnerships with a multitude of non-aligned carriers, such as Virgin Australia, among other extensive codeshares, interline agreements and cross-equities, in fact, far more so than Emirates or Qatar. That being said, it’s probably safe to venture that Etihad prefers this independent strategy over alliance membership, as the latter option would place many of its existing agreements under serious revision.
That leaves Qatar as the final option, and the impetus behind its lean towards Oneworld can be traced to the friendship between Al Baker and IAG CEO Walsh. In June 2010, Walsh was quoted in a Business Travel News article proclaiming that,
“Many of my European counterparts will bitch and moan about the way Middle East carriers operate; they think that it is unfair competition. I don’t buy into that.” –IAG CEO Willie Walsh
Both Al Baker and Walsh have each spoken highly of the other individual, and while Oneworld may be the smallest and loosest of the three alliances, it does pride itself on connecting what it believes to be the world’s largest business markets through massive hub connections in places such as Tokyo, London, New York, Hong Kong, Sydney and Chicago, among others, which correlates to higher-yielding traffic. Certainly not an unattractive proposition even to a Middle Eastern power player.
Therefore, it is a win-win situation for Oneworld and Qatar given those considerations.
Nevertheless, current Oneworld members will indeed have to make accommodations for Qatar Airways. Traditional alliance cross-agreements entail elite member recognition, lounge access and frequent flier accumulation, among other alignments, which carriers such as Qantas and airberlin will have to contend with in light of their partnerships with Emirates and Etihad, respectively. Indeed, there can be wiggle room for some overlaps, but perhaps Oneworld can rest on its habits of limited cooperation between member carriers so that all key stakeholders can coexist peacefully.
Above all, this is definitely the era of “alliance re-think.” CAPA summarizes it quite succinctly in describing the evolution from marketing organization, to anti-trust immunity, to finally partnerships and agreements with Middle East network carriers. It is quite impressive, although not surprising, that a single geographic region in the world can command that much power to completely alter the sphere of how alliances are run. Without question, the webs can become complicated and even dramatic if cautious steps aren’t taken to avoid upsetting key balances of power. It will be exciting to see further changes ahead, but cards will need to be played strategically.