Alliances: Airline Loyalty Marketing In China

Chinese airlines are quickly expanding their frequent flyer programs as they gain new international alliances and codeshare agreements, so it is necessary to understand how these programs have developed and where they will grow in the future.

More than 70 years ago Pan American Grace Airways and its parent company Pan American World Airways agreed to exchange routes to Central and South America – this is widely regarded as the first airline alliance.

More recently, in 1989, Northwest Airlines and KLM formed the first major modern alliance – providing each partner with access to markets that had previously been closed to them.

The next major step forward from bilateral code sharing agreements was when five airlines – Air Canada, Lufthansa, Scandinavian Airlines System, Thai Airways International, and United Airlines – formed Star Alliance in 1997. This was rapidly followed by the creation of Oneworld in1999 and the launch, in 2000, of the SkyTeam alliance with founder members Aeroméxico, Air France, Delta Air Lines, and Korean Air. Since then the three alliances have grown to encompass a high proportion of the world's major airlines and to provide a near global coverage (see Current Alliance Membership below). Today the members of the three alliances carry over 60% of worldwide air passenger traffic.

In 2005, SkyTeam launched its Associate Program, this enabled existing codeshare alliances – such as Continental and Copa – to be integrated into SkyTeam's marketing programs.

Alliances – The Pros and Cons
The benefits of an alliance are very clear – for the member airlines an alliance provides access to a global market; the opportunity to share resources (e.g. on-line booking systems) with a consequent reduction in costs; improved load factors; and a higher level of brand loyalty from their passengers. For passengers, the alliances will highlight advantages such as seamless connections; round the world ticketing; consolidation of frequent-flier benefits; and a wide range of features and services. For bookers, for example, SkyTeam offers a service they call "Global Meetings" which enables them and their clients to get special terms when flying to international events while travelers can make their arrangements individually. However, passengers and bookers should appreciate how the alliances are structured in order to be able to benefit from the advantages while avoiding the pitfalls.

While the alliances provide global coverage each alliance is stronger in some geographical areas and weaker in others.

Areas Where Each Alliance Is weak
Star Alliance: Russia / CIS, Australia.
One world: Russia / CIS, India.
SkyTeam: Australia, New Zealand.

Note: Areas where an alliance is weak indicates that none of its members has a hub in that region and they fly few if any flights to locations in that region.

And, while the alliances incorporate many of the major airlines there are some notable exceptions — in particular independent airlines such as Virgin and its affiliates, and low cost carriers. Also when booking a multi-point route with an alliance member the itinerary will be structured to give the most convenient or cheapest routing using the members of that alliance. This is not necessarily always the cheapest or most convenient routing possible. The booker may need to consider the benefits of booking an itinerary on a single code share against the possible disadvantages of a less convenient routing overall and potentially higher ticket price.

Which alliance is chosen often depends on which airline (or airlines) a passenger uses most frequently. For example Air China and Shanghai Airlines are members of Star Alliance, whilst China Southern is in SkyTeam, and Cathay Pacific is part of Oneworld. So travelers from the North of China, from the South of the country, and from Hong Kong may well opt to place their business with different alliances.

When passengers have to transit at airports such as Heathrow with several highly separated terminals some of the Alliances are "Co-locating" their member airlines to a single terminal. This reduces considerably the time and effort required to move between flights when transiting an airport.

More miles?
Although the alliances allow frequent fliers to consolidate their miles and use them for free flights, upgrades and other perks, air miles are allocated by the member airlines who may have differing policies. For example some airlines will credit passengers with the same number of miles on any economy ticket – whether the full fare has been paid or not. However other airlines will restrict the number of miles earned on special fares, or may not allocate any miles at all on the cheapest tickets.

In conclusion
Alliances have braught advantages to airlines, bookers, and travelers alike. By comparing and contrasting the offerings of each alliance a booker can achieve convenience for the traveler without incurring unnecessary additional costs.

Current Alliance Membership

Star Alliance:
Air Canada
Air China
Air New Zealand
Asiana Airlines
LOT Polish Airlines
Scandinavian Airlines
Shanghai Airlines
Singapore Airlines
South African Airways
TAP Portugal
Turkish Airlines
US Airways

Regional Members
Adria Airways
Croatia Airlines

American Airlines
British Airways
Cathay Pacific
Japan Airlines (JAL)
Royal Jordanian

Air France / KLM
Continental Airlines
Czech Airlines
Korean Air

SkyTeam Associates
Copa Airlines
Kenya Airways