Will Low-Cost Carriers Form Partnerships With the Majors?

Dear Tim,

With all of the buzz about airline alliances these days, and the success of low-cost carriers like JetBlue and AirTran, do you expect any of these airlines to form partnerships, either with each other or with any of the majors? These tie-ups might be able to give the smaller airlines a larger share of the market, while helping the bigger airlines avoid bankruptcy.

Jon

Dear Jon,

There’s no overriding technical or regulatory reason why a discounter couldn’t enter into a bilateral relationship with a full-service carrier, or even become a partner in one of the three multicarrier global alliances (oneworld, SkyTeam, Star).

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In the short term, though, it’s unlikely. Here’s why:

The sort of close integration characteristic of successful alliances requires what might be called a virtual merger of equals.

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The whole idea, after all, is that the alliance participants pool their resources to create a larger network that seamlessly combines the services—routes, airport terminals and lounges, and frequent flyer programs—of the partners. That permits the carriers to expand the scope of their operations in a cost-effective way, and results in various purported consumer benefits (better connections over a wider route network, more airport lounges, expanded loyalty program options and benefits, etc.).

But returning to the merger of equals idea, the low-fare carriers and the full-service carriers are decidedly not equals.

The discounters generally don’t have lounges or first-class cabins. Their loyalty programs, if they have them at all, are structured very differently. They fly point to point, rather than using the hub-and-spoke system favored by the mainline carriers. And they focus their flights at secondary airports, rather than the primary airports where full-service carriers concentrate their operations.

In short, there are fundamental disconnects in the very areas where alliances must mesh in order to create the desired synergies.

That’s the current situation.

Longer term, it wouldn’t be surprising to see one or more bilateral alliances between members of the two camps. America West, for example, is a low-fare carrier with many full-service features. It already has a fairly wide-ranging relationship with Northwest—not quite what I would call an alliance—that could be taken to the next level.

And even further out, as the distinction between low-fare and mainline carriers is increasingly blurred, the aforementioned disconnects will become less pronounced, in principle smoothing the way for “mixed marriages.”

But even envisioning a time when differences in substance give way to differences in style, it’s hard to imagine a go-it-alone airline like Southwest cozying up to a buttoned-down mega-carrier such as American or United.

Then again, the airline industry is full of surprises.