Is The OneWorld Alliance Collapsing?

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The oneworld alliance reminds me more and more of a dysfunctional family at thanksgiving – every now and again the airlines are forced to sit around the table together but there doesn’t really appear to be that much love between them. Quite a few of the airlines in the alliance don’t appear to really get on and a couple of the airlines don’t even make much of an effort to hide the animosity between them.

I’d love to be a fly on the wall at oneworld meet ups!

Oneworld Issues

Here are just two examples of the recent issues oneworld has been having:

• American Airlines is one of 3 US airlines who have been pressing the US government to impose restrictions on the big 3 Middle Eastern airlines and that includes Qatar Airways a fellow oneworld member.

• Just a few weeks ago American Airlines chose to cancel its codeshare agreement with fellow oneworld member airberlin leaving the German airline in an even bigger mess than it was already in anyway.

While the common factor in those two examples is American Airlines there are others in the oneworld alliance who are known not to see eye-to-eye on a lot of things – like Qantas and British Airways for example – and, if you take a look at how Cathay Pacific operates, you could be forgiven for sometimes forgetting that it’s an alliance member in the first place.

The ugliest spat of them all however is the one between American Airlines and Qatar Airways and, with Qatar now having a significant stake in British Airways’ parent company IAG, that’s not going to improve matters very much.

IAG Thinks Alliances Are Dying

As if all of that wasn’t causing enough tension in oneworld, Wille “show me the ******* money” Walsh (head of IAG) has thrown new doubt on the future of the alliance….and alliances in general.

Australian Business Traveller is quoting Mr Walsh as saying:

[A]lliances add value today but I would question whether they will continue that in the future. There was a need and there still is a role for them to play but I would be surprised and question whether they will exist in 10 years from now.

IAG’s boss believes that its joint business agreements (like the one BA has with American Airlines across the Atlantic and like the one American has with Qantas to the South Pacific) that are the future.

That’s not necessarily good news for travelers.

No matter what airlines put out in press releases the ultimate point of the joint business ventures is to legally allow airlines to collude on pricing, to profit share and to control capacity on the routes. They have absolutely nothing to do with benefits to the traveler…those are just a bonus add-on and not really an integral part of the agreement.

The oneworld lounge at LAX

Travelers like global alliances because they allow them to fly with numerous airlines while collecting miles in a single loyalty program and enjoying status benefits on all the alliance airlines they fly. The introduction of Alliances made travel more comfortable and more rewarding…..up to a point.

Alliances Have Been Getting Worse For Some Time

While status benefits across the oneworld alliance have, by and large, not changed too much the same really can’t be said for mileage earning.

The was a time where travelers flying most oneworld airlines would earn miles at a rate equivalent to 100% of miles flown (before any cabin bonuses) regardless of the cabin the booked…but not any more.

Nowadays Economy Class passengers get a terrible deal from most oneworld airlines and all you have to do is look at American’s earnings charts to see what I mean.

Here’s the earnings chart for Qatar Airways……

….where you’ll see that most Economy Class fares (the cheaper fares) will earn just  25% of miles flown.

And that’s the trend with a lot of of the oneworld airlines.

Here’s Finnair….

and here’s airberlin…..

It get’s marginally better with airlines like British Airways where it’s just the very cheapest Economy fares that only earn 25% of miles flown…..

…but those are the fares that most travelers want to book. Who wants to pay more than they have to to sit in Economy Class?!

When it comes to Cathay Pacific (an airline I sometimes think is the most reluctant member of oneworld) things get even worse…..

…almost all Economy class fare earn ZERO miles when credited to AAdvantage.

Mileage earning for Economy Class fares in the alliances is now so paltry as to make it almost irrelevant – you can earn a lot more miles sitting at home and shopping on the internet with your co-branded credit card than you can from flying in Economy Class.

Will OneWorld Break Up

Yes, I think it will. And probably sooner than a lot of people think.

I think the major players have got as much out of the oneworld alliance as they believe they can and they’re much more interested in building individual relationships and joint ventures than staying together in the dysfunctional group they find themselves in.  They probably feel that the structure of the oneworld alliance is holding some of them back.

I expect airberlin to be the first to drop out of oneworld (I’d be surprised if it was still a member this time next year) and I think Qatar Airways will follow not too long after that.

To see why the alliance will probably break up just take a look at things from American Airlines point of view:

• Why does American need to be in an alliance with British Airways, Iberia or Finnair when they’re all already part of a transatlantic joint business agreement?

• Why does American need to be in an alliance with airberlin when it already has a very close relationship with British Airways?

• Why does American need to be in an alliance with Qantas when the two airlines are already involved in a joint business agreement.

You can extend those questions to the likes of JAL and ask why would Japan Airlines need to be in an alliance with BA, Iberia or Finnair when it already has a joint business agreement will all three of those airlines?

Bottom Line

While it hasn’t stopped the likes of Qantas having a successful partnership with a non-oneworld member like Emirates, I think the big oneworld airlines would like to have more freedom to forge agreements with whichever airlines they choose and I think they see oneworld as a barrier to doing that.

But, while that will be the primary motivator for breaking up the oneworld alliance, it will probably be the infighting that brings about the breakup sooner rather than later.