Cathay’s Betsy and Niki

I am currently reading “The Amazing Adventures of Betsy and Niki” by Captain Charles ‘Chic’ Eather. The book is a must-read for aviation enthusiasts. From the annals of aviation history, the author presents the memorable account of two aircraft “Betsy” and “Niki”, representing the first fleet of Cathay Pacific Airways. Originally built as the C-47 Skytrain war planes, the duo were reborn as civilian aircraft after the global conflicts ended.

Chic has tried to really portray an honest, candid view of the early days in the airline’s history. He has managed to inject the right balance of humour both on and off the ground with his excellent recollection of the incidents. A pretty good read.

Thriving in Aviation without Global Alliances

Courtesy: Brett Snyder*

Over the last decade, more and more airlines have drifted into one of the three global alliances: Star Alliance,oneworld, and SkyTeam. You might think that the alliances have become crucial to airline survival. In fact, though, a few airlines have successfully bucked the alliance trend and instead thrived by working across alliances with multiple partners.

Only a handful of airlines can make this type of strategy work, and it requires a specific type of airline. But before discussing that, it’s helpful to know why airlines join alliances in the first place.

How alliances work

There’s no question that it’s expensive to join an alliance. Alliances have a base level of standards that are required for any airline to join, and there is usually some expensive tech work to connect all the dots. For the airlines that have joined alliances (and stayed there), the costs end up being worth the jump in revenue.

When an airline joins an alliance, the frequent fliers of partner airlines can instantly earn miles when flying on the new member airline. Not only that, but they can earn elite status qualifying miles, and that’s a big deal for building loyalty. The inevitable codeshares that follow help to flow passengers between all the networks in the airline system and that results in a big bump in terms of traffic.

Star Alliance member US Airways (LCC), for example, has said that its European operation wouldn’t be able to be nearly as large as it is without its alliance partners LufthansaSwissAustrian, etc., feeding passengers into the US Airways network.

How some airlines thrive without them

For the flip side, look at Hawaiian Air, for example. Nearly every U.S. airline flies to Hawai’i, but none of them fly between the islands. Would it make sense for Hawaiian to partner with a single alliance in order to increase connections? No. Hawaiian can take traffic from airlines in all the alliances (and non-alliance airlines) and fill its inter-island flights.

Being in an alliance wouldn’t increase traffic. It’s already getting the traffic from all the airlines, so an alliance would only increase costs. Closer cooperation wouldn’t really spark any additional passengers because there is no real competition for those partnerships in the islands right now. So Hawaiian can sit where it is and enjoy its place.

Another airline with this type of arrangement is Alaska Airlines(ALK). In the Pacific Northwest, Alaska has the hearts and minds of nearly every local resident. It’s a very strong brand with a tremendously popular frequent flier program. And because of that, it has a lot of airlines knocking at its door.

In fact, it has close cooperation with archrivals Delta (DAL) andAmerican (AMR). Both airlines use Alaska to extend their reach into the Pacific Northwest and they also use Alaska for Mexico flying. Delta has built international operations in Seattle with the expectation that it can use Alaska to fill those flights. Likewise, American counts on Alaska to help fill flights in LA. Alaska’s ability to feed passengers into major airlines up and down the west coast is tremendous.

So would Alaska benefit from joining an alliance? Not much. It already has reciprocal frequent flier agreements (including elite qualifying miles) with those airlines, and it has one-off partnerships with other airlines that it can help feed in its home base. The airline also partners with Air FranceAir PacificBritish AirwaysCathay PacificIcelandairKLMKoreanLAN, and Qantas. Its reach extends beyond just one alliance.

JetBlue’s international connections

Another airline that has decided to follow this strategy is JetBlue. Sitting on its perch in New York, JetBlue realized that it could partner with all sorts of airlines that fly into JFK in order to help provide connecting options throughout the U.S. It’s most recent partners are Virgin Atlantic and LAN but it also works with Aer Lingus, American, EmiratesLufthansaSouth African, and more are on the way.

South African is a great example of why this works. As a member of the Star Alliance, it could easily send connections via its Star Alliance partners, but there aren’t many connecting options at JFK. Sure, South African can connect people over Washington/Dulles on to United, but having this partner at JFK also helps it fill its New York flights better. It also gives JetBlue loyalists an airline preference when flying to South Africa. That can only help South African.

So why couldn’t JetBlue, Alaska, or Hawaiian join an alliance but then still have these one-off partnerships like South African? They could, but the point is that they don’t need to. As mentioned, joining an alliance is very expensive, and if these airlines can make it work without joining an alliance, then that’s a better way to go. Not many airlines can pull it off, but those with very strong niches in desirable places alongside strong brands can and do make it work.

*-http://www.bnet.com/blog/airline-business/how-some-airlines-thrive-without-global-alliances/3513

Deeper into the rabbit hole..

Large organizations are all about management and human capital. It is only when I was having drinks with some of my colleagues after work recently that I realized how big the International Air Transportation Association (IATA) really is. It comprises of around 2,000 people in Montreal at least. Plus there are huge offices in Geneva and Singapore. I must say, maintaining an organization at an international level successfully suddenly seems like a very impressive job well-done. Moments after I came to grips with the vast population of IATA, one of my colleagues, who used to work for Cathay Pacific mentions that Cathay has around 35,000 employees worldwide. My jaw dropped and then I went on to hear about their office in Hong Kong called “Cathay City”. It’s hard to imagine that these companies once started from scratch, i.e. 5-10 employees.

It feels like a complete privilege to be  part of such an esteemed institution. I feel like a part of the industry, well and truly. Moreover, when a power-point slide created by me is used by the Director General of IATA, Giovanni Bisignani at the Aviation and Environment summit 2010, it makes me feel like I am directly impacting a part of the Aviation industry. As a professional, that is what you want to see, and it is that very positive impact that propels you further, makes you take giant leaps forward and takes you deeper into the rabbit hole.