Alliances of global airlines — oneworld, Skyteam, and Star Alliance — are under attack. Attached to proposed legislation to upgrade the air traffic control system, a new proposal could be the death knell for the alliances — or at least the end of their legal presence in the United States.

Rep. James Oberstar (D-Minn.), a longtime critic of the alliance system is harnessing unease in Washington D.C. about the competitive impact of international pacts to back a bill that could have a drastic impact on existing and planned airline cooperation.

The chairman of the U.S. congressional committee that oversees airlines is pushing an aviation bill that would automatically withdraw antitrust approval for alliances within three years, although they could be restarted under more stringent rules.

The bill is attached to a $70 billion proposal to modernize the creaking U.S. air traffic control system, which gives it a greater chance of becoming law.

Its provisions could lead to the rolling back of the antitrust immunity, or ATI, already in effect for members of the Star and SkyTeam alliances. It could also derail efforts to expand these groupings and extend immunity to members of Oneworld, the smallest of the three.

Remember that Oberstar is the same legislator trying to block liberalization of airline ownership rules. I would argue that alliances would never have become necessary if nations — like the US — had more reasonable cross-border ownership rules. The alliances are a way to give the companies backdoor merger benefits (e.g., “revenue sharing” on trans-Atlantic routes) alongside the efficiencies that come with aligned schedules.

So what happens if alliances are declared a monopoly in the US, or elsewhere? Frankly, it could be a good thing for passengers, as long as codesharing isn’t entirely eliminated in the process. Alliances may have benefited travelers where schedule alignment and frequent flyer partnerships are concerned, but they’re legal oligopolies. They admit as much: That’s why they require antitrust immunity in order to function.

If airline alliances were to disappear, international passengers would likely see some inconvenience at first. But how much inconvenience? Global lounge access? Priority tags on your luggage? Really, what would change? And for how long? Over time, airlines would negotiate bilateral partnerships in lieu of broad alliances.

And what about the upside? As it stands, alliances are essentially a legalized price-fixing scheme. They’ve always been for the convenience of the airlines, not the passenger. So eliminating price fixing sounds like an easy win for the consumer.

Oberstar may be wrongheaded with his advocacy of protectionism, but he may be onto something with regard to alliances.

Unable to find agreement to merge (thankfully), Continental and United have announced plans to partner, with Continental joining the Star Alliance in 2009, subject to regulatory approvals. With alliances being mutually exclusive, that means the SkyTeam alliance, with Delta and Northwest anchoring the North American members, will lose a major player.

In an e-mail to Mileage Plus members, United is pitching this as a benefit to frequent flyers, with an increase in mileage (and status) earning opportunities. Codesharing would commence upon approval, and Continental would align its schedule to coincide with United and Lufthansa, the two anchors of the alliance.

For frequent flyers in the two programs, there are questions that arise: United is pitching the reciprocity angle, where you receive and accrue benefits in either program, but Continental and United have very different programs, especially in terms of how status miles collect (where you buy the fare matters to CO, not to UA) and how upgrades are obtained (”unlimited” on CO, based on status, vs. certificate-based on UA).

And then there’s this: “Internationally, Continental and United will establish joint ventures that will allow us to cooperate with each other and with other Star Alliance airlines throughout the world.” Will these “joint ventures” be a new airline, like British Airways’ OpenSkies?

Stay tuned. Either way, changes afoot.

US Airways announced an $8 billion cash and stock bid to buy Delta out of bankruptcy. If it goes through, the new company will fly under the Delta banner.

It’s pretty remarkable that US Airways is doing this, since they’re not even finished digesting their previous merger (when America West bought the old US Airways and took over the older rival’s name.)

The merger would mean a 10% cut in capacity (i.e., fewer seats, higher prices, fuller planes) and inevitable job losses in cities served by both airlines. Consumers and employees are likely losers here.

Two questions on my mind:

1) Will the emergent Delta be a member of Star Alliance or SkyTeam? I’d put my money on SkyTeam, given Delta’s size and international presence, compared to US Airways.

2) Will this announced offer lead to more mergers? United+Continental has been talked about for some time, though the latest buzz has United going private. But airlines are making money, for now, and the impetus to merge has faded somewhat. US Airways is striking now, while Delta is still in bankruptcy court, and control of the company rests with creditors.

We’ll see what happens.

(image)

Is there any difference (in your opinion) in per-mile value depending upon a) alliance (Star vs OneWorld vs Skyteam) or b) individual airline?

E.g. what is better 100,000 Delta miles, 100,000 United miles or
100,000 Continental miles (for simplicity, let’s assume you are
non-elite in all of those and that the above miles are all you have in
each program)

Good question, Anton. Yes, I think there is a difference in value between programs, but it’s not easy to quantify. Prepare to geek out!

Redemption rates
Short answer: Yes, there’s a difference. Different airlines charge different amounts for similar tickets. But one airline may cost more for one route, and less for another, especially on international routes and in premium classes. For example:

• Flying from North America to Europe in economy class costs 50,000 miles for a typical coach ticket on American, United, Delta, and Continental, to name a few. If you’re a resident of Europe, Lufthansa charges 60,000 miles for the same itinerary. Bizarrely, they charge Americans only 50,000.
• Business class for the same US-Europe itinerary is 90,000 miles on most airlines, but for a few short weeks, United still only charges 80,000. (United is raising the price to 90,000 on October 16, so book quickly if you want the lower rate. See here for details.) But Northwest charges a full 100,000 for the same ticket. Europe is no value on NWA.
• Business class from the US to Australia with United miles (post October 16): 110,000 miles. With American miles: 125,000 miles.
• Chicago to New York area airports on American: 15,000 miles (limited time short-hop rate). Continental: 20,000 miles. Everyone else who flies nonstop (United, Delta): 25,000. On a percentage basis, that’s a big difference.

So, some airlines have “bargains” for certain awards, making those miles worth more than others for those awards. And if you fly those routes, you get more value for your miles.

But… it would be nearly impossible to come up with a one-size-fits-all formula that accurately reflects the differences between programs. Why?

Besides redemption rates, I’d suggest that there are (at least) three other variables that affect comparisons between programs: 1) accrual ease, 2) route network, and 3) redemption ability (award supply).

Accrual ease
If you’re looking to choose a program in which to accrue miles, mileage-earning opportunities matter. You want to be able to earn points easily. JetBlue’s program lets you earn miles in one of two ways: flying JetBlue, or by using their credit card. Not a lot of options there.

At the same time, you could make an argument that excessive accrual opportunities are bad for the program in the long run. Miles function like a currency. If airlines increase the number of miles in “circulation” too much, without award supply moving up similarly, then you’ll have more miles chasing fewer awards. This is what’s happening now, actually: People have the points, but can’t get the ticket they want. The imbalance creates inflationary pressure, meaning that airlines will want to raise the “price” of their award tickets to even out supply and demand.

But in your example, Anton, you have 100,000 miles in the program of your choice, and you’re looking to cash things in right now. So, despite mileage accrual’s effects on your experience with a program, let’s put accrual aside.

Route Networks
Where you fly matters, both for accrual and redemption. If your miles don’t get you where you want to go, then who cares? And this throws a wrench into any efforts to create a formula. One program may work great for one person, but not for another.

Let’s say you want to fly regularly from Los Angeles to a city that’s not a huge hub. Like, say… Tegucigalpa, Honduras! In such a case, you’re probably better off joining a program with an airline in the oneworld (e.g., American) or SkyTeam (e.g., Continental, Delta, Northwest) alliances, and not Star Alliance (e.g., United, US Airways). Star Alliance doesn’t fly to Honduras (though United has a separate side partnership with Central American carrier TACA).

Even domestically, route networks vary. You can’t visit North Dakota with Southwest Airlines Rapid Rewards, for example.

For what it’s worth:

• Star Alliance airlines fly to 842 destinations
• oneworld covers “over 600″
• Skyteam claims 728 airports.

Redemption ability/Award availability
You can’t buy anything if there’s nothing on the store’s shelves. But it’s really hard to accurately gauge just how easy it is to grab award seats. And airlines aren’t talking. They’ll tell you how many tickets were redeemed with miles, but how many tries did it take? Was it the first choice? How far in advance were reservations made?

InsideFlyer tried to put airlines to the test, but their methodology isn’t foolproof. So we’re stuck with anecdotal evidence: Some airlines are notoriously difficult for cashing in miles (Continental) while others have a better reputation (American, Southwest).

So whose miles are worth the most? Sorry to waffle, but it really depends on you…

(image: Alex Segre)

It would be great if the Star Alliance could take a break from expansion long enough to improve its cross-airline benefits. SkyTeam has recently (or, recently to me, anyway) made some major steps in that area: cross-airline club access is much smoother than it once was and accessing a partner club does not require a ticket on that partner airline, and all SkyTeam elites get access to preferred seating at the front of the plane (no more legroom, but faster getting off) and in exit rows on every Sky airline. It’s only a shame they don’t really have any airlines worth getting excited about.

Hear, hear.

(Except for the fact that Star Alliance does need to find itself some coverage in South America, now that Varig has become a shadow of its former self.)

I have a number of quibbles with airline alliances. While they offer convenience and single-ticket travel across a range of airlines, they aren’t yet a perfectly well-oiled machine, from the consumer’s point of view.

- As Cole says, benefits aren’t clear across partners. Can you sit in exit rows, or not? Can you use the lounge, or not? Priority baggage handling? Etc.

- You need a Ph.D. in Milesology to figure out how many miles you’ll actually earn in your “home” program. Buy a ticket that involves SAS, ANA, and Lufthansa, and you might only earn 25%, 70%, and 50%, respectively, of the miles flown if you credit a United Mileage Plus account. Ridiculous!

- Alliances are potentially monopolistic. (SkyTeam has already been investigated for price-fixing.) With multiple companies selling the same itinerary, competition concerns are appropriate.

Now, on top of it all, Gary Leff points to another problem: Fluctuating redemption restrictions. Some alliance members already seem to discriminate against some partners. Try inquiring about award ticket availabilty using Lufthansa’s miles. Then try the same award — same dates, flights, class, etc. — using US Airways miles. Odds are that the availability differs.

Now United is putting the kibosh on business class awards on Singapore Airlines, long considered one of the best (and most luxurious) carriers. Now, under the new rules, if you’re trying to book seats in business class, you can’t book two flights in a row on Singapore. Let’s say you fly over the Pacific in business class on Singapore, and you want to another destination in Asia, also on Singapore. That connecting flight has to be in coach. Even though you’re “paying” the full business rate in miles.

You can avoid this by flying two different Star Alliance airlines, but why why why is this sort of gamesmanship necessary?

If the Star Alliance is really worth anything for consumers, then the alliance’s management will clamp down on this sort of intra-alliance discrimination. Don’t hold your breath.

A short write-up of around-the-world ticket options in the New York Times today, while generally good, left out some important options.

- Branch out. The article advises checking with the 3 big airline alliance websites (Star Alliance, OneWorld, and SkyTeam) to see flight options. That’s great, but don’t limit yourself to the alliances alone. Some airlines have side agreements outside their alliance that may be appealing, such as the Emirates/United round-the-world ticket.

- Talk to a travel agent. While many airlines can sell you the ticket, it’s often easier to deal with an agent for this kind of thing. Not every airline customer service rep knows the minutiae of round-the-world ticketing. I’d even suggest you talk to more than one travel agent, to compare pricing, routing, and heck, personality.

- Start in Sri Lanka. If you’re going around the world twice or more, consider buying the second (and third, etc.) ticket someplace like Colombo, Sri Lanka. I’m not kidding. You can buy a business class RTW ticket there for about the same price as a coach RTW ticket in the US or most of Europe, on the same airlines. The article mentions this, but it’s really worth driving home.

The last week was a good one, though I think I need to take a few days off of chocolate and cheese. (I won’t do a trip report unless the masses demand it, but we spent a little over a week in the Netherlands, touring cities and the blooming bulb fields.)

I’m not quite back on Central Daylight Time yet, despite my best efforts. (Though it’s too late now, I checked the British Airways jet lag advisor site to see if I’m on track to overcome jet lag quickly. Not quite. It would have been nearly impossible to follow their “avoid light from 9:00 to 11:30am” suggestion, seeing as I have a job to go to…) Someday I really need to try melatonin or some other drug. It’s all the rage, after all.

Besides sleep, I’m also catching up on what’s happened in the past week, but clearly it was an eventful time for travel related news. Buckle up.

- Northwest reversed the $15 “choice” seating fee for its elites. Good for them!

- United raised the price in miles for *selected* routes and classes, plus added short-term ticketing fees. (boo!) I’ll post more on this soon, for sure, once I adequately digest the changes.

- The Wall Street Journal (via Tim Leffel) reported that 27% of Americans now have a passport, up from 22% last year. Quite a jump! (Leffel’s theory: since Canada and the Caribbean used to NOT require a passport for US citizens, but will soon require one, we’re seeing a surge of new applications for North American travel needs. It’s a theory. Got any other ideas?)

- Following Star Alliance’s addition of Swiss and South African Airways, the SkyTeam alliance added Russia’s Aeroflot to its roster. How does the European Union welcome them? With an anti-trust investigation of the alliance. (slap!) Well, it’s probably unrelated to Aeroflot’s entry, but still.

- Delta isn’t striking. Pilots agreed to a 14% pay cut.

- America West used to serve Pepsi. US Airways served Coke. Then they merged. The winner: Coke. (Serious question: Does Virgin Atlantic serve Virgin Cola?)

- The Maxjet news you know you crave: The discount all-business carrier reported in a press release that they’re actually filling planes — 50 to 70%. More impressive: their customer satisfaction percentages are in the 90s for those surveyed (how large was their survey sample size??…)

- Finally, pieces of defunct Independence Air went up for auction. The flight simulator went for $3750. Chairs went for $5 each. Both will look great in someone’s home, I’m sure. Maybe even this home.