Air New Zealand and Cathay Pacific announce a partnership — alliances as we know them are slowly coming to an end!

This year has been radical on the airline alliance front. Many international airlines are losing heaps of money on their longhaul routes, which were primarily where they made all their money previously. The fact is with increasing competition in key markets, a weak economy, and oil prices still where they are, it’s tough to make money on longhaul flights.

Over the past few months we’ve seen Qantas dump their OneWorld partner British Airways in favor of an Emirates joint venture. We’ve seen Qatar Airways announce they would join the OneWorld alliance, despite the shake up this will cause with OneWorld airlines American and Air Berlin, both of which have partnerships with Etihad Airways. And most recently we’ve seen Richard Branson announce that Virgin Atlantic is seriously considering joining an alliance, as it’s what they need to remain competitive. This is surprising since historically Virgin Atlantic is probably the airline most opposed to the big three alliances.

Today Air New Zealand announced that they would be cutting their service between Hong Kong and London as of March 4, 2013, which is part of their round the world flight from Auckland to Los Angeles to London to Hong Kong to Auckland. Air New Zealand’s CEO claims the route couldn’t become profitable in the foreseeable future, and instead they’ll be shifting the capacity to their San Francisco and Los Angeles routes (so this is actually potentially good news for North American flyers).

Air New Zealand Business Premier

But the more surprising/interesting part of this announcement involves a new strategic partnership between Air New Zealand and Cathay Pacific in Hong Kong.

“At the same time, we wanted to strengthen our presence in Hong Kong which is an important market and vital gateway into Mainland China for Air New Zealand.  In line with this we have received approval from the New Zealand Ministry of Transport to form a strategic agreement with Cathay Pacific effective from 12 December 2012.”

“The agreement will see both carriers continue to operate the same frequency between Auckland and Hong Kong while introducing code share on each other’s flights as well as opening up excellent connections between New Zealand and Mainland China,” says Mr Fyfe.

The implications here are huge. The fact is that airlines couldn’t care less about traditional alliances anymore, and are forming partnerships wherever it’s practical. Air New Zealand belongs to the Star Alliance while Cathay Pacific belongs to OneWorld, which on the surface makes them rivals.

But they realized that both airlines can benefit by partnering — Cathay Pacific will pick up some traffic for their regional flights within Asia, while Air New Zealand will likely get more bookings out of their ability to serve customers beyond Hong Kong. So while on one hand this is good for customers, it also creates confusion. Members can earn points for flights on the airlines through both programs, though only on the routes that are part of this agreement. There’s no doubt this will lead to confusion, as an Air New Zealand frequent flyer member will earn points on a Hong Kong to Auckland flight on Cathay Pacific and then also expect them on a Hong Kong to Frankfurt flight, when in fact there’s no partnership in place for the route.

So is this the end of “the big three” alliances? Probably not. I suspect to some degree this is all cyclical, much like the economy. A little over a decade ago there weren’t any major alliances, and major airlines simply had major partners. United/Lufthansa and Delta/Air France may as well have been one airline — they were more or less married, until they decided they didn’t want a monogamous relationship, and that there may be more exciting options out there. Then we saw these great three alliances emerge, creating a (theoretically) seamless experience for customers. They were on their polygamous honeymoon, until they realized they could do better short term in some areas. And that’s where we are now.

In a way the trend in the industry is very much following what Alaska Airlines does. They don’t belong to an alliance but partner with airlines across alliances. I (endearingly) call them the “slut of the skies,” and it seems to work for them. More power to ’em. And I think that’s what we’re seeing with other airlines.

Alaska Airlines partners

The problem will be that at a certain point the strategy backfires. When it’s just one big puzzle and all airlines are partnering with each other, everyone is back where they started, and I’m sure they’ll be excited about the alliances again.

Anyway, just my two cents. What do you guys think?

(Tip of the hat to Mike)