I’ve been involved with airline alliances since the early 1990s when KLM and Northwest were beginning the first U.S./European airline alliance complete with anti-trust immunity. It seemed to be a benign alliance that allowed the two airlines to coordinate schedules and code-share across the Atlantic.
Historically, I can’t think of a single good thing for consumers or airline workers that has come from airline alliances. Workers have lost jobs and consumers have seen competition and choice erode. But the new versions of alliances that airlines want to have approved by the Department of Transportation are far more far-reaching than anything considered 20 years ago when KLM and Northwest received the first grant of anti-trust immunity to coordinate schedules.
That “coordination of schedules” eventually resulted in the merger of their marketing departments. Today’s anti-trust immunity requests are so intricate that the airlines have actually kept most of the details secret from the public, releasing details only to lawyers, not even journalists and congressional staffers.
This year, Rep. James Oberstar, D-Minn., introduced H.R. 831, “A Bill to Ensure Adequate Airline Competition.” Its provisions have since become attached to the FAA Reauthorization Bill, which is being considered by the House. This bill is aimed directly at the airlines and their drive for anti-trust immunity.
Here is how the current arrangement of code-sharing and airline alliances started 20 years ago with Northwest and KLM.
The original airline anti-trust exemption idea was to use the Northwest network in the U.S. to feed KLM flights to Europe and in return KLM would use its network to feed Northwest. The idea worked wonderfully for both airlines. They made lots of money, and it was eventually copied by others.
After several years, Northwest gave up its sales force and marketing arm in Europe and passed that job on to KLM. Here in the U.S. KLM closed its Elmsford, NY, headquarters and relocated the workers who wanted to move to Minneapolis and folded them into Northwest’s marketing and PR infrastructure.
What started out as a simple request to coordinate schedules turned out to be a total abdication of KLM’s U.S. marketing operation and the elimination of Northwest’s marketing arm in Europe. With this operation, far more than simply schedules were be coordinated in the long run. In terms of their transatlantic schedules, the airlines ran, for the most part, like a single entity avoiding competition with each other.
It was a transatlantic route merger without the messiness. A merger of the parts of the opposite airline that each organization craved. The losers in the consolidation of the Northwest/KLM transatlantic route structure were the consumers and the workers.
The corporations on both sides of the Atlantic and the executives all came out smelling rosy while the U.S. and European marketing arms of each airline were dismantled and the workers fired. The passengers saw once robust competition between Northwest on its Boston to Amsterdam routes with the KLM New York to Amsterdam routes disappear. “More convenient” non-stop flights from Minneapolis, Detroit and Memphis all using Northwest aircraft began feeding KLM’s European network.
To say the least, the difference between a KLM flight and Northwest flight was dramatic. Northwest was flying old DC-10s with five-abreast seating and KLM had new Boeing 747-400s. The Northwest meals were fodder for “airline meal” jokes while KLM was serving decent meals with free wine and after dinner drinks. The differences in business class were even more pronounced.
More than once, while flying on company business between Boston and Amsterdam, I heard disappointed passengers who thought they had purchased a KLM ticket for their transatlantic flight discover they were on a Northwest flight.
Other airlines that folllowed the code share system allowed even starker differences between aircraft on transatlantic flights. I remember stories of passengers crying after purchasing a Delta ticket to Budapest and finding out upon arriving at JFK that the flight was actually on Malev, the Hungarian airline. These customers were incredulous. (Malev ended up teaming up with the OneWorld alliance later.)
The airlines will soon be howling because of the Oberstar bill being debated in the House. However, their cries of thousands of additional lost American jobs are disingenuous. Their claims of better service have not been borne out by two decades of alliances. Their requests to negotiate together is anticompetitive and tantamount to a merger without swapping stock, which would cripple competition for business and leisure travelers as well as suppliers and travel agencies.
From a consumer’s point of view, there is little good in the a world of alliances that would give the control of the skies to three giant, stateless, international entities. Rep. Oberstar’s concern is well-placed and his instincts that this is a raw deal for the flying public is spot on.
