Delta’s CEO is Wrong About Airline Alliances

Last month Delta Air Lines CEO Ed Bastian declared that the global alliances failed to bring “a lot of great value to customers..[or] to member airlines” and vowed to create his “own international network of carriers” with Delta “as the centerpiece.”

He repeated this view when walking through Delta’s investment in South American powerhouse airline LATAM. Under Delta’s influence LATAM will leave the oneworld alliance but will not be joining SkyTeam.

Bastian is certainly right that alliances haven’t created seamless travel experiences for customers, and that alliances don’t allow airlines to do as much jointly as when they receive anti-trust immunity from governments to work together, as with a joint venture.

However he overgeneralizes the importance of this to alliances as a whole, rather than recognizing alliances simply haven’t helped Delta. There are two main reasons that Delta hasn’t benefited substantially from SkyTeam, while other airlines have benefited from their alliances.

  • SkyTeam is the weakest alliance. The Star Alliance gives United non-joint venture partners like Singapore Airlines and Turkish. American is able to partner with Cathay Pacific and Qatar. SkyTeam is for also-rans like Aerolineas Argentinas, Aeroflot, TAROM Romanian and Vietnam Airlines.

  • Frequent flyer program quality matters less to Delta than competitors. People choose Delta because of operational reliability and friendlier staff, not because of SkyMiles. It’s certainly more possible to get outsized value from MileagePlus and AAdvantage. But that’s largely the case because of alliance partnerships. Award availability on American is quite poor in my view, but redeeming for travel on American is a poor use of miles. It’s precisely because you can use miles for Qatar and Cathay redemptions that AAvantage mileage collection is worthwhile, and of course American’s own accounting shows they frequently lose money flying, earning all of the profit from selling miles to banks.

    Alliances mean it’s possible for members to cash in miles for awards even when the program’s host airline has no availability. That satisfies members and keeps them on the earning treadmill. Alliances also give greater reach, delivering an ability for members to travel places they couldn’t otherwise with their miles. And alliance award redemption is largely seamless, even if travel across airlines within alliances involves inconsistent products and policies.

The concern here is that Bastian is influential, airlines copy Delta for all the wrong things. They don’t think independently, merely assume that if Delta does something it must be smart, without factoring the differences in Delta’s business from their own. So Bastian’s claim that alliances have lost relevance puts alliances at risk, even if alliances are valuable for airlines not named Delta.

That of course is to Delta’s benefit, since other airlines create own goals (American in particular has a habit of playing Delta’s ‘Greater Fool’) that makes them less fierce of a competitor to Delta.

It’s also easy to overstate the uniqueness in inconsistency of product across alliance members. American Airlines itself flies five different international business class seats in its current fleet. The introduction of the Airbus A321XLR is likely to mean another seat still, and the return of the 737 MAX to service will likely accompany more international routes with a domestic product offered. Is the inconsistency of a customer flying Cathay Pacific really such a problem?

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. As much as I love Cathay, I would not fly them now. The oxygen tank thing, the protests in HKG, not for me. So your last statement is isn’t helping your opinion.

    I have received really good value for SkyMiles. It is possible. I just think we are seeing the downward spiral of miles that will happen to all airlines. Whether Delta started that is debatable. But stating that SkyMiles is so weak that is the reason for not delivering more passengers to Delta is just your opinion. From where I live taking Delta offers the same experience as AA or UA. There are no non-stops from my city other than Vegas and FL. But if I lived in DFW or EWR, the situation would different. You are bound to AA, because of Austin. If you lived in ATL, you would fell differently. I’ll predict that Bastian will just make Delta more centered to SkyMiles. The AF and KLMs, etc. won’t be able to go anywhere, plain and simple.

  2. Disagree. Alliances don’t do anything for passengers except generate confusion and a lack of accountability The ability to earn miles of dubious value are not worth it. Can’t check bags through, don’t get protected on misconnects, can’t assign seats.

  3. I fly mostly Star Alliance, so I can’t speak from too much personal experience, but I’d say Air France, KLM, China Airlines, Korean Air, and Garuda Indonesia are great airlines.

  4. @elliott, I have flown on many of these airlines and for every SkyTeam one, there is a better star alliance one. ANA is better than Korean, singapore better than Garuda, Turkish and Lufthansa better than KLM and Air France, Eva better than China airlines. Then there is Copa, Avianca, and Air Canada, that cover areas that SkyTeam basically does not.

  5. I agree that he seems to be speaking as a member of the weakest alliance, Skyteam. KLM and AF have good soft product, but do not have the networks or competitiveness of a LH or BA.

  6. I’m glad that Delta is saying these alliances are a joke. They are very good at gauging their clients needs and wants. Previous commenter was correct in that these alliances do create a lot of confusion for passengers. Seems they were only created for a tiny slice of the flying public that does significant international business travel. Vast majority of passengers won’t utilize SkyTeams benefits.

  7. Very well stated. Bastian couldn’t care less about anything but what benefits Delta, no matter what. Integrity, fairness, honesty, principles, basic business ethics, and the like are simply ignored. He does see to it that Delta staff are paid well in order to keep unions from gaining a greater foothold, so that’s something in his favor. If only the man wasn’t such an odious swine. Then again, you could easily argue the same about Parker, except with much less ability and insight.

  8. I don’t understand. Delta is a founding member and the largest airline in SkyTeam. Don’t they exert major influence in the alliance? Why don’t they make the changes they want? What’s stopping them?

    I personally prefer alliances because they create a consistent set of benefits/entitlements for passengers. Because there’s a framework for integrating services, services are more likely to be integrated. No customer wants to hear “we would love to, but don’t have access to that partner’s system.” Additionally, when 19 airlines agree to providing a benefit, it’s harder to quickly take away that benefit.

    Imagine having status with non-allianced Virgin Atlantic and flying on code-share operated by soon-to-be-non-allianced LATAM. If they joined SkyTeam, they would have to “get with the program” by offering reciprocal benefits and integrating services. If the only thing they have in common is Delta, there is less of a motive to cooperate for the benefit of their own passengers.

    Korean Air (SkyTeam) and JAL (OneWorld) cooperate with each other on flights between Korea and Japan. Not only do they code-share, but they operate ground services for each other. JAL will provide expedited checkin, expedited security, and access to their own lounges to Korean Air customers with status on Delta. Why? Because of SkyTeam. Korean Air (or a partner operating on behalf of Korean Air) will provide certain services as a condition of being in SkyTeam.

    Now suppose LATAM and Qantas cooperated on flights between South America and Australia. Will my SkyMiles number on a LATAM reservation provide benefits when I’m at the airport in Sydney? Probably not. Why? There’s no alliance. Do you think Delta is going to care how Qantas treated me in Sydney on the ticket I purchased from LATAM? Will Qantas waive fees for excess and heavy baggage?

    Alliances have value for customers. It allows them to move through the airport faster, avoid baggage fees, use lounges, credit miles, transfer bags, etc. It drives loyalty to an airline even in markets it does not operate or share revenue in. It drives loyalty at home for useful benefits abroad.

  9. The equity investment model’s strength lies in it’s multi-pronged approach to a single alignment of vision, rather than a purely consensus based structure. That really matters for travelers of means – end-to-end support globally for carriage with the cost of the strengthened experience being a revenue premium.

    In many ways, the current alliance model represents much of what is negative about globalization – divergent business dynamics and stakeholder interests competing head to head yet in the context of “frenemies.”

    As a side note, SkyMiles are valuable for flexible redemptions in economy. What it isn’t valuable for is the general travel blogosphere’s underlying business model based on aspiration.

  10. @Jeff makes many of the points I came here to make. Bastian illogically minimizes and Gary hints at but fails to elucidate the very real benefits that alliances offer customers, and especially frequent fliers. We reciprocate those benefits with loyalty.

    I can’t count the number of times I’ve bought a higher fare on Garuda or Vietnam Airlines over Airasia or Vietjet because I knew my status would get me through the airports faster and I wouldn’t have to think about baggage fees.

    The biggest issue undermining the effectiveness and value of alliances to customers and airlines is, actually, in my very anecdotal experience, basic economy. Unexpectedly receiving no alliance benefits after paying a premium for a ticket will push a customer to LCCs faster than Ed can blink.

  11. My first thought is that the reason behind Bastian’s remarks and stance is precisely because he cannot control the pricing of travel (especially award travel) on other, so-called “alliance” airlines, and he hates being undercut in price. If I can buy Miami to Beijing in J on the metal of a non-Delta alliance member for 40K less or $2000 less than buying it on Delta, Bastian loses. So he wants to blow up alliances, to control whatever he can.

    But my second thought is that Bastian is right, that alliances mean less today, because the frequent flyer currency of the future is Amex points or UR points or whatever, rather than Skype sos. I know that I earn ten times more points from my credit cards than I can from any flights.

    Right pew, wrong church.

  12. “Frequent flyer program quality matters less to Delta than competitors”

    Does it at all occur to you that maybe frequent flyer quality matters less to Delta either :
    1) Precisely BECAUSE alliances don’t matter?
    2) due to the same underlying cause of alliances not mattering?

    At the end of the day, if the upper management of Delta believes one thing, and the upper management of UA and AA believe another, I’d need something a lot more compelling than armchair blogging to think the latter is in the right.

    You know who would probably agree with me? The upper management of AA and UA that trip over themselves to emulate Delta faster.

  13. The CEO must be simply frustrated by his airline’s lack of control, more than anything. I’m based in a country that’s home to a Star Alliance-only flag carrier airline, and I’ve generally had positive experiences flying with the alliance’s airlines.

    I make sure to choose said airlines, of course, but that just means that I have various good choices to fly with.

  14. Sorry but I agree with Bastian. Alliances are worthless, the old interline system is more effective and airlines outside the US make it work.

    Though your argument seems to focus on converting miles for trips on other airlines. Often non is airlines require less.

    Still DL/VS seems the wave of future including the purchase of equity in another airline

  15. I have no problems with Star Alliance. I am a 1K with United and never have an issue with mile redemption on partner airlines. My bags check through where allowed by local laws, and redemption rates are pretty good. The primary reason I chose United is because of the vastly superior alliance network.

  16. What @Jeff and @Retired Lawyer said. Bastian obviously wants price control to get deeper in your wallet. I think alliances are great. Skyteam is weak, and skymiles are junk. You can’t even get international first class with skymiles (only a watered down version of it domestically in China). Skyteam’s weakness became apparent since moving from DL to AA four years ago. As I’ve said before, Star is so strong it tempts me to fly UA. That’s saying a lot.

  17. First of all, I think it’s important to think separately of frequent flier loyalty programs (i.e., elite status benefits) and points programs (coffee shop punch cards). Everyone readily accepts that DL’s punch-card program is mediocre; however, while front-cabin monetization has diminished the value of elite status upgrades, my sense is that the elite status aspect of skymiles is competitive (and synergizes well with the company’s overall service culture). To the extent that alliances allow the extension of these elite benefits to a broader network, they are valuable regardless of what Bastian thinks.

    Secondly, the greatest potential benefit of alliances — seamless travel on all partners — is hampered by members’ consistent underfunding of IT. Only now are alliances waking up to the value of developing joint IT platforms to make this happen. It’s hard to blame alliances for this failure when Delta has simply been devoting its investments elsewhere.

  18. Alliances and JVs all have their cons and pros. As a frequent flier, I prefer Delta JV partners (KLM, AF, Virgin, etc) for options to upgrade to business. This simply does not exist with non-JV SkyTeam members. I like SkyTeam alliance because when I fly Aeroflot or China Eastern – I earn MQMs and MQDs to maintain my status. Some “partner” flying outside of JV is very rewarding and earns more SkyMiles than the same with JV partner.

    On balance, I agree with Bastian. JVs offer more consistency in service, more flexibility in monetizing the SkyMiles, better coordinated schedules, reciprocal premium lounge benefits and all of that… yes… comes with the price of lessened competition and higher fares.

    When I was a casual traveler fares mattered the most. Now, I appreciate the experience an value Delta’s amazing customer service (on the plane, on the ground or over the phone) – I have not experienced that with any other airline!

  19. Alliances matter to a small sliver of travelers. They only make sense to airlines if they don’t cause more headaches they’re worth to operate. Nothing would fundamentally change in travel if alliances up and disappeared tomorrow

  20. Firstly, I think Delta’s comments were taken out of context.

    Ed Bastian says”global alliances failed to bring a lot of value to airlines”:. Monetary value? Of course not. But value is not merely measured by revenue. What they bring to airlines, is reputation, brand and a unique positioning that simply can’t be replicated easily. Considering that he then announced he was buying a 20% stake in LATAM Airlines, one could assume that maybe, he was referencing airlines like Qatar and Etihad who assumed that buying stakes in airlines would translate into a great team of airlines.

    We get confirmation that they were digs at American Airlines who, is not the centerpiece of oneworld, and had wrong ideas about alliances, simply believing that their lack of engagement with the global markets their alliance members were based in was sufficient.

    Joint Ventures, Alliances…. Elite, Elite Plus; Silver, Gold… It doesn’t matter. They are the same. We have to remember that most airlines in oneworld, Star Alliance, SkyTeam… it’s not like they had a choice, you know. For me, Star Alliance is definitely a manifestation of those global meeting events like APEC, G20 Summit etc. They did not elect members based on their suitability, but rather the region and economy they are from. That Star Alliance consistency is appearing to feel united, pun intended, is entirely coincidence. As for SkyTeam, I like the fact that SkyPearl Club shuts any doubt about their allegiance. I don’t think anyone would have stayed in SkyTeam if given the chance to join oneworld or Star Alliance, but somehow they did, and despite being airlines doomed to fail, airlines like Alitalia, Air France, Air India, KLM, Korean Air, Virgin Atlantic… SkyTeam and the airlines that surround the periphery, are all iconic.

    Perhaps Alitalia’s financial problem isn’t because it’s incompetent, but because of systemic reasons. Perhaps all Alitalia needs, isn’t just a partner, but someone who can steady Alitalia’s hands as it calls all Italians and Sardinians home…

    Air Dolomiti, Air Serbia, Mistral Air, Croatia Airlines, Ernest Airlines, Air Malta, Air Europa, neos, Air Italy… it puzzles me why peopel don’t realize that Alitalia isn’t just that peninsula. Italy used to be a lot bigger. And only one airline holds the keys to Alitalia. Aeroflot. Without them everything they try to do with Alitalia will always fail.

    The more alarming thing, is how much handicap you all give American Airlines, British Airways and their so-called oneworld. I am not even going to call it an alliance. oneworld continues to mystifies the brain, I’m sorry, but USA isn’t the entire world. Why American Airlines feels such snobbery against Qatar, is absolutely strange considering AA was supposed to be the nicest. In SIN Changi plays out as the most ridiculous lie of oneworld in solidarity. They are so stubborn, so prideful, that they would rather die than partner up. It’s clear, that Cathay needed additional capacity to Australia, which could potentially be provided at SIN, thereby creating a win win where CX supports QF competition against SQ. But notning happens.

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