AACO carriers to form virtual alliance

A number of Arab airlines are working on integrating their networks and forming a virtual alliance. The plan involves Royal Jordanian, MEA, Saudi Arabian Airlines, EgyptAir and, possibly, two or three others, including Gulf Air.

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By  Neil Denslow Published  October 11, 2004

A number of Arab airlines are working on integrating their networks and forming a virtual alliance. The plan involves Royal Jordanian, MEA, Saudi Arabian Airlines, EgyptAir and, possibly, two or three others, including Gulf Air. The plans, which is being worked on by consultants from Sabre Airline Solutions, calls for a two-stage approach. In the first stage, the individual airlines will re-evaluate their routes and distribution strategies, before, in the second phase, working to align their networks into a wider alliance. “It’s a core team of four or five carriers [leading the project], and then it can be extended to whoever else might be interested in the future,” explained Samer Majali, president & CEO, Royal Jordanian, who is the current chairman of AACO. The first phase of the plan is already underway with a number of airlines working with Sabre on network rationalisation and on enhancing their distribution policies. This mainly entails cutting loss-making routes, focusing on new market opportunities, and then realigning the fleet to support the new network. Gulf Air and EgyptAir, for instance, have both made huge strides in this regards over recent months. The second phase of the virtual alliance project will be more challenging, however, as the carriers are attempting something untried in the rest of the world. The idea is that the alliance members will integrate their networks in a similar manner to the global alliances, such as Star and SkyTeam. However, the AACO alliance will face a different challenge to these global groupings, as it will be formed by airlines operating in the same region, rather than having members from around the world. “Alliances have grown by picking carriers from different areas [of the world] and making their network complementary. What we are trying to do with the virtual alliance, and beyond the virtual alliance, is to see whether there is potential for carriers in the same area to work together,” said Majali. The challenge for the AACO project is that because the potential virtual alliance members all have their hubs in the same region they offer flights to a similar list of cities, mainly within the Middle East. As such, the network gains are much smaller than those generated in the global alliances, where the members’ operations are based in different regions of the world and have networks that only overlap at the edges. To generate these network gains, the potential members of the AACO alliance are therefore discussing a form of specialisation, with each carrier focusing on linking the Middle East to a different part of the world. “Let’s say if Royal Jordanian specialises in North America, and has a relatively good network into North America, then give RJ support and have the other carriers feeding into Amman to serve the States. If EgyptAir is strong in Africa we should feed through Cairo and so on,” explained Majali. “That’s the kind of operation that may form with carriers that have hubs very close to each other, and that are looking outwards, rather than the standard global alliance.” This specialisation would not preclude airlines from flying to points of the world outside of their assigned region — they would all still fly to Heathrow, for instance — but with each airline concentrating their network and marketing efforts on one particular area, the carriers together would generate greater coverage than with each working separately. Organising this is challenge though, as it has not been tried anywhere else in the world. Presently, only the very largest carriers successfully operate multiple hubs in the same region, and they clearly have a much more integrated management structure than separate airline pooling their resources. “The problem for the Arab carriers is that the formula for this kind of operation needs to be conceptualised [from scratch],” commented Majali. How involved Gulf Air will be in the project is also not clear at present. The airline has worked extensively with Sabre on a range of projects to enhance its own operations, and has also agreed codeshare deals with other Middle East carriers, including EgyptAir and RJ. However, this may not necessarily lead to full-blown membership of the virtual alliance. “One of the points of contention we have is that [Gulf Air] already has the packages with them [Sabre] and we need to ask whether there is any added benefit for them [of joining the alliance],” said Majali.

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