Star Alliance CEO Jaan Albrecht explains how airline partnerships are coping with a coming wave of mergers

As U.S. airlines edge closer to mergers, the role of alliances is again being discussed. Star Alliance has emerged as the biggest of the three global airline alliances and continues to grow aggressively, adding members in China and soon India, Turkey and Egypt. Coordinating a global group now made up of almost 20 members has become a huge challenge.

Jens Flottau talked with Jaan Albrecht about the way he runs the alliance. Albrecht, a Mexico-born former pilot, has been running Star for seven years.

JENS FLOTTAU: There has recently been a lot of talk about mergers in the airline industry. What is your take?

JAAN ALBRECHT: The likelihood of mergers is greatest in the U.S., along with India and China, where we have already seen some movement in consolidation. In Europe, we already see Air France-KLM and Lufthansa-Swiss as good examples of how consolidation can work. Somebody will now take the initiative in the U.S. but I doubt we will see any firm results very soon. Membership in an alliance will play a role in the decision-making process, but it will not be the decisive consideration. And there will be a national logic behind consolidation. U.S. airlines will merge according to the needs of their home market.

How will consolidation affect alliances?

The year following a merger will be complicated for everybody, as some members may have to leave. There will be upheaval, but it will eventually settle. Alliances will still have their place. I don't think we will end up with three mega-airlines. Carriers will continue to cooperate through the alliance model. The advantages are proven. In an alliance, you enjoy 80 percent of the benefits of a real merger but have only 20 percent of the costs. If you want to be a global player in the airline industry, you have to participate in one of the alliances.

In some markets, the industry is in flux. In China, for instance, all sorts of airline collaborations still seem possible.

True, but we are very relaxed about it. China is seeing an ongoing reshuffling process but the same is true for other markets like India or Brazil. The alliance model as such is established. Look at LA's airport: In the Tom Bradley International Terminal, there used to be 38 lounges because everybody wanted to have one. Now there are four − one for each of the three alliances and one for the unaligned. Or look at product harmonization. At one time, you could order 48 different coffee machines for the galley of a Boeing 737. Since then, manufacturers are happy that we have contributed to harmonization. After all, who needs 48 different coffee machines?

Star Alliance now has 19 members and more will join soon. How do you keep up communicating with everybody?

I really want the best communication possible with all of our members, which of course involves a lot of traveling. In the past, we had five or six people handling alliance matters at each member airline. Multiply that by 20 and you can easily see that it was impossible to keep up with everyone.

We often have to adjust when people leave or switch jobs. So we have made important changes to corporate governance in the alliance. There is now a single Alliance Management Board (AMB) representative per member airline who serves as our primary contact person. That person generally reports directly to the CEO.

We have come a long way. About 20 years ago, no one took alliances seriously. They were handled somewhere in the commercial departments or in sales. Then, we started to see vice presidents for alliances. By strengthening the AMB position further, we have improved communications and decision-making.

But you still have to get so many different airlines to agree to a single project.

Yes, it is getting more and more complex. But we have introduced what we call a product delivery process for Star Alliance. Ideas are generated, developed and researched in project teams. Then we reach a stage called Gate 3. At that point, everyone has to commit to the project and money is invested. Star Alliance and the members sign contracts that spell out details of how things are to be done.

That has become important, particularly when it comes to investments. We will soon open a new lounge in Paris. It's important right from the beginning to clarify what happens if one of our members drops out. We have also brought in 12 project managers from other industries that have skills that we need. They will learn what they need in terms of airline specifics but what we want from them is management skills and multicultural experience.

What are the most important projects?

There are quite a few but the common IT platform seems to be the biggest. One day, the majority of Star Alliance carriers will migrate to a common platform that will make cooperating much easier. Things like upgrades and mileage issues are complex now from an IT perspective.

'Doc check' is another important project that should improve our connecting products where passengers use two or more different Star Alliance carriers. The idea is that whoever checks in the passenger initially will check his travel documents for the entire journey. That is important because airlines are held responsible if they move passengers without valid passports.

Who benefits most in the alliance and who is most powerful?

It's like in a health club. If you want to be fitter, you have to go there. There are members that make a lot of their alliance membership, TAP Portugal or Austrian, for example. And we follow the principle of "one carrier, one vote." So even if you are a small member, your vote still counts as much as Lufthansa's or United's.

Among the big carriers, there is a rather delicate balance to be kept. Initially, we had our offices spread out over three locations, Bangkok, Frankfurt and Los Angeles. That clearly didn't work; someone was always forced to get up at 2 a.m. so that everyone was able to participate in an important conference call. So we consolidated here in Frankfurt.