Segregation is slowly disappearing in the airline industry

It wasn't too long ago that large network carriers looked down upon those pesky low-cost carriers and wouldn't give them the time of day. This arrogant attitude by FSCs changed as those LCCs began to encroach on their territory and profit; it changed to one of panic. Those network carriers attempted to imitate the LCC business model but failed to really study what made a successful low-cost airline. Those high-cost carriers wrapped in LCC clothing have disappeared (Shuttle by United, TED, Song, Continental Lite, etc...). Now, it appears that these two groups have reached a consensus that both are here to stay and that it is possible to cooperate, which benefits both parties.

In the past I have spoken about how the business models of LCCs, FSCs, and regionals are converging. This will mean that we will see more and more cooperation between the different types of carriers, just as the announcement by WestJet of Canada and Air France/KLM of, well, France and the Netherlands. These "two" (two in quotations because I see Air France/KLM as one carrier, but they are still cruising around in two liveries) will enter into a code-share agreement by then end of this year or early 2010. In addition, they will look into interline agreements and FFP tie-up, technology permitting. This appears to be a strategic attempt by both carriers to capitalize on a partner's advantages. WestJet has a strong foothold in the Canadian market, which is an attractive feed to Air France/KLM who are up against Air Canada in trans-Atlantic flights. WestJet, on the other hand, can potentially get more traffic due to passengers wanting to fly to Europe. The challenge brand-wise is ensuring that passengers who hop off in Canada and transfer to a WestJet flight don't expect AF/KLM first-class service. This has always been one fear of entering into agreements between FSCs and LCCs. However, if they make this transparent to the passenger it should be acceptable. In addition, many LCCs actually have a more attractive short-haul product compared to the short-haul product on FSCs. Technology will also play an important role here. Integration of IT systems that allow a seamless and low-cost experience to the customer is vital. A tie-up that is challenged technologically and has added expense goes against the entire concept of the agreement.

This will be interesting to watch and if others will follow suit in other parts of the world. In addition, the agreement and WestJet and Southwest may have just gotten a whole lot more interesting.