Star Alliance
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Flying in formation

The European Union's reluctant approval of what seems set to become one of the world's most powerful airline alliances shows the rate at which the industry is consolidating into a few mega-carriers.

Although the long-planned partnership between American Airlines and British Airways still has to be formally endorsed by London and Washington, it is now virtually certain to go ahead.

And the number of carriers involved is sure to swell. Japan Airlines has already agreed to become part of the new alliance and talks with Cathay Pacific are reportedly close to an agreement.

Other Asian airlines are also scrambling to form global partnerships. Taiwan's Eva Airways recently forged ties with Continental Airlines in the United States, while Thai Airways is already a member of the Star Alliance, that brings together United Airlines and Germany's Lufthansa.

Running an airline is never a high-profit business. And at a time when the regional economic downturn has plunged many carriers into debt, the benefits of forming such international partnerships are more apparent than ever. For the airlines it is a win-win situation, as such alliances allow them to share costs while boosting passenger numbers through joint-ticketing and code-sharing agreements. For passengers there are also some benefits, not least being able to check-in straight to any destination served by a partner airline. In an age of globalisation, such services are increasingly in demand and are one of the factors driving the rush to form such alliances.

But the downside, especially for cost-conscious passengers, is the adverse effect upon competition: partner airlines will find it much easier to fix higher prices.

It was such concerns which caused the European Union to hesitate for so long before deciding it had little choice but to approve the alliance. Rival carriers are already predicting this will lead to massive fare hikes on transatlantic routes, which are dominated by American Airlines and British Airways.

While such partnerships may be inevitable in a more global era, it remains to be seen how much passengers will benefit from them.