Carriers Make Some Forward Motion W/ Global Alliances

As they have in the past, global airline alliances this year have been marked by new members, efforts to gain antitrust immunity, cost-savings initiatives and the pursuit of corporate clients. However, the need to progress on these goals is more acute than ever as carriers seek incremental revenue while financial performance is suffering and schedules remain pared down.

On the regulatory front, cross-border mergers still are unacceptable to authorities on both sides of the Atlantic, pushing the world's airlines deeper into the next-best solution: alliance integration. In fact, the European Commission recently indicated that two global partnerships—United Airlines/Lufthansa/SAS of the Star Alliance and Northwest Airlines/KLM Royal Dutch Airlines—this month will be given final approval. Both alliances had been given the green light by U.S. regulators years ago. Furthermore, U.K. and U.S. regulators this week are scheduled to restart Open Skies talks in Washington. If achieved in some form, the elusive liberalization of air transport between the two countries would impact all global airline partnerships.



Alliances Score Corp. Contracts

Individually, global partnerships have made recent strides. Oneworld, for example, recently snared Sun Microsystems as a new global client, adding to its multinational client roster that includes such companies as Thomson Corp. For its part, Star Alliance this spring announced a new agreement with DaimlerChrysler. Star also is adding three smaller carriers and possibly bringing US Airways into the fold, now that the sixth-largest U.S. carrier has aligned with Star founder United Airlines. Meanwhile, SkyTeam has secured nearly ubiquitous antitrust immunity, as Korean Airlines recently received approval from the U.S. Department of Transportation to integrate many functions with Air France and Delta Air Lines.

The DaimlerChrysler contract exemplifies Star's formalized efforts to draw in business from global corporate clients, one of seven priorities for the year. The other six goals include passenger name record servicing to allow any carrier to make modifications within the record, common flight reservation information center and airport terminal locations and improved frequent flyer program integration for top-tier travelers.

Growing the network even further, Star's executive board in June extended membership to Korea's Asiana Airlines, LOT Polish Airlines and Spanair. The three carriers are expected to join officially by next June. More significantly, US Airways is planning to use its new marketing agreement with United as an avenue into the Star Alliance. US Airways officials, however, said it will be at least two years before the carrier becomes a full-fledged Star participant.

Star Alliance executives in May said the member airlines combined handle one-quarter of the world's commercial airline traffic, 24 percent of capacity and raked in 28 percent of revenues.

Meanwhile, in order to reduce costs and improve customer service, the Star Alliance recently contracted with SITA for a new baggage information system. WorldTracer will monitor baggage performance and staff efficiency and help alliance members reduce transfer errors for connecting baggage.

Rival Oneworld in June said its new one-year $40 million deal with Sun Microsystems is "the biggest corporate sales contract yet announced by any of the global airline groupings." However, Star Alliance and DaimlerChrysler confirmed their contract is worth $80 million in revenue. Sun's contract supplants smaller agreements with individual Oneworld members. The alliance also noted recent success in gaining new corporate contracts in Germany, Scandinavia and particularly Japan, where 14 Japanese companies have signed deals worth a total of $45 million.

In other Oneworld news, American Airlines and Finnair in late July received antitrust immunity approval from the U.S. Department of Transportation. The two airlines have no duplicate routes and recently established electronic ticket interlining, the first such link between U.S. and European carriers. Oneworld said additional bilateral e-ticket interlining links will be phased in during the coming months.

Oneworld also recently confirmed speculation that Swiss is nearing alliance participation. Calling the Swissair successor an "aspiring Oneworld member," the alliance noted that Swiss has increased the number of flights and destinations covered under an American Airlines codeshare agreement. The two carriers, which began cooperating in May and already established frequent flyer reciprocity, plan to expand the agreement further and possibly file for antitrust immunity.

Oneworld executives added that Swiss "has been asked to reach bilateral agreements with other members of the alliance before it can be formally invited onboard Oneworld."

Separately, SN Brussels Airlines, the reincarnation of defunct Sabena, has forged codeshare relationships with both American Airlines and British Airways, Oneworld's primary anchors. SN Brussels Airlines said the American Airlines relationship, which includes frequent flyer reciprocity, may expand in the future. The British Airways agreement, if approved, will begin Oct. 27. However, SN Brussels is not sticking exclusively to Oneworld members for bilateral partnerships. A codeshare agreement with Continental Airlines began in July.

Over at SkyTeam, a green light from the European Commission is not certain. In early July, the Commission informed Air France and Alitalia of "serious doubts that their cooperation agreement can be approved in its current form." It remains to be seen if regulators will ask the carriers to surrender airport slots and/or lessen service on certain routes between France and Italy, similar to preconditions set for Star Alliance approval. The EC warning is seen as routine in its review of airline alliances. Moreover, industry observers believe the Commission's seemingly imminent decision to officially approve Northwest/KLM and Lufthansa/SAS/United eventually will lead to SkyTeam approval.

Armed with complete antitrust immunity granted by U.S. DOT—save Aeromexico's involvement—SkyTeam members are moving forward with integration. While Delta and its European SkyTeammates have had immunity since January, Korean Airlines did not gain similar flexibility until late June. As such, Delta and KAL first must work to align back-end financial systems before approaching the corporate market with formalized joint contracting.

"All the SkyTeam network people are meeting, trying first to simplify the customer perspective," said Rich Pasciuto, Air France vice president of marketing and distribution. "But there still are internal global distribution issues and other cost structure issues to be dealt with."

Truly integrated cross-alliance corporate contracts could be ready for rollout by 2004 after a period of testing.