AA Renews Alliance Efforts

<B> AA Renews Alliance Efforts</B>

By David Jonas

Seeking to fill the void left by the now defunct Atlantic Excellence partnership, American Airlines has requested antitrust immunity with Swissair and Sabena to create a new transatlantic alliance. American also renewed efforts with British Airways by requesting code share authority following an earlier rejection of a broader alliance.

Meanwhile, as Continental and Northwest push ahead with their partnership, some buyers are beginning to see the benefits. A handful of corporations already have inked joint contracts based on integrated discount structures.

The codeshare request submitted to the U.S. Department of Transportation by American and BA includes various transatlantic and beyond gateway routes. The two carriers are attempting to expand their alliance after being denied antitrust immunity this summer (<I>BTN</I>, Aug. 2), hoping to initiate the codeshares next summer. If approved, the new link would help AA/BA strengthen its transatlantic operations and reinforce its dominant position at London Heathrow. However, early speculation posits that request will be knocked down in the absence of an open skies agreement between the United States and the United Kingdom, and DOT's insistence for additional slot availability in London.

American also requested antitrust immunity with Swissair and Sabena, a pair of immunized European carriers that offer only joint contracts to corporate clients (<I>BTN</I>, Sept. 6). American said that once immunity is granted, the three carriers can "establish fares jointly and enable the alliance to compete on a level playing field with other immunized alliances."

Since Swissair and Sabena were half of the former Atlantic Excellence partnership led by Delta, American said the antitrust agreements, if approved, would be "comparable" to those granted to Delta, Swissair, Sabena and Austrian.

Emphasizing that immunity would not stymie competition, the three carriers in a joint application to DOT said they accounted for 12 percent of the market share of U.S.-Europe origin and destination passenger bookings as of year-end Aug. 31. That compares with 19.2 percent for United/Lufthansa/SAS and 11.7 percent for Northwest/KLM/Alitalia.

"It's the logical fallout of the Delta alliance coming apart and Delta going with Air France," said Jack O'Neill, vice president of airline partnerships at St. Louis-based Maritz Travel Co. "There was a lot of pressure on American to have a Central European onward hub and Swissair/Sabena is a natural partner for that."

Kevin Brady, vice president of travel and executive services at Merrill Lynch in New York, said that an American-led Atlantic alliance would fit Merrill Lynch's needs as the corporation pushes globalization of the travel program, but at this point is not looking to initiate discussions with American. "We had a deal with the old Atlantic Excellence, and now are talking to those individual carriers because we had a good working relationship with them," he said.

Brady added that alliances are still in the evolutionary stages, and none have worked as well as the Delta-led Atlantic Excellence, which offered truly seamless shopping for the corporate buyer.

However, other buyers indicated that approval of antitrust immunity would open the door to many new options to fill their corporation's transatlantic needs.

Meanwhile, Continental Airlines is solidifying its domestic partnership with Northwest by finalizing new joint corporate agreements while looking at opportunities overseas to expand global ties.

"Some huge corporate accounts have signed on with Continental-Northwest joint deals because now we have more to offer them in a joint operation," said Gordon Bethune, Continental's chairman and CEO, citing an ever-increasing number of codeshare flights.

Indeed, since Indianapolis-based Thomson Consumer Electronics signed the first joint deal with the two carriers (<I>BTN</I>, Sept. 20), a half dozen or so other corporations followed suit with at least another 18 or 20 in the pipeline.

Thomson's travel manager Cindy Heston, speaking last month at ACTE Global in Spain, said the joint contract amounted to a 25 percent increase in the corporation's discount and summed up the benefits by stating that "the ability to negotiate with one alliance enhances and improves your pricing, traveler satisfaction, operational costs and relationship management."

While Continental-Northwest is the most relevant link in the unofficially named Wings alliance for most U.S.-based corporations, other partner carriers could play a role. For starters, any deal with Northwest of course includes KLM, but future contracts could involve Alitalia and America West.

While some buyers finally are realizing the promise of alliance integration, the carriers also have started cashing in. Continental during its 1999 fiscal year expects an additional $69 million in pre-tax profits from "revenue related benefits," which include codesharing and frequent flyer reciprocity. That number exceeds the carrier's own estimate by $9 million. Also, another $12 million will be generated in cost savings created by the alliance. Northwest, meanwhile, expects to generate $80 million in pre-tax profits for 1999 and $275 million when the alliance reaches maturity by 2002.

However, not everyone in the industry is gung-ho on these alliances. "It's taking out of one pocket and putting into someone else's," said Ray Neidl, airline analyst at ING Barings in New York. Still, Neidl noted two strong potentials for the gelling CO-NW partnership. "They can work on cost cutting by integrating facilities and combining purchasing, but more importantly, it puts them in the same league as the Big Three," he said.

Meanwhile, Continental is exploring options with other current and potential global partners. "We're still not in Heathrow," Bethune said. "We're waiting for somebody to give us a call." However, Continental does have a back door into the heavily constrained London airport via an existing codeshare relationship with Virgin Atlantic, a carrier that Continental has shown interest in acquiring.

"Buying a piece of Virgin has to make economical sense since we already work well together as partners," Bethune said. "What we did was in anticipation of an AA/BA alliance, but fortunately the governments were smart enough" to prevent the two carriers from the far-reaching alliance they had planned.