Air Alliance Could Mean Worse Deal For U.K. Buyer

<I>London</I> - A new airline alliance has allegedly offered a U.K. company a deal 30 percent worse than when it negotiated separately with the constituent carriers.

News of the deal was revealed at an Association of Corporate Travel Executives debate on alliances in London on May 7.

"I have witnessed an alliance deal where what was offered was worse than what was offered by the airlines separately--and it was take it or leave it," Mike Platt, director of commercial affairs for Hogg Robinson, told the meeting attendees.

Pressed for more details, Platt declined to name the client or the alliance, but said, "This will be at least a 30 percent deterioration on the payback the client would have had before. The battle is still being waged, but at the moment my client is thinking it may go elsewhere."

Representatives of American Airlines, British Airways and Lufthansa as good as acknowledged that alliances are more in the interest of the airline than the customer, while buyers predicted that prices will rise and standards will drop. "Every corporate client I have spoken to has expressed fears that prices will go up," said business travel consultant Colin Brain of Brain & Co.

Jim Thomas, head of travel for Shell International, said he was not anti-alliances per se, having seen successful examples in both the automobile and oil industries. But, he said, "I still think we need to be told what the demonstrable benefits are for the customer. Every company has its own culture, and one of the fears I have is that this culture gets dragged down to the lowest common denominator in an alliance."

Although alliances have yet to be witnessed fully in the United Kingdom, franchising is much more common, with several independent airlines assuming BA colors and joining the flag carrier's network. This phenomenon is not to Thomas' liking.

"My understanding is that the standard of service on the BA franchise operation to Tblisi [operated by British Mediterranean Airways] is nowhere near the standard one would expect of a BA product," he said. The service does not offer BA's market-leading cradle seat with a 50-inch pitch, although these will be installed in September. Instead, BMed offers a more conventional business-class seat with a 38-inch pitch.

BA's sales manager for U.K. and Ireland, Dan Brewin, acknowledged purchasers' fears about lack of competition and the confusion caused by alliance partners code sharing. But he told the audience that the granting of open skies, which is a necessary condition for the alliance, would ensure fair competition.

On the question of code sharing, he said that airline information systems need to be made more robust to let travelers know on which airline they are flying and what service standards they can expect.

And Mike Smith, managing director of European sales for American, said the airline is "doing a superb job in communicating that this flight will be with BA, it will be in a cradle seat and so on."

Smith told the audience that AA is joining the alliance game because competitors are stealing a march on the airline. "It is not what customers have demanded but what the industry and industry politics have demanded," he said.

Brewin agreed, saying airlines are seeking alliances because investors regard aviation as a volatile sector where risks need to be spread by operating in a variety of markets. He also said he is not fond of the word "global," which he said is "the word that tends to be used by corporates as a way of getting a bigger rebate from the airline."

However, he added that the AA-BA alliance also will bring more routes, better schedules, seamless service and an integrated frequent flyer program.

Of the three airline reps on the panel, only Don Bunkenburg, Lufthansa manager of global alliance sales and distribution, said carriers are forming alliances in response to customer demand. "A lot of customers are coming to talk to us on a global basis," he said. "Carriers have realized that they do not have the resources on their own to meet those customer needs.