Air Partners Play Catch Up To Star

<B>Air Partners Play Catch Up To Star</B>

By David Jonas

As expected, alliance rosters have been altered and new partnerships have surfaced in the past few months. And with last year's breakup of the seemingly successful Atlantic Excellence and the official exodus of Oneworld founding member Canadian Airlines on June 1 as supporting evidence, airline alliances clearly remain an amorphous concept with a questionable level of reliability. As a result, the rumor mill is in high gear as carriers look to better their position and cover all regions in the competitive aviation environment.

Despite a web of entangling partnerships and migration hither and fro, the Star Alliance has remained intact--it even has added several new members--and emerged as the dominant global player (see story, this page). However, the other alliances are scrambling to fill in the gaps and either compete with Star on a global scale or establish regional dominance.

For example, Northwest, KLM and Alitalia began three-way code sharing to 42 destinations and reciprocal frequent flyer programs despite concerns over the development of Milan's Malpensa airport. The codeshares will include Northwest's new nonstop flights from Detroit to both Milan and Rome, set to launch on April 2. The carriers' tripartite antitrust-immunized venture is the foundation for the still unnamed, but widely nicknamed "Wings," alliance that also includes Continental.

Though the number of member airlines pales in comparison to Star and Oneworld, "Wings" is holding its own in Europe and across the Atlantic. Furthermore, it is the only major partnership with two major U.S. carriers and therefore holds a somewhat competitive position on this side of the pond as well.

Northwest and Malaysia Airlines, meanwhile, filed a request for antitrust immunity, the first between a U.S. and Asian carrier. If granted, the immunity would lead to code sharing, coordinated schedules and the normal bevy of customer benefits. Northwest said "these connecting services and routings will compete with those of other alliances already immunized by DOT."

Though Northwest itself has a decent presence in Asia and shares codes with Air China, its overall alliance configuration lacks an integrated element in that region. Malaysia, which also has a relationship with KLM, said it would select an alliance in the near future.

Meanwhile, Continental still is hoping to buy back its shares now owned by partner Northwest. Northwest chairman Gary Wilson previously had stated that ownership of Continental guarantees it remains an alliance partner, though Continental reiterated that any share buyback would be no indication of its desire to part ways with Northwest. However, Continental has yet to take the full plunge with the other alliance members, though a formal announcement on the official launch of the "Wings" alliance could come shortly.

In an effort to solidify its position and work toward cohesion, the Oneworld alliance established a new management team "to drive future growth and launch new customer services and benefits." The team will be lead by Peter Buecking, former sales and marketing director at Oneworld member Cathay Pacific, and directly report to the alliance's governing board of chief executives. Oneworld said the new structure will seek out cost efficiencies, quality standards and leadership for the alliance's finance, customer service, marketing and IT divisions.

The centralized management team, expected to be assembled by the summer, will be based in Vancouver to "underline the alliance's commitment to continue to offer the Canadian market choice and high quality services." Oneworld is without a Canadian element since Star Alliance member Air Canada acquired Canadian Airlines. The other major alliances have established similar steering committees.

Despite the loss of Canadian, the Salomon Smith Barney report found that Oneworld still holds the edge in transatlantic traffic share at 26 percent, compared with Star's 18 percent. Continental-Northwest-KLM-Alitalia and Delta-Air France also have competitive transatlantic market shares.

In other Oneworld notes, American and Cathay Pacific signed a comprehensive codeshare agreement. Pending government approval, the two partners would link up on U.S.-Hong Kong flights, as well as some of Cathay's intra-Asian services and AA's beyond-gateway routes. The airlines are hopeful that a more liberalized air transport agreement between the two countries will be established during formal talks next month. British Airways and Cathay Pacific also inked a new codeshare deal for flights between London and four British regional airports.

Apart from the larger Oneworld alliance, American is seeking deeper ties with Sabena and Swissair. AA and the antitrust-immunized European duo, which already share codes on several transatlantic and beyond-gateway routes, are hoping to get the green light from DOT on their request for antitrust immunity.

Indeed, following the dismantling of the Atlantic Excellence partnership, Swissair and Sabena thus far have opted to steer clear of a major global grouping. Instead, they have maintained their leading role in the European Qualiflyer group, despite Austrian's departure, and have forged links with individual carriers, including American and Thai. Officials also said that Japan Airlines would be a valuable partner, but no announcement has been made.

The newest global alliance anchored by Delta and Air France likely will choose Korean Airlines as the next member. While both founders suspended codeshare relationships with Korean due to its spotty safety record, they reportedly will re-establish their partnership as Korean shows improvement. The alliance, which includes AeroMexico, also is considering TAM of Brazil, China Southern and China Eastern.

Delta and Air France had opportunities to pick up other carriers but lost out in several instances to Star. As a result, slim pickings remain for the duo as it is forced to emphasize the transatlantic as its only primary strength.

In the meantime, Delta and Air France have hooked up on more codeshare flights from Paris Charles de Gaulle, now offering Delta customers 40 destinations from the Air France hub. Also, Delta on March 26 will begin its own New York JFK-Zurich service, a day after it officially terminates its codeshare on the route with Swissair. A similar codeshare with Sabena from JFK to Brussels also will cease on March 25. Both carriers will move JFK operations out of Delta's terminal and into Terminal One.

Meanwhile, the pilots at Delta and Aeromexico established a formal coalition to "acknowledge areas of mutual concern." The Airline Pilots Association, which represents Delta's pilots, said the pact is in response to the formation of the airline alliance.

Unaligned US Airways said "in time" it will establish an alliance partner in addition to marketing partner American. No carrier has yet expressed interest in linking up with the struggling carrier, though its strong presence in business-heavy East Coast markets is a main selling point. Deeper integration with American, at this stage, appears unlikely.

Trans World Airlines continued to carve out its Middle Eastern niche by establishing a new codeshare partnership with Kuwait Airways. TWA, which already cooperates with Royal Jordanian and Royal Air Maroc, also expanded its own service to the region.

As carriers around the world pick dancing partners, China remains the final frontier for alliance expansion. Though no global alliance has enlisted any of the country's largest carriers--China Southern, China Eastern and Air China--several airlines have marketing and codeshare agreements in place. Air China, for example, has ties with Northwest, though Lufthansa reportedly is trying to forge a relationship to complement Star's roster. Delta-Air France also is considering China Eastern and China Southern.

Alliance activity in China may materialize after the Department of Transportation doles out new flight authority to the emerging business and leisure destination. American and Delta have proposed new service while Northwest and United are asking to expand their flight offerings.

Meanwhile, hoping to strengthen their relatively weak positions in the domestic aviation landscape, America West and Trans World Airlines last week announced a new marketing partnership immediately linking their respective frequent flyer programs.

America West, suffering from chronic service problems, and TWA, thinly surviving with a sole hub in St. Louis and severely reduced New York JFK operations, hope that complementary route structures will catch the eye of frequent travelers.

Though the two carriers said code sharing and joint lounge access are not part of the initial agreement, neither denied that such discussions are underway. Codeshare flights certainly would help both carriers, which are, for the most part, isolated from major domestic and global alliances.