<B> American-British Airways Alliance Ranks First In Merrill Lynch Index</B>
By Jay Campbell
The world's strongest airline alliance is American Airlines' and British Airways' Oneworld, followed by the KLM/Northwest group, the Star Alliance and Delta's group, according to a new index by Merrill Lynch's global airline team.
The Merrill Lynch Alliance Index, authored by airline analysts Candace Browning and Michael Linenberg, ranked the alliances on a 100-point scale. It assigned up to 25 points each for an alliance's geographical network, market size and network density, 15 points for regulatory freedom and 10 points for financial strength.
"Corporations are intuitively going to rank each alliance against the other, and choose the one--or at most two--that best meet their travel needs," said the report.
With 72.5 points, the Oneworld alliance--in which Merrill Lynch included Aerolineas Argentinas, American, BA, Canadian Airlines, Cathay Pacific, Deutsche BA, Iberia, Japan Air Lines, Lan Chile, Qantas and Royal Jordanian--was strongest in geographical network and market size, but weakest in regulatory freedom. The low score on regulatory freedom was not surprising, Merrill noted, since the AA-BA core of the partnership has yet to be approved.
<center><TABLE BORDER="1" width="400"><tr><td colspan=2><b><font size="+2"><center>Merrill Lynch Rates Air Teams</center></b></td></tr><tr><td><b>Alliance</b></td> <td><b>Score</b></td> </tr><tr><td>Oneworld</td> <td>72.5</td> </tr><tr><td>KLM/Northwest</td> <td>68.8</td> </tr><tr><td>Star Alliance</td> <td>66.9</td> </tr><tr><td>Delta</td> <td>41.9</td> </tr><tr><td colspan=2><i>Weighted scores based on size, scope, frequency, financial strength and regulatory freedom.</i>
Source: Merrill Lynch Alliance Index</td></tr></table></center>
Taking second place in the ranking was KLM/Northwest, which also includes Alaska, Alitalia, America West and Continental. That alliance scored 68.8 and was tops in network density and regulatory freedom. The integration of the main Northwest-KLM portion of the alliance, in effect since 1992, outweighed the negative effects of the fact that Continental and the smaller partners have yet to be implemented.
With an overall score of 66.9, the Star Alliance did not come in first in any full category, though it did score highest in total number of departures and passenger revenue per available seat kilometer. Star, which includes Air Canada, Air New Zealand, Ansett Australia, Lufthansa, SAS, United and Varig, placed second overall in geographical network and market size, and tied for second in both network density and regulatory freedom.
Still, the report noted, "if the Star Alliance were to add Singapore as a partner, then Star's point total of 72.7 would eclipse Oneworld's new redistributed score of 66.7 points and KLM/Northwest's 68.8. However, if the AA-BA portion of the Oneworld alliance were approved, its score would jump to 78.1, making it by far the most powerful alliance."
Finishing fourth was the Delta alliance with Air France, Austrian, Sabena and Swissair. That alliance finished first in financial strength, but last in all measurements of size and scope.
"Delta has the weakest alliance group. It scored 41.9 versus an average of 69.4 for the three other major groupings. The problem with Delta's alliance structure is that its partners simply don't have the scope, either geographic or population base, that the other alliances offer," the report said.
Browning and Linenberg observed that airline alliances have been even more successful than originally anticipated. Opining on the most significant reason airlines desire to serve every corner of the world through alliances, the analysts said, "Alliance networks are attractive to multinational corporations interested in a single global travel vendor, and to the exhausted international business passenger interested in the 'ultimate' frequent flyer plan."
Merrill Lynch also noted that while Asian carriers showed little interest in alliances during the 1990s, the economic downturn in that region already is changing that attitude. Hence Cathay Pacific's participation in Oneworld and Singapore's partnership with Lufthansa and others.
Merrill Lynch will continue to update the Alliance Index on an ad-hoc basis, Browning said.