Delta, Air France Join Forces

<B> Delta, Air France Join Forces</B>
<I>Alliance Builds On Fortress Hubs As Sabena, Swiss Balk</I>

By David Jonas



Though it is too early to determine where the Delta-Air France partnership forged last month will go, or how soon buyers will be able to cash in on immunized joint deals, the duo does promise a far-reaching network to rival Oneworld and the Star Alliance.

Still, the fact that Swissair and Sabena--Delta's allies in the Atlantic Excellence group--immediately announced codeshare agreements with American Airlines hints that airline alliance rosters are still in flux, and some carriers still may opt to align with more than one network or reconsider their existing partnerships.

Still, the Delta-Air France deal creates a transatlantic team with formidable fortress hubs on either side of the pond--including Atlanta, the world's busiest airport, and Paris Charles de Gaulle, the largest European hub.

"It's a good match for Delta because Air France is bigger than Sabena and Swissair, and it's good for Air France because Delta has excellent feed up and down the East Coast," said Darryl Jenkins, director of the aviation institute at George Washington University in Washington, D.C. Meanwhile, Air France officials said the deal will generate an additional $150 million in net profits.

Though both sides said it is too early to set a timetable for the integration of the two carriers' sales efforts, Air France Eastern region sales manager Richard Pasciuto promised that once antitrust immunity is attained, joint corporate deals will commence immediately. "Even before then, we will move forward at a rapid pace in joint marketing, advertising and promotions, and of course joint frequent flyer programs," he said. "Also, our sales staff, after trying to sell Air France first, will suggest Delta alternatives, and vice versa."

Both carriers expect the antitrust immunity hurdle to be cleared with little difficulty, since the United States and France already have a bilateral agreement. "If the cards fall right, we will have antitrust immunity in two years, and then begin to develop relationships with corporations loyal to our alliance," said Delta director of sales development Keith Rogers.

The two carriers also will work cooperatively on cargo, technology and electronic commerce, as well as passenger initiatives including expansion of the codeshare arrangement, quality standards and frequent flyer programs. They already offer through checkin of baggage and passengers, elite frequent flyer recognition and reciprocal airport lounge access.

Technology teams already are working to link baggage systems, passenger name records and customer databases, and to develop interlined electronic ticketing. "The main area of focus is customer recognition," Rogers said.

Moving forward, the alliance needs to enlist additional members--and said it will by the fall. But many industry insiders are asking, "Who's left?"

"I'm not sure where Delta is going to go now, particularly in Asia, though China is going to be very interesting," said Runzheimer International senior consultant Rolfe Shellenberger, noting that a major player could emerge from South America if the economy stabilizes. "British Midland also could be a likely candidate since it has terminated its frequent flyer relationship with American and its Heathrow presence is a valuable asset."

Indeed, British Midland already shares codes with Air France, and its slots in London would give Delta-Air France an important U.K. element and be a thorn in Oneworld's side.

"Alliances are fairly inchoate and amorphous," said Salomon Smith Barney airline analyst Brian Harris in New York. "Who knows, maybe they can pick one off from someone else."

Meanwhile, Air France's codeshare relationship with Continental now is in doubt. While many analysts expect no further cooperation after the current contract expires, Air France is not ready to sever ties. "Not only will we fulfill our obligation with Continental, but we requested an extension that we feel is in the mutual best interest of both parties until the dynamics of respective alliances can be determined," Pasciuto said.

Shellenberger also questioned the rationale behind completely abolishing the partnership. "What's to lose? There's not much duplication in routes, so there would be no pressing reason to terminate that relationship," he said.

Though Delta-Air France is the fourth global alliance, Pasciuto said its existing codeshare agreement and the U.S.-France bilateral give it a running start. "Currently, there are really just one or two alliances out there where the customer truly sees the seamlessness," he said. "We're not at all late to this party."

Furthermore, Rogers noted, "this really balances out the competitive landscape," because the alliance's combined transatlantic market share weighs in at 17.8 percent, about equal to the Star Alliance and just a few points below Northwest/KLM.

Stealing some of the thunder from the Delta-Air France announcement, American on the same day announced codeshares and frequent flyer reciprocity with Sabena and Swissair. The codeshares will begin with various transatlantic flights, then add connecting flights beyond gateway cities in coming months.

While officials from Sabena and Swissair have stated that they welcome the opportunity to work with two North American partners, some analysts said that is not realistic. In fact, the overriding sentiment is that the two will pass on splitting their allegiance and instead join Oneworld, combining with British Airways to give that alliance a trio of strong, intra-European airlines.

American also extended an invitation to Austrian Airlines, another Atlantic Excellence member, though officials at Air France and Delta said all Delta's partners are welcome to join their new alliance.

Meanwhile, in an effort to further strengthen its transatlantic operations, Delta filed an application with the U.S. Department of Transportation to begin daily nonstop service between New York JFK and Lyon, France. The carrier also hopes to increase flights on its Atlanta-Paris route. American and Tower Air also are interested in the frequencies.