<I>New York</I> - Foreign airlines must grow by forging marketing alliances under antitrust immunity, said Austrian Airlines CFO Fritz Otti at the International Air Transport Association's financial management conference, held here last month.
Otti said the global airline industry is "very fragmented" relative to other industries. In the automotive, chemical and computer industries, the six largest players control about 70 percent of the market, while the six largest airlines control only about 30 percent.
Thus, the future of the airline industry is what Otti calls "virtual concentration." Whereas the U.S. airline industry consolidated naturally in the wake of deregulation, foreign airlines must use partnering to overcome the limits of national sovereignty, protectionism, the bilateral nature of international air agreements and an underdeveloped airport infrastructure.
Assuming the American Airlines-British Airways alliance will be approved, Otti said AA-BA, plus major partners Canadian Airlines International and Qantas would have 16 percent of the global market. United Airlines, Lufthansa, Air Canada and SAS, among others, would control about 17 percent, Delta-Swissair-Sabena-Austrian would dominate 12 percent and Northwest-KLM and partners would come in at about 8 percent.
This shift would increase competition, efficiency and profits, but also create a temporary blurring of brands, thereby confusing customers, Otti said.
Also at the conference, IATA's director of distribution projects Roger Emsley outlined distribution data culled from 45 member airlines that represent 55 percent of global scheduled services and 65 percent of international services. Excluding override commissions, distribution comes to 18.9 percent of total passenger operating costs, broken down to 44.6 percent on commissions, 27.9 percent on reservations and ticketing, 12 percent on advertising and promotion, 8.1 percent on CRS fees, 4.5 percent on credit card fees, 2.4 percent on frequent flyer programs and .5 percent elsewhere.
Canadian Airlines International's distribution costs totaled 23 percent of revenues in 1995, including travel agency commissions and overrides, CRS fees, advertising and the frequent flyer program, said Gord Kukec, director of interactive products for CAI. Of those costs, 64 percent were passenger-specific, 64 percent were distribution channel-specific and 30 percent were shared between channels.
"External channels cost more than internal ones; however, the most expensive is internally booked and externally [by a travel agent] ticketed," he said.