<B> Interlining In Jeopardy</B>
<I>Airline Alliances, European Commission Double-Team Flexible Tickets</I>
By Amon Cohen
American and United Airlines may be planning to accept each other's electronic tickets soon, but across the Atlantic serious doubts are emerging about the future of interlining.
The time-honored process for coordinating cooperation between competing carriers appears to be under attack from three separate directions.
First, travel agents are reporting a surge in published fares that are fully flexible except for a requirement that they may be used only on the issuing airline or its alliance partners.
Secondly, there are isolated reports from agents of airlines refusing to endorse fully flexible tickets to rival carriers.
Finally, the European Commission is about to decide whether to scrap the "block exemption" (its terminology for antitrust immunity) it grants to carriers that allows them to set joint interline fares through the International Air Transport Association.
Interlining has performed yeoman service for business travelers for decades, allowing them to travel via any route they like with any carrier. There are two basic forms. The first is the agreement that travelers with full-fare tickets can fly between any two points with any carrier that serves the route. An American Airlines ticket-holder flying from Chicago to London, for instance, could decide that the timing of a United flight suits him better and instruct American to endorse the ticket over for use on its competitor.
The second type of interlining is the setting of fares for a multi-sector journey involving more than one airline. IATA publishes tariffs for all such possibilities and uses prorating to allocate portions of the total fare to each sector of the journey.
Examples now are emerging of these types of cooperation breaking down. One comes from a U.K. travel agent who wishes to remain anonymous for fear of provoking the wrath of British Airways. A client of his holding a fully flexible business class ticket on BA from London to New York changed his mind about his departure time and opted for a Virgin Atlantic flight instead. When he presented the ticket to BA for endorsement, the airline refused, saying the ticket was not valid for a Virgin flight because the agency commission paid by the two carriers was different. BA later apologized for the incident, claiming the ticket clerk had acted incorrectly.
Danish Travel Pool, a travel purchasing consortium for ten companies in Denmark, has experienced similar difficulties. One example they offered was the case of a traveler flying from Panama City to Copenhagen via Frankfurt. When his plans changed and he rebooked to fly to Copenhagen via London with BA, Lufthansa refused to reissue the ticket. BA eventually accepted him, but the passenger had to spend an extra day in Panama City dealing with the problem and was charged a fee for the rebooking.
Both DTP and the British travel agent said there may have been other reasons involved, but they also worry that these are early indications of an assault on interlining.
"I am not sure if this was a threat to the interlining system or a byproduct of BA's spat with Virgin, but we cannot have this," said the U.K. agent. "Interlining is a basic tenet of our industry and is what has made the aviation business global. But there is now no question in my book that as alliances fall into place, they will say 'you can only interline with our alliance.' "
Said DTP managing director Soren Schodt, "We are quite clever about fare manipulation in Scandinavia, so maybe they could not figure out how we calculated the price of the ticket. But the other explanation is that the airline only wanted to handle the ticket if it was within its own alliance, even though it was full fare."
Schodt also believes that alliances intend to avoid interlining with the wider aviation community--which is, "after all, the idea of codesharing," he said. He predicted they will achieve this through technology, attempting to sign up corporate clients to a one-stop online shop offering exclusive air fares, plus hotels and other non-air products.
"They will get companies to sign up for the total packages if they want to save money, and there will be problems for clients who don't fully buy into the concept," he said.
Schodt already has started to see some of these special products emerging in the form of published fares valid only on Star Alliance partners SAS and Lufthansa. Similarly, American Express European vice president of purchasing and air fare management Kyle Davis said he has seen tickets endorsed for alliance partners KLM and Northwest Airlines only.
"We are seeing more and more tickets that are non-endorsable or only endorsable to alliance partners," Davis said. "In some cases, they are published in the CRSs--but they are not recognized as fares that IATA carriers are obligated to accept."
While the proportion of fully flexible IATA fares issued by Amex is diminishing, they remain vital for the travel needs of some corporations. "We have had a couple of large multinationals that have said no to the idea of net fares because they are restricted to one airline," said Davis. "These companies don't want their travelers getting hassled at the airport, so they opt instead for a rebate on full fares at the end of the quarter or the year."
Davis stressed that interlinable fares are particularly important on low-frequency routes where a traveler may have to wait days for the next flight with the same carrier. And, he noted, "it is not a desirable situation in developing nations either. You don't want to be stuck at an airport without a valid ticket."
Interlining does have a future, Davis believes, but corporations will increasingly be forced to choose between paying full fare or achieving discounting by committing to a single alliance. "Airlines will say they will give customers a discount, but only if they can lock them into using them or their alliance partners," he said.
For Philip Martin, chairman of U.K. advisory group the Air Transport Users Council, corporate alliance deals could emasculate interlining without the alliances having to pull out of the process officially. "There is going to be a trend in the industry towards favoring alliance partners, and therefore not looking favorably on tickets from other carriers," he predicted. "These pressures are towards eroding the IATA interlining agreement, which will atrophy rather than die."
Martin believes that the exclusive "seamless" services offered by separate alliances would merely be a reduced version of the interconnectivity provided by the interlining system, and therefore disadvantageous for consumers.
The European Commission also appeared to recognize the importance of interlining both for travelers and for smaller airlines in the proposals it issued earlier this summer on the AA-BA and United-Lufthansa-SAS alliances.
"If a new entrant is to penetrate the relevant markets effectively, it is important that it should be able to conclude an interlining agreement with the members of the alliance," its consultative paper declared, adding a proposal that the alliances must agree to interline on fully flexible fares with any other carrier on request.
Paradoxically, however, it is the Commission that holds the greatest power to end interlining in its current form. Its block exemption on IATA tariff fixing expired in June, but was given another 12 months' grace so the issue could be assessed.
British Midland manager of interline pricing Peter Hind said that while the ability to switch carriers on the same route will remain, the Commission could rule that the setting of tariffs for multi-sector itineraries is anti-competitive.
If that were to happen, "it could signal the end of IATA fares in Europe," Hind said. "At the moment, we are optimistic of a reprieve because the implications for the collapse of interlining would be so widespread. But looking at the way the EU operates (regarding its general opposition to tariff fixing), block exemption is unlikely to be with us in 10 years' time."
No one has suggested an alternative to the benevolent price fixing carried out by IATA, though Hind suggested the solution may be to create a conference of governments rather than airlines to agree to the tariffs.
As the search for a solution before next June continues, IATA assistant director of passenger services Mike Muller said he fears the ending of block exemptions would play straight into the hands of the alliances whose power the Commission has tried so hard to limit.
"In the U.S., where airlines have extensive hub and spoke systems, the need for interlining is not so great," he said. "But in Europe and elsewhere, it's a different story. If you are going from A to B via C, you frequently have to travel with a different carrier. If we did away with a forum to discuss fares, who would benefit from that? The answer is the big carriers, who will try as much as possible to keep business within their networks, even though none of them will ever genuinely be able to cover the whole world."
Hind said he already is finding some bizarre alliance schedules in the CRSs, such as a Star Alliance offering for Manchester to Chicago via Frankfurt, or even Munich. Such may be the options on offers if interlining were to disappear.