Star Alliance Makes Canada Bid

<B> Star Alliance Makes Canada Bid</B>

By David Jonas

After much speculation, United and Lufthansa last week announced a counteroffer to keep Air Canada as a separate entity from Canadian Airlines International and a firmly entrenched member of the Star Alliance. Meanwhile, the global partnership announced a pair of new members and launched alliance-wide booking capability on its Web site.

Air Canada's new plan, which follows an AMR Corp.-backed proposal from Onex to buy and merge Canada's two airlines, includes a $280 million financial lifeline from United and Lufthansa that would be used to buy back 35 percent of the carrier from shareholders. The result could be a 7 percent ownership stake for Air Canada's two partners.

Air Canada then would use those funds to bid for Canadian Airlines and operate it as a separate subsidiary. Air Canada said it "recognizes that AMR's dominant ownership and control positions in Canadian present serious obstacles" but should not prevent "the successful restructuring of Canada's airline industry."

CAI then would be asked to accept Delta as a new U.S. codeshare partner, replacing American. "The Delta partnership will provide greater opportunities for profitable growth than any current arrangement," Air Canada said. The move certainly would help Delta strengthen its fledgling global network, though the specifics of that partnership still are unclear. Also, pending approval of the CAI purchase, Air Canada would launch a low-fare startup in Hamilton, Ontario.

The newest proposal will be reviewed by the Canadian government's competition bureau while Air Canada shareholders still are set to vote on the Onex proposal at a Nov. 8 meeting.

The Air Canada/Lufthansa/United plan is not the only force acting against the Onex takeover plan. The European Union is investigating concerns that a merged Canadian airline, partnered with AA and BA, would give Oneworld a virtual monopoly on all direct routes between Canada and the United Kingdom. The EU said it does not expect to release findings for a few months.

Meanwhile, Singapore Airlines and British Midland next year will become Star's 12th and 13th members. All Nippon Airways officially joined this month and Austrian and Mexicana are set to jump on board early next year.

The Singapore addition gives the alliance the strongest Asian presence yet in a multicarrier network. British Midland's participation will contribute coveted slots at London Heathrow and some level of competition to Oneworld's dominance at the British Airways-controlled hub. British Midland said negotiations with Lufthansa will lead to a 20 percent ownership stake for the German airline.

In other Star Alliance news, GetThere.com earlier this month completed an alliance-wide booking engine for www.star-alliance.com that connects simultaneously with three GDSs. Dan Whaley, co-founder and chief technology officer at GetThere.com, said the consumer-oriented system can provide a ticket--either an e-ticket or a paper ticket delivered to a city ticket office--anywhere in the world while displaying pricing in any local currency. The system works on a matrix that considers the closest reservations system to the native inventory of the carrier chosen by the customer as well as the local reservation system. "It's a balance," Whaley said. "We have developed an algorithm so we can choose the best configuration."

The system will not include negotiated rates since alliance-wide deals still are a rarity.

Also, Star Alliance member SAS said it will ground its fleet on Dec. 31. Like other carriers who have shelved New Year's operations, SAS said the cancellations of all three scheduled flights are based on low travel demand and not Y2K-related computer glitches.