Star Emerges From Jumble As Dominant Global Alliance

<B>Star Emerges From Jumble As Dominant Global Alliance</B>

By David Jonas

As the alliance feeding frenzy winds down, with most major carriers around the globe having chosen their partners, the Star Alliance has surfaced as the dominant player. Aside from enlisting several new members to ensure nearly ubiquitous global presence, Star still offers the highest level of antitrust immunity, an emerging technology management structure and the best opportunity for corporate travel buyers to strike truly effective global deals.

Including the four newest members--Austrian, British Midland, Mexicana and Singapore--Star, led by United and Lufthansa, now fields a team of 13 carriers providing ample coverage to all parts of the world, with the notable and common exception of China.

Even talk of Thai Airways leaving the group--over concerns that new member Singapore slowly will take all southeastern Asia revenues--has been put to rest, at least partially. In fact, the carrier's president Thamnoon Wanglee said in a statement following a meeting with his counterparts from Singapore and Lufthansa that Thai never had wanted to leave Star and is fully committed to the alliance. And, despite a recent codeshare pact between Thai and Swissair parent SAirGroup, Lufthansa has expressed interest in purchasing a stake in Thai.

Furthermore, Star showed its continued commitment to Thai when it announced the development of regional headquarters in Bangkok, as well as Los Angeles and Frankfurt.

Even without a Chinese carrier onboard, Star has progressed furthest in Asia, considered by many as the final piece of the alliance puzzle. Singapore and Thai, together with All Nippon, give the alliance a trio of resident carriers, compared with one for Oneworld--Cathay Pacific--and none for "Wings" or the Delta/Air France partnership. United and Air Canada also have decent coverage in the region.

Meanwhile, now that British Midland has signed on, it actively is seeking to expand services. Aside from a joint codeshare request with United submitted to the U.S. Department of Transportation, the U.K. carrier also applied for its own transatlantic services, including flights from London to Chicago and Washington. In May, it also will launch flights from London to Madrid, Milan and Rome. Citing business and economy fares that will be 35 percent lower, British Midland CEO Sir Michael Bishop said travelers now will have a more competitive choice, particularly between Heathrow and Madrid, "a route served only by British Airways and Iberia, both members of the same alliance."

The successful courting of British Midland and Austrian gives Star a reinforced position in the highly competitive European aviation landscape. In fact, a recent report by Salomon Smith Barney, stating that "European hub competition is being drawn along alliance lines," found that the Star Alliance is gaining strength in Europe, controlling 70 percent of seat capacity in its nine hubs, compared with Oneworld's 46 percent share in its five hubs.

Though other alliances have faulted Star for its rapid expansion--citing difficulties in getting all the carriers on the same page on any given issue--many travel buyers have eyed Star enthusiastically. Indeed, the combined network power of a baker's dozen worth of airlines--some with immunity (see chart, page 58)--can mean a world of options.

"Its been a slow road, and each alliance has a varying ability to truly negotiate through one point of contact," said John Heilner, a consultant with Management Alternatives. "But Star has made some progress in the past year in terms of working together," noting that United, Lufthansa, SAS and Air Canada in particular are talking jointly with buyers.

In fact, the four antitrust-immunized alliance members have created a steering committee that manages the internal needs of each carrier in order to act as a single entity. For U.S.-based accounts, a United sales representative interfaces with the buyer and then the committee. Similarly, Lufthansa deals primarily with European accounts and SAS is the point of contact in Scandinavia.

Joe Laughlin, United's vice president of North America sales, said, "Our number-one initiative has been to provide the opportunity to the customer to sign a single alliance contract involving those four carriers. It's a tool that our salespeople now have." Laughlin added that several such alliance contracts already have been signed and that other non-immunized partners are "encouraged to meet other global needs of the customer on a unilateral basis."

Meanwhile, Laughlin said that alliance members also are exploring opportunities to combine e-commerce initiatives, emerging distribution channels and agency offerings, though such developments still are in very early developmental stages.

On the information technology front, the Star Alliance, like its competitors, has a lot of distance to cover in order to reach effective integration. Electronic ticketing interlining across the alliance is unlikely to surface any time soon, and talk of an alliancewide IT contract out to bid, while logical from many perspectives, is not yet realistic.

"There is no one contract out on the street for all Star IT," said Ninan Chacko, senior vice president for Star Alliance at Sabre. "No alliance has made a decision about a single platform yet--the Holy Grail of IT. And that is not because of technology, but the problem of agreeing on a business level, dealing with very different cultures and getting everyone to compromise."

However, Sabre is working actively on several IT initiatives with the alliance, hence Chacko's new set of responsibilities. "My function is to have an evolving team in place whose role is to manage all relationships with Star, put together a strategy and manage all account functions," he said. "We have a good number of individual contracts with member carriers and are in a good position to deal with the alliance globally."

Chacko's team was established only two months ago and still is in the very early stages of interfacing with Star's internal IT group, which also is fairly new. Sabre also has developed a similar program for Oneworld and is formulating programs for the other two major alliances.

Even so, Chacko said that "Star overall has a commanding lead in the marketplace in terms of integration and maturity." Though the members currently are using an array of platforms, consolidation in several areas--including frequent flyer programs--already is underway. "We won't see one common alliancewide platform, but maybe there will be three on a regional basis--Asia, Europe and North America," Chacko predicted. "However, it does not have to be strictly geographical, as airlines harmonize with others that are the most important and logical to them, looking at revenues, codesharing and network synergies."

Regardless of the exact bilateral and multilateral links the member airlines choose to pursue, Sabre fully expects to be the primary provider. Said Chacko, "Over time, our IT organization will be the vehicle that drives all IT strategy for the Star Alliance.