International airline partnerships, fluid even during the boom years of the late 1990s, continue to change as individual carriers jockey for survival positions in a desperate industry. Some recent developments include a new codeshare agreement between American Airlines and British Airways, bilateral talks between US Airways and Lufthansa German Airlines, deeper transatlantic cooperation between Star Alliance partners Lufthansa and United Airlines, a redesigned codeshare pact between Continental Airlines and Virgin Atlantic and the announced termination of the Northwest Airlines-Air China partnership.
American and BA, after twice failing to convince regulators to approve a far-reaching immunized transatlantic alliance in the past four years, this month received a tentative green light from the U.S. Department of Transportation for a scaled-down codeshare relationship involving beyond-hub flights on both sides of the pond. DOT said such cooperation, which puts American-BA in a better position versus other immunized alliances, "should" produce pro-competitive results.
Following last-ditch objections by competitors, a final decision was imminent by press time. Both airlines said code sharing will begin as soon as possible. Flights covered under the alliance would include BA services from American's U.K. gateways to destinations in the eastern hemisphere and American services from BA's U.S. gateways to points throughout the western hemisphere. Importantly, and unlike previous proposals, flights between U.S. gateways and London are excluded.
"Although we do not have the antitrust immunity that other global alliances enjoy on the North Atlantic, this move is clearly a step in the right direction," said American CEO Don Carty and BA CEO Rod Eddington in a joint statement.
"It is a great enhancement for British Airways customers in North America," added David Noyes, BA executive vice president of sales and marketing for North America. "For example, a customer in Indianapolis could book on the BA code all the way through to London, via a Chicago connection."
DOT, noting that American and BA expect to use capacity more efficiently while independently pricing their services, said, "The record indicates that there will be public benefits flowing from the services proposed by the joint applicants."
Steve Shook, vice president of strategic sourcing at Carlson Wagonlit Travel, said he expects "inherent" advantages for both buyers and travelers. "There are several routes where the beyond-hub codesharing will be a benefit, from both a financial and a service standpoint, for many corporate clients," he said. "Plus, if you look at what has happened with United-US Airways and Continental-Delta-Northwest, government regulators are saying, 'We know it is difficult times so we'll let some of these alliances go through.' They opened the can of worms, and American-BA are just trying to catch up."
One partnership they are chasing is the Star Alliance. The leading members of that grouping, United and Lufthansa, in January began a revenue-share program encompassing all transatlantic flights and feeder segments in transatlantic itineraries. Chicago to Frankfurt and Washington Dulles to Frankfurt, previously carved out of the immunized alliance, are excluded. Because the two carriers are not sharing costs, the program is not considered a full-fledged joint venture.
"The whole purpose is to remove any desire on the part of frontline sales personnel to push their own company's service," said United vice president of sales Dan Walsh. "We'd rather serve the customer as an alliance. It is sales without preference."
Walsh said the revenue-share program, informally dubbed Atlantic Plus, will lead to electronic ticket interlining, reciprocal PNR access and greater transparency for joint sales programs available to the agency and corporate community.
"This is the start of something we believe to be quite big," Walsh added. "It could serve as a template to be introduced across the Star Alliance."
United and Lufthansa also recently expanded their codesharing agreement and now cooperate on more than 300 of each partners' flights.
United partner US Airways, meanwhile, is working with Lufthansa on a codeshare deal that could kick in by the fall. That bilateral deal would be a precursor to full US Airways participation in the Star Alliance, possibly by early next year. "Both carriers see it as a strategic priority to get a bilateral codeshare and marketing pact up and running as soon as possible," said US Airways senior vice president of marketing and planning B. Ben Baldanza. He added that Star Alliance leadership could vote to accept US Airways at a meeting next month, giving the carrier the rest of the year to get itself prepared to participate.
Continental, Virgin Reconstruct Partnership
Continental and Virgin Atlantic on April 1 transitioned their partnership from a hard block to a free codeshare partnership. "It covers the same markets, we just don't have an economic ownership of a portion of each other's flights," said Dave Bartels, Continental senior director of corporate programs.
As such, clients that had been receiving discounts on Continental-ticketed, Virgin-operated flights no longer can do so as Continental, like many of its peers, in general does not offer discounts on codeshare flights not covered under a deeper alliance.
The Continental-Virgin partnership began in 1997 with codesharing and bulk purchases by Continental on nine of Virgin's transatlantic routes
(BTN, March 17, 1997). A year later, American Express bought from Continental tens of millions of dollars worth of deeply discounted seats exclusively for corporate customers on Virgin flights to both London Heathrow and Gatwick. At its peak, the 'London Bridge' deal was being used by at least 500 Amex clients, but in early 1999, the bridge collapsed. Without the necessary usage, Amex was compelled to renegotiate
(BTN, March 8, 1999).Separately, Continental partner Northwest this month informed DOT that its alliance with Air China, in place since 1998, "is being terminated and all code sharing and related commercial cooperation under such agreement will be discontinued as of June 30, 2003." A Northwest official cited economic factors and the carrier's discontinuation of nonstop service between the United States and China. Northwest's last such route, Detroit-Beijing, was suspended last spring.
Meanwhile, Delta continues to coordinate corporate sales with SkyTeam alliance co-founder Air France. "We already have done some joint bids that have worked well," said Lee Macenczak, Delta senior vice president of sales and distribution, "but we still are getting used to how each other structures deals."
Furthermore, a Delta official confirmed the governing board of the SkyTeam alliance has extended an invitation to Continental and Northwest. Though a teaming of Continental- Northwest with Delta
(see story) suggests corresponding cooperation between respective European partners KLM Royal Dutch Airlines and Air France, KLM has not yet decided with which to partner: Air France or British Airways and the Oneworld alliance.
In other alliance news, Swiss International Airlines, once considered a shoe-in for Oneworld membership, now appears unlikely to join the alliance in the short term. Meanwhile, SN Brussels Airlines, the successor to defunct Sabena, now code shares with Oneworld members British Airways, Finnair and Iberia and also cooperates with Oneworld founder American. The Belgian carrier, however, has not been formally invited to join the alliance.
Oneworld's primary competitor, the Star Alliance, certainly has not been immune to the industry downturn, despite its lead in the marketplace and deeper integration between United and Lufthansa. Though business as usual proclamations were rampant in the immediate aftermath of Air Canada's decision this month to seek bankruptcy protection, the alliance has chinks in the armor. Aside from ongoing bankruptcy proceedings at both Air Canada and United, Brazil's Varig also is facing a potential bankruptcy. Down under, Air New Zealand required a government bailout and Ansett Australia has been out of business for more than a year. Air New Zealand's future still remains in doubt as regulators in both New Zealand and Australia rejected the initial proposed alliance and equity sale to Oneworld member Qantas.
Despite those woes, Star continues adding members, including Spain's Spanair, Asiana Airlines of South Korea and LOT Polish Airlines.
"Star Alliance will include a Chinese carrier one day," said Star CEO Jaan Albrecht, perhaps referring to recent speculation that Air China, free from Northwest obligations, will pursue membership.