Star Alliance Membership Still Shines The Brightest

After a relative lull in airline alliance activity last year, the major global partnerships this year have advanced their value propositions by securing additional antitrust immunization, expanding codeshare flights, coordinating cost savings in the stormy economic climate and/or leveraging integrated operations for joint corporate sales.

While its competitors either were slow out of the gate (SkyTeam), unable to gain meaningful antitrust immunity (Oneworld) or still not yet officially launched (Continental/Northwest/KLM), the 15-member Star Alliance has a clear advantage—though not nearly perfected—in combining many processes and presenting global corporate clients a unified front. However, recent SkyTeam immunity, a fledgling partnership between Northwest's two partners—KLM and Continental—and Swiss' decision to align with American Airlines indicate a heightened level of competition among the four primary groupings. Oneworld, particularly disadvantaged after founders AA and British Airways again failed to gel into an integrated transatlantic alliance, nevertheless is finding ways to develop corporate programs.

Still, everyone is chasing Star Alliance, which will celebrate its fifth anniversary next month. By simply being around long enough, the partnership has developed many alliancewide processes and said it is well-positioned to minimize the double impact of Sept. 11 and the sagging economy.

"Our members found that the alliance is not a luxury to have in good times only, but it is there particularly in the bad times," said Horst Findeisen, Star Alliance vice president of commercial. "We can group together and hold each other up." As such, the member carriers consolidated airport lounges, streamlined airport ground handling that collectively saved $70 million and leveraged purchasing power with other suppliers. The alliance, based in Frankfurt, also trimmed its staff from more than 100 employees to under 70.

"We are really seeing the synergies and revitalization within the alliance since Sept. 11," added Alexander Rahe, Star director of sales in the Americas.

The Star Alliance also has been able to increasingly coordinate efforts on corporate contracting. It conducted research on travel managers a few months ago and found, for the most part, that respondents were satisfied with services provided to business travelers. "Now they want us to focus on them, the travel managers, to make life easier and more competitive," Findeisen said. "Our ultimate goal is to offer them one phase as opposed to 15 phases, one contract as opposed to 15, one report and one check."

Since 1999, Star Alliance has more than doubled its number of corporate contracts, partially due to the trend of centralizing travel policy within larger corporations. "Gaining compliance to a travel policy has been an issue for corporations for a lifetime, and they are very much aware that volume is the best way to negotiate," said Tracey Eiffe, a Star Alliance project manager focusing on corporate sales. "For those two reasons alone, we are seeing a shift away from the local and regional agreements and toward global negotiations."

Star is developing new methods for dealing with smaller companies on the country or regional level. "In some countries, we identified different developments as far as corporate contracting," Rahe said. "In Germany, for example, travelers primarily use a corporate ghost card, while in the U.S. they generally use their personal corporate cards. But we are trying to harmonize into a common approach on the country level."

Eiffe described another observed trend, which has buyers more concerned with the bottomline than traveler benefits. "The decision maker does not want unhappy travelers, but there has been a shift from traveler preference to cost as the key factor," she said, noting that other criteria always are in play, including the network, on-time performance and account management.

Though individualized for each multinational account, alliancewide corporate contracting now benefits from formalized intra-alliance procedures. "We have established a code of conduct with Star partners," said Wolfgang Schmidt, Lufthansa vice president of corporate key account management. "It determines who will be responsible if an RFP is sent by a corporation, who will contact that corporation and coordinate with other airline partners and who will lead negotiations."

On the meetings front, Star recently enhanced its Star Alliance Conventions Plus product (BTN, June 12, 2000), which now includes global convention fares interlined across all 15 members and "a comprehensive program for supporting organizers prior to and during an event." Dubbed Organizer Support Program, the upgraded product includes support tickets, excess baggage and upgrade vouchers and an incentive program. To qualify, conferences must have at least 1,000 delegates from no less than three countries and two continents.

Meanwhile, the alliance recently announced plans to transform Terminal 1 at Paris Charles de Gaulle into a Star Alliance facility. Following renovations, all Star members will be housed in the same building by 2005. Star said consolidating operations at major airports is "a primary goal" that will facilitate passenger transfers and improve intra-alliance checkin, baggage handling and other passenger services. Similarly, the alliance earlier this year broke ground on a new, dedicated Star Alliance concourse at Miami International Airport slated for a 2005 opening. The 15-gate facility will offer a seamless travel experience for alliance passengers and a new United Airlines Red Carpet Club.

Joint Star Alliance self-service checkin kiosks are on a list of projects to be developed, but one idea not currently under development is a booking portal on star-alliance.com. "There are many travel portals out there and we didn't want to add another just to have it," Findeisen said. "Our members have spent a lot of money on their own booking engines so we direct from our Web site to them."

Findeisen said Star, happy with its current 15 members, "won't grow indefinitely," but noted a few "white spots on the map," including China and India. Air China is a possibility, but the carrier has a close relationship with Northwest and could be courted by a potential Northwest/KLM/Continental alliance.

Still, Star has a long way to go. Some corporations with integrated contracts said inconsistencies continue to surface in terms of negotiating and pricing, even among immunized partners. "We have made great strides in codesharing, but not as much in service and sales," said United Airlines president Rono Dutta, speaking last month at Corporate Travel World in New York. "We can't do sales as well as we'd like because of the lack of data available to monitor the contracts. But alliances are committed to the end game and we are committed to working as a single airline. It is a promise we are a long way from delivering." United hopes its new Corporate Solutions initiative (BTN, March 25), which includes data processing elements, will facilitate Star Alliance agreements.



SkyTeam Finds Its Wings

Despite its relative late start in the alliance game, SkyTeam is making strides to integrate and compete effectively on a global scale. In January, Delta and the European SkyTeam members—Air France, Alitalia and CSA Czech Airlines—received final approval from the U.S. Department of Transportation for antitrust immunity. It is the third alliance to be granted antitrust immunity on transatlantic operations, following Northwest/KLM Royal Dutch Airlines and Star members. AA and BA failed twice to obtain such immunity.

SkyTeam also is seeking to secure immunity on a global scale by bringing into the fold its Asian representative, Korean Airlines. "Korean gives us strength to Asian markets that we don't have now and it may help get us more contracts on the West Coast and even in New York," said Christopher Korenke, Air France vice president and general manager in the United States. "Their new hub at Inchon provides a huge number of connecting opportunities." That request for immunity was filed last month at the U.S. Department of Transportation.

Both Delta and Air France this spring finally will reinstate codesharing with Korean Airlines, three years after suspending such ties due to safety concerns. Air France's codesharing on flights between South Korea and France restarted April 1. Delta will follow next month on flights between South Korea and the United States.

Competing alliances already benefiting from immunity said SkyTeam joined the alliance game too late to be an effective competitor out of the gate. "If they handle antitrust immunity right, it will improve their position. However, we have a three-year lead in terms of experience," Star's Findeisen said. "Things do not change overnight just because the court rules. You have to get your act together and establish trust. Carriers that have been around for a hundred years are suddenly asking their salesforces to be friends with those that were their competitors up until recently."

Air France's Korenke said RFPs, negotiating and account management present "complicated questions" and little has been finalized since the January immunity approval. Committees have been established to explore pricing and distribution policies, inflight service elements and a range of other alliance activities. "We are working with Delta very closely to set up joint deals for the market," Korenke said. "But it will take a little time, ATI is still very fresh for us."

Delta-Air France immunity came with strings attached, notably carve-outs mandated by DOT that prohibit the two carriers from including Cincinnati-Paris and Atlanta-Paris high-yield business in corporate contracts. "Given the market strength of SkyTeam, the last-minute businessperson does not have much choice," Korenke said. "We do not have the same restrictions on advance purchase fares in those markets."

Meanwhile, Air France's codeshare with Continental Airlines ended March 31, replaced on the Houston-Paris and Newark-Paris routes by the Delta codeshare beginning in May. "For us, the Continental partnership has always been nice and fair," Korenke said, "but the market perception is clear that we belong to SkyTeam and our partner is Delta."



Oneworld Looks Ahead

Oneworld, which in February celebrated its third anniversary, is the only major grouping without significant antitrust immunization. However, AA and BA said they remain committed to one another and the larger alliance that includes Aer Lingus, Cathay Pacific, Finnair, Iberia, LanChile and Qantas.

"Fundamentally, the proposition is as valuable as ever," said David Noyes, British Airways executive vice president of North America sales and marketing, "and we have developed corporate programs in some markets." Those programs, currently more applicable in Europe than in the United States, include deals on all relevant Oneworld carriers, but the only entity that sees all the pricing elements is the client.

Nonetheless, Noyes said, "It is frustrating that we cannot work together on sales and marketing while other carriers can, and we do have more work to do in terms of a management structure. No alliance has cracked that completely." Though not nearly as cohesive as Star, Oneworld members have expanded bilateral codeshares, enhanced IT systems for improved customer service and expect $1 billion in benefits this year "through revenue generation, protection and feed, and savings from joint purchasing and shared airport and city facilities."

Swiss may become Oneworld's newest member now that Swissair's successor has aligned with AA. The partnership, reconstructed from the now-defunct immunized AA-Swissair link, includes reciprocal frequent flyer programs and codesharing between Switzerland and several U.S. gateways and numerous European destinations beyond Zurich. The two carriers are expected to apply for antitrust immunity for their bilateral relationship, while Swiss seeks a seat at the Oneworld table. However, there is speculation that BA is not for Swiss participation in Oneworld due to regulatory concerns. Nevertheless, BA's Noyes said, "Swiss would bring an extensive network across Europe. Zurich is a good stepping off point to many other destinations in Europe, so the airline is attractive from that point of view."

In other alliance news, the European Qualiflyer Group, consisting of nine smaller carriers, ceased all joint activities except frequent flyer reciprocity between members. The carriers are on the hunt for new alliance affiliations.

Delta and China airlines last month reached an agreement to code share on transpacific flights between the United States and China. If all approvals are received, the two carriers also will cooperate on passenger interlining, share facilities, establish frequent flyer reciprocity and possibly add beyond-gateway codesharing. It is uncertain if China Airlines will join the Delta-led SkyTeam alliance, which includes Korean Airlines. Delta last month also reached a codeshare agreement with SNCF-French rail, enabling passengers to combine air and rail segments into a single itinerary for trips connecting through Paris Charles de Gaulle Airport to eight French cities.