There are no prizes for identifying the main landmark in airline strategy over the past year. Following in the footsteps of the two-year-old Star Alliance, the major groupings have developed and grown stronger. British Airways and American launched oneworld, the SAirGroup continued to strengthen its European Qualiflyer alliance and the as yet unnamed grouping led by KLM/Northwest tightened links with Continental and Alitalia. But the apparent similarities between these alliances can be deceptive.
While each is promising the long-term goal of a seamless global service, there are wide variations in the extent of their togetherness. These range from SAir's pursuit of tight equity links, through to the oneworld alliance, effectively based around customer marketing and lacking the antitrust immunity to go much further, at least on the Atlantic. The question is how much that lack of immunity really matters?
The Star Alliance, founded around the antitrust immunity granted to the Lufthansa/SAS/United relationship, appears to be nearing completion. In March it celebrated a second birthday with the addition of two new members: Ansett Australian and Air New Zealand. All Nippon Airways is lined up to join at the end of the year and Singapore Airlines too now confirms that it is working towards membership.
Meanwhile, oneworld was finally launched in September as a marketing tie-up. BA ultimately calculated that the slot surrender at its London hubs being demanded by the European and US competition authorities was too high a price to pay for pursuing the benefits of full open-skies/antitrust immunity with American. On the surface, the oneworld grouping is a close contender to Star (see page 37). Canadian International, Cathay Pacific and Qantas signed in the first wave, but a series of other airlines are waiting in the wings, including Finnair and Iberia, through to LanChile and Aerolineas Argentinas.
Antitrust immunity
Yet rivals claim that without the full array of antitrust immunity and transatlantic code-sharing, oneworld lacks substance. "It's up to the passenger to decide how much value there is behind oneworld's campaign," says Delta Air Lines' vice-president Europe, Stephan Egli.
Delta has continued to reap the full benefits of the multilateral antitrust immunity it holds with Atlantic Excellence partners Swissair, Sabena and Austrian Airlines. "The difference between us and other alliances is that we feel we have progressed much more in the areas of joint corporate agreements, joint pricing and joint schedule integration," says Sabena's executive vice president commercial, Hugh Fraser.
Immunity lets the carriers share profits and revenues through a complicated formula based on the number of seats offered, who the marketing carrier is, the operating carrier and passenger yield, adds Fraser. "Where other carriers do have immunity, they don't use it properly. Or in the case of oneworld, they don't have antitrust. So they can't collectively approach customers and put the kind of proposals that we do," he says.
Swissair's allied Qualiflyer grouping, including AOM, TAP Air Portugal and THY Turkish Airlines, has developed its relations with Delta over the past year. But Delta is also intent on building a comprehensive partnership with Air France, and its apparent efforts to tie up the strands of its European alliances seem to have foundered on Swiss scepticism over allying with the French carrier.
Delta codeshares with Air France to between 25 and 30 destinations across the Atlantic between France and the USA, as well as further on to points such as Johannesburg. The two carriers have also had reciprocal frequent flyer co-operation since June last year. But there is no prospect of an alliance with Air France receiving US antitrust immunity because the US-France bilateral has a four-five year transition period to an open skies regime. Delta will need to carefully weigh the value of its immunised Atlantic Excellence partnership, allied to Qualiflyer, against the potential value of a tie-up with Air France. Egli points out that the regulators could resolve the antitrust dilemma anyway. "There's so much review going on and if (antitrust immunity) is done away with, everyone will be treated the same," he says.
Last but not least, Alitalia officially joined the KLM/Northwest grouping in May this year and a major transatlantic partnership is on the cards. The three carriers have made a joint application to the US Department of Transportation for immunity from US antitrust laws. If granted, this will enable them to implement a major global strategy involving extensive codesharing and integration of frequent flyer plans; the co-ordination of schedule and route planning; joint pricing and inventory management, integration of information technology and joint purchasing. This is in addition to passenger benefits such as lounge access, seamless connections and shared facilities. Northwest and KLM were the first partnership to receive US antitrust immunity nearly a decade ago and Alitalia brings new scale in Europe.
Within the Star Alliance, United and Air Canada have broad immunity to work with their European partners. Air Canada's marketing director, Rupert Duchesne, says the need for multilateral antitrust immunity within the major groupings is questionable. But he adds that bilateral immunity within Star is "extremely important". The North American carriers can, for example, work together on every aspect of their alliance, permitting joint sales incentives for travel on Star. Duchesne believes that a lack of antitrust immunity is a more serious handicap in the leisure market, where there is customer sensitivity to price initiatives and computer reservation system (CRS) displays.
At Delta, Egli explains that schedule co-ordination is vital to CRS displays. The improved connection times achieved through schedule co-ordination shorten the elapsed time, a major element in the ranking of flights on CRS displays. "How can oneworld co-ordinate schedules without antitrust immunity?" asks Egli. Duchesne says the lack of immunity is also a major problem in the long-term in the business travel market. "You can address the majority of the business market but you can't do as much as you would want in corporate accounts," he says.
However, the boundary between what an alliance without antitrust immunity can and cannot do is far from clear. Officially the immunity simply prevents the companies from being sued by the USJustice Department for violating the antitrust laws. But there are no clear guidelines as to how far airlines without immunity can go, as the Department of Transportation itself acknowledges.
This is hardly a reassuring prospect for BA and American as they seek to implement a far-reaching global marketing alliance that is able to compete with rival groupings with the benefit of immunity within their main partnerships. In late May, there was a glimmer of hope that immunised partnerships could ultimately become a larger feature of oneworld. At present, the American-Canadian partnership is alone in benefiting from US antitrust immunity, but that could be joined by the tie-up with LanChile, which aims to join oneworld in 2000.
Marketing advantage
Meanwhile, oneworld's rivals continue to progress their co-operation in the areas of codesharing, pricing, scheduling and the splitting of capacity, profits and revenues.
The oneworld alliance must focus instead on limited bilateral codesharing and passenger-friendly areas, such as frequent flyer programmes(FFP), branding, lounge access, easier connections and customer support. The BA-American gamble in dropping the pursuit of US-UK open skies and accompanying antitrust immunity last year is that these areas will count for most, at least in these early days of global alliances.
Duchesne agrees that the early start made by Star on its transatlantic marketing "has taken big chunks away" from its competitors. He adds that oneworld is "trying very hard to catch up with one hand tied behind its back". However, he admits that the importance of single codes is less of a draw for the transatlantic business traveller. "As long as the connection is there and they earn qualifying miles, they couldn't give a damn what the code is," he says. Duchesne argues that in the business market, computer reservation system (CRS) displays are of less consequence than the passenger's schedule or FFP preferences. "In the leisure market codeshare is very important and I would not deny it," he adds.
Codesharing becomes even more critical in the leisure market when it is combined with the offer of through-fares, something only immunised partnerships can fully deliver.
At present, only Atlantic Excellence can agree through-fares on a multilateral basis, but Star clearly does so on a bilateral level. "You are offering a more attractive rate, a specific product for the sales persons to push," says Duchesne.
In contrast, oneworld is unable to offer joint fares or corporate sales agreements to large companies, though it does offer Global Explorer fares which "make it simpler to travel around", says BA's general manager alliances, Michael Jackson. Without immunity, each airline must decide individually what price to charge and the fare cannot be branded as an alliance fare. He says: "We can't price together but we can agree what a oneworld fare would be across the network."
Joint selling and marketing is more problematical, Jackson concedes. The airlines are looking to co-locate ticket and sales offices in certain parts of the world because sharing facilities is considered harmless. "You see us marketing oneworld together but we do not have sales people agreeing prices," he says. In contrast, Star has been able to push joint sales a little further. The sales forces of Lufthansa and SAS are being combined in markets like France, for example, and the Star carriers have a national sales committee in each market, says Duchesne. Within Atlantic Excellence, the sales forces remain completely separate but, says, Egli there are joint corporate sales agreements "on a pan-European basis".
Schedule co-ordination
But it is in the ability to co-ordinate and plan schedules that the immunised alliances really come into their own. Delta stresses that a main advantage of the four-carrier antitrust immunity has been to produce more frequencies and connections.
Sabena's Hugh Fraser also underlines the benefits of the schedule integration achieved by the alliance and offers the example of connections between Brussels and Cincinnati - Delta's second largest hub. "The biggest success for hub to hub connections has been Brussels-Cincinnati. Our flight has 50 connections in Brussels and we deliver the passengers in Cincinnati with over 64 connections within one and half hours of their arrival time," says Fraser.
At oneworld, Jackson accepts this as a handicap: "We would have preferred to have got our antitrust immunity and built up the alliance from there," he admits. Despite the restrictions, oneworld does encompass a fair amount of bilateral codesharing. BA codeshares with Canadian and Qantas, while American shares codes with Canadian, Qantas and future oneworld member Iberia. But the amount of codesharing is less significant than at the other alliances. Jackson says oneworld's philosophy is to "find things that are meaningful to customers that none of us can do on our own". This includes the integration of FFPs and the resulting increase in passenger benefit. But it is "mostly about supporting customers when they are travelling across our networks, whether these are codeshare connections or not," he says.
In concrete terms, the oneworld carriers share lounges and other facilities, bus passengers between terminals to help them make connections and make it easier to exchange tickets between partner carriers. Staff around the world have been trained to help fix problems encountered by oneworld passengers from a partner airline and help desks have been set up to give staff the support they need to deal with problems on another carrier. "It's all about helping people to travel across our networks and giving them the support wherever they go," says Jackson. "It is about what the alliance offers you as a customer."
Rival alliances remain singularly unimpressed. While Duchesne recognises that, for Star, the FFP "is the most critical driver of the alliance's success", he is sceptical of a reliance on "alliance-level" customer support. "No multilateral alliance can at present do anything approaching seamless [service]. If you promise that and you can't deliver, the customer won't forgive you," he says. Seamless services requires through-check-in, the automatic accrual of FFP points, the fastest possible connecting times and the possibility of switching easily to another carrier without ticket endorsements. Star has already poured millions of dollars into this but just switching all the Star partners into one terminal at London/Heathrow is a 10-year project, says Duchesne. It also takes almost a year for a partner to come up to the standard required to join Star, he adds.
Even without antitrust immunity, there is much that oneworld can do to further the alliance. Like Star, which is focused on achieving greater cost synergies, it can seek economies of scale through joint purchasing. It can also continue to build its brand image, improve customer support and strive towards a seamless product. But the lack of antitrust immunity could catch up with oneworld if and when rival alliances start to get closer still.
Source: Airline Business
