Please tick as applicable. The aircraft was late. The seats were too narrow. The service was lousy. You had red wine spilled down your white cotton shirt. Finally, you failed to notice that the large grey aircraft in which you had travelled across the Atlantic had shrunk into a small blue pastiche for the last leg to your final European destination.
Never underestimate the sophistication of the traveller. Dollars have been poured in to promote codesharing through sales, reservations and marketing campaigns. Yet the central plank of the airline industry's defence against renewed regulation of codesharing rests on a simple concept. Nobody notices and, despite what you may tell the passenger, they simply don't care.
Which begs the question why the European Civil Aviation Conference (Ecac) delivered a draft code of practice for codeshare deals in April, a year after British Midland outlined its own 10-point plan. The European Commission, armed with its own year-long codeshare study, may follow suit. After two years of deliberations the US department of transportation is set to extend the disclosure requirements on domestic carriers to overseas airlines and travel agents. Finally, the International Civil Aviation Organisation (Icao) has weighed in with its own lengthy study.
The regulatory response to the rapid spread of codeshare deals has been reactive. Above all codeshares are good for the airline industry and a symptom of the fundamental restructuring of the business characteristic of the present stage in the industry cycle. Airlines are consolidating. So make deals. Capacity growth is being reined back. So make deals. The latest Airline Business alliance survey showed that the number of alliances jumped from 280 in 1994 to 389 in mid-1996, and most of them involve codesharing.
The codeshare debate has three key elements. First, governments are free to contest the regulatory environment: do codeshare deals require underlying traffic rights? Second, is there an adverse affect on competition? The two major US studies in this area - for the General Accounting Office and the DOT - argued that the effects were positive. The European Commission is, as always, not so sure. And finally, what is the effect on the consumer?
The Ecac study and its subsequent recommendations is notable for its focus on consumer interests. This will be the battleground between regulators and airlines in the short term. In reality, the regulatory aspects were omitted because there was not expected to be any consensus among members. And competition matters were deemed to be the preserve of the Commission.
The Ecac measures focused on the flow of information to passengers from airlines, travel agents and CRS systems, and also drew in the role of airport operators. The measures concentrate on identifying the operating carrier to consumers but adoption of the scheme is voluntary. However, Ecac warns that 'stronger steps' may be considered after a one-year review of industry practice.
The record of industry practice is difficult to quantify. On the one hand, there is almost no evidence of consumer pressure for more information about the operator to be disclosed, either by the airline or the travel agent. Nor do most parties fail to do so already. On the other hand, codesharing remains an industry initiative which has been dressed up as a consumer plus. 'Do the public care that much?' asks Kees Veenstra, head of aeropolitical affairs at the Association of European Airlines. 'We are talking ourselves into a problem.'
The level of complaints to airlines about the impact of codesharing is negligible. It is not in the interest of carriers to seek agreements with others with markedly inferior service standards or perceived suspect safety, argues Veenstra. Market forces would prevail if this were the case. At the same time, consumer representation in the airline business remains poor and examples of consumer power, such as the sit-ins by Excalibur passengers which ultimately contributed to the UK charter carrier's collapse in June, are even rarer.
For years American Airlines provided the lone industry voice against codesharing, characterised by chairman Bob Crandall's denunciation of the practice as 'the biggest con-trick in history'. American has had to perform a careful about-turn to justify its subsequent codeshare deals, culminating in the proposed agreement with British Airways. Like others it has fallen back on the argument that codesharing is standard industry practice. 'There is still a belief that we are trying to mislead the consumer,' says Rob Britton, the airline's head of government affairs.
Although he feels American is beyond reproach in that respect: 'Even during our non-codesharing days we still had the [infrastructure] in place and saw the separation between public policy and what we had to do for the passenger. We have not changed the policy of disclosure regardless of the turnaround on attitude [to codesharing]. I think we already operate at a standard which would meet any guidelines.'
The US carriers operate under DOT disclosure rules, dating back to the arrival of the first codeshare between Allegheny Airlines and Hansen Airlines in the late 1960s, which were formalised in 1985. These require the clear identification of a codeshare flight and of the operating carrier. Proposals to extend this to overseas carriers and travel agents have been on hold since 1994. 'We've done a lot of work with travel agents through electronic pages, CRS displays and printed material such as travel wallets which describe our relationship with the partner carrier,' says Britton.
In what has become the standard industry line, Britton argues that travel agents remain the weak link, at least in the eyes of the regulators. 'However much we might wish to see shared responsibility on the part of the distributors, until such time as regulations are imposed on the travel agents, with sanctions, we have no choice but to go out and do these things,' he says. '[But] we can produce all of this, get it to the intermediary and into the hands of the passenger and then there is still no guarantee that anyone is going to read it. Sometimes I just throw up my hands.'
Reid all about it
British Midland can take credit for setting the regulatory ball rolling in the codeshare debate. By capitalising on its Heathrow base through a series of codeshares the airline has managed to pre-empt regulators with its own 10-point plan. While some may wish they had kept quiet, the benefit is to have set the agenda. When he announced the plan at an Airline Business conference in London in March 1995 managing director Austin Reid noted: 'We believe that all passengers should be given as much information as possible at all stages of the process. But we realise that this goal may not be reached on all occasions. 'One of the problems is consumer power,' says Tim Walden, the carrier's head of government affairs. 'The Commission has this feeling that it must look after every single citizen in the EU and lead them by the hand. We spend a lot of time trying to satisfy [Brussels'] whims.'
The practical application of codeshares by the airlines varies widely, reflecting the increasing complexity of airline arrangements with the spread of franchising and subcontracting. Walden says the management of the airline-passenger relationship hasn't developed greatly because there is only so much you can do (see box).
Moreover, the regulators' case is further weakened by the spread of global alliances and joint branding. In partnerships such as KLM-Northwest and Lufthansa-United, the carriers focus on the alliance and how it operates when marketing the synergies to passengers.
Brussels to bite?
The European Commission received its year-long codesharing study in late June. Conducted by the Dutch consultants Strategem the document examines bilateral, competition and consumer matters, as well as the impact of franchising. But early indications that it may consider a code of conduct for the consumer leave Brussels open to the charge that it is five years behind the travelling public. 'One of the strange things is that the consumer doesn't seem to be concerned,' admits Frederick Sorensen, the Commission's head of air transport policy.
Sorensen concedes that the list of possible abuses is a short one but cites the genuine, if often unvoiced, safety concerns of passengers and occasional unease at the transfer from jet to turboprop equipment.
The safety issue remains high on the Commission's agenda with a wide-ranging review in the wake of the Birgenair B757 crash earlier this year. However, as the airlines point out, there has been no spread of codeshare deals to countries and carriers where there is a perception of anything other than good practice.
The jet-turboprop issue is one that will never go away and can only be managed. Regional carriers may not thank the Commission for seeking to draw attention to the type of equipment used, but it is a fact of life that some passengers are uneasy about turboprops. Increased information would be particularly relevant where a chain of codeshares builds up and a passenger travels, say, on a transatlantic widebody, a domestic US narrowbody and finally a commuter aircraft to the final destination.
Yet Walden doubts the Commission will seek to issue a code of conduct. Britton and Veenstra voice similar doubts, suggesting it would be impractical to have a uniform set of guidelines given the differing nature of agreements.
The Commission's options are also limited by its competition mandate, which restricts action to intra-EU sectors while the bulk of European airline codeshares involve a sector into or out of the countries covered by third package regulation. To overcome this, Brussels may seek to look at the knock-on effect to intra-EU feeder flights to international gateways served by codeshares. Alternatively, the use of the catch-all Article 89 to justify examining the proposed BA-American alliance could yet help the Commission obtain competence in competition matters beyond the EU.
Regulators are loath to do nothing and the history of oversight of self-regulation in the airline industry suggests it is unsustainable in the long term. European carriers do not have to be reminded that their policy on denied boarding, which worked well for so many years, was ultimately superseded by a Commission regulation.
The most difficult issue is the impact on competition and the Commission has left it a bit late to do anything radical on this, says John Balfour, a partner at law firm Frere Cholmeley in London. 'It is so widespread now that to turn round and say that you have to modify or abandon these agreements is not practical. From a legal standpoint there is the issue of legitimate expectation whereby by not acting it has given tacit approval.'
On the consumer side the most immediate effect is likely to be an extension of the CRS code of conduct to travel agents. The code is already under review and the Commission says the findings of the codeshare study will be taken into account in the CRS revisions. Like their counterparts in the US, European airlines and CRSs have called for this action to increase transparency and fend off further regulation.
Why the fuss? Industry surveys show that around 70 per cent of total passenger traffic is still O&D but that the 30 per cent connecting segment generates almost 50 per cent of revenues. The sales created by codeshare deals are too valuable to lose. The airline business has a perception problem which goes to the heart of the efforts of the regulators. While seeking to maximise the transparency of codeshare deals they should drop the idea that the passenger is unaware of the change. Regulators will seek to act if they believe it is in the interests of the traveller.
Transparency is the key word in the self-regulation of codeshares by airlines and is the centrepiece of the US DOT's disclosure rules, British Midland's code of conduct and the guidelines set out by Ecac.
For the airlines this means outlining the codeshare partner and the aircraft operator at every opportunity - at the time of booking, on the ticket, at the airport and on the aircraft. 'It is not so much the number of codeshares developing as how airlines deal with them,' says Kees Veenstra at the AEA. '[But] much of the information is not in the airlines' hands - only at the pre-booking stage through timetables and brochures. Airlines have already told the CRS vendors how to deal with this. Ecac's main concern is to identify the operating carrier. But who is going to take action to ensure that the travel agents tell consumers?'
Rob Britton at American Airlines says passenger research shows the most effective medium is to print the information on the itinerary provided by the CRS. Most CRSs identify codeshares with an asterisk and only show the operator when a booking is made. Britton says the US DOT is looking at dual listing of codeshare partner and operating carrier on the same line of the CRS screen, something American already does.
Tim Walden at British Midland says the carrier's code of conduct has been widely circulated in the airline community and adopted by its partner carriers and, effectively, by the US DOT. It is maintaining pressure for CRS displays to be altered to show the operating carrier on the first screen and on the passenger name record.
Printing the operating carrier on the ticket is also a core element of the BM code. Traditional Optat tickets do not have the space to carry this information though Walden points out that consumer pressure in Scandinavia has already resulted in the necessary change on the Amadeus system. Moreover, the shift to ATB ticketing, with each sector carried on a separate coupon, will provide the necessary space. BM argues that until this change is widespread tickets should carry the operating carrier's flight number.
The rise of franchising may also provide airlines with the opportunity to take their transparency drive one step further. The practice obviously differs from traditional codesharing in that the passenger is deliberately made to believe that he or she is travelling on the main carrier rather than an affiliate. But to alleviate the concerns of insurance companies that passengers may seek to make a claim with the 'wrong' airline, an ad hoc code of practice has evolved. Passengers are reminded whenever possible that they will be flying on a partner carrier.
And remember market forces operate in different ways. Airlines can argue that if they mislead consumers they will simply walk away next time. Sometimes the fear of a liability claim can have an even stronger effect.
Source: Airline Business
