Close your eyes. Now open them. Like magic the alliance picture has changed again. In fact the speed of airline alliance courtships in 1997-8 is beginning to make pinning down an accurate image of the major groupings a bit like trying to capture fairy dust.
Has the airline industry gone completely mad, we ask, or are the big carriers just determined to rub salt into the wounds of their already disgruntled politicians and regulators? More likely, they are simply following Bob Crandall's lead and pushing out the boundaries of cooperation to establish just how far they can - and should - go.
Having sparked total mayhem in the alliance movement by forging a provocative pact with British Airways nearly two years ago, American's chairman and CEO - who at heart always remained opposed to the alliance movement - definitely had the last laugh as he retired in May. He leaves behind him a battle ground of major airlines fighting for allies while the hands of the regulators hover above them. Yet American's five proposed Latin American codeshare partners and deals with Japan Airlines and US Airways mean American/BA is now the largest proposed alliance grouping based on 1996 revenues of US$71 billion.
Crandall will be happy in the knowledge that some form of correction to the alliance movement is inevitable, either through regulatory measures, the objections of pilot and other labour groups, or a realisation that making these increasingly unwieldy alliance groupings work just 'ain't so easy'. But whatever the final outcome, greater industry consolidation, in the US and Europe at least, is just around the corner.
Internationally, developments over the past year have been shaped by the race to match the growing might of the Star Alliance, itself in part a response to the proposed AA/BA tieup. The six carrier Star Alliance continued to add feathers to its bow as Singapore Airlines, Air New Zealand, Ansett and All Nippon Airways signed individual deals with leading Star members. While these four are not full members of the Star Alliance, they are already extending their links and some or all could join at a later stage.
Spurred on by Star's growth and with their own proposed alliance still bogged down in the regulatory process in Brussels and Washington, British Airways and American have, on paper at least, surpassed Star in revenue terms. However at presstime Delta/United were in talks with their pilots over a codeshare agreement. If implemented this could break up the Delta/Swissair group, leaving a question mark over Delta's relations with Star. Some form of conditional clearance by Brussels of the AA/BA linkup was expected in May, although at presstime negotiations between the two airlines and the European Commission continued.
Nor were Star and the other big carrier groupings expected to go unrestrained. The competition issues raised by the AA/BA proposal have convinced Brussels that all the major alliances blessed with US antitrust immunity also require European immunity to cooperate on fares and capacity. Noises are also being made in Washington over the policy of linking open skies agreements to US immunity for major alliances, and some now believe that this policy's days are numbered.
Much as others have rushed to follow the lead taken by Star Alliance, the major codeshare pact announced by Northwest and Continental in February opened the floodgates to a round of proposed US carrier tieups headed in April by American with US Airways and United with Delta. Northwest now owns 14 per cent of Continental, with 51 per cent of the voting rights, and could take the carrier over in the future.
While in theory domestic codeshare arrangements and FFP linkups do not require US approval, these alliances have global ambitions and will impact the international partnerships of each US carrier. And, like United/Delta, any codesharing between American/US Airways is subject to an agreement with pilots over provisions in their labour contracts.
Northwest's tieup with Continental and Delta's proposed deal with United leave Air France in a quandary. The French carrier has codeshare deals with both Continental and Delta, both of which say they will expand their links with Air France. Stronger ties between Delta and Air France could sever Delta's Global Excellence link with Swissair, already weakened by the loss of Singapore Airlines to an alliance with Lufthansa. SIA's new partners Air New Zealand and Ansett Australia also have links with United. And while United has close ties with Air France competitor Lufthansa, the two European flags have tried to cooperate in the past. With US$11 billion in revenue in 1996 and 31.9 million passengers, which way Air France goes will be crucial to the relative size of the major carrier groupings.
Meanwhile Northwest/ KLM's fortunes were transformed by Northwest's tieup with Continental into the third largest alliance grouping. KLM boosted its European traffic base through deals with Alitalia and Braathens but Continental continued trying to lure Air France into a definite marriage. Delta's tenuous position at the head of the fourth grouping and weakening relationship with Swissair will have further spurred its talks with United.
Perhaps aware that Delta's fancy is straying, Swissair pulled a tight circle of European partners around itself in April under the name of the Qualiflyer group. The enlarged partnership includes TAP Air Portugal, AOM of France, THY Turkish Airlines and existing partners Austrian Airlines and Sabena.
As Asian troubles continued Cathay remained a prime alliance target in that region, while the signing of a Japan-US bilateral opened the way for codeshares between American/Japan Airlines, United/All Nippon and Northwest/Japan Air System. Delta, dropped by ANA for United, has resorted to plans for a limited codeshare with TWA instead. Delta's vulnerable position in the Pacific would also be helped by a link with United. In April Cathay was leaning towards BA/AA/JAL while late last year five provincial carriers formed New Star alliance, the first Chinese multi-carrier tieup.
Our survey logged a total of 502 alliances this year, a massive 38 per cent increase over last year's 363. The increase reflects 121 new alliances and the presence of an additional 19 airlines compared to last year. The rise is all the more remarkable given that a large number of agreements were also cancelled or deemed obsolete this year.
Of this year's total, 56 alliances or 10.8 per cent involve equity, a further drop over last year's 14.9 per cent. However this fall in equity alliances as a percentage is partly attributable to the steep increase in the number of alliances overall and should be treated with caution. Some significant new developments show that equity is in fact creeping back into favour as a means to cement an alliance. Examples include Swissair's plan to take up to 20 per cent of TAP; American's stake in Aerolineas Argentinas; Delta's 30 per cent share of AeroPeru; KLM's investment in Braathens; Sabena's stake in Citybird; and Northwest's Continental stake. Also Lufthansa and SIA may jointly acquire stakes in Thai Airways and South African Airways. In contrast, KLM disposed of its stake in Northwest as a means of resolving a control dispute and Alitalia sold its stake in Malev.
For the sake of valid comparisons, the Star, New Star and Qualiflyer multi-carrier alliances have been counted as bilateral cooperation between each of the member airlines. Alliances restricted to FFP cooperation are excluded from this survey, as are all regional carriers.
Source: Airline Business
