Joint packages

REPORT BY PETER CONWAY IN LONDON

The two major cargo alliances have started harmonising products and sales forces: but just how far will they really go?

The timing was doubly unfortunate. On 26 September, after a year and a half of behind-the-scenes integration work, Lufthansa, SAS and Singapore Airlines had planned a major press conference in Frankfurt to announce what progress they had made on creating their global cargo alliance. As it was, after the events of 11 September, the conference was cancelled.

Instead, the three carriers issued a statement saying a new harmonised express product would be available from October, and revealing a new name for their alliance - WOW. The name is designed to convey "enthusiasm", according to Dr Gabriela Kroll, senior vice president for strategic alliances at Lufthansa and head of the integration team for WOW.

Even before 11 September, however, it was looking like an inopportune time to be launching a joint express product. Though Kroll insists express package traffic is holding up well at Lufthansa - where it accounts for around 20% of volumes - the word is that it is taking a battering as shippers cut budgets and slacker markets make regular-priced air cargo capacity easier to come by.

The terrorist attack in the USA has put a further spanner in the works: in its aftermath, some carriers suspended time-definite guarantees, saying it was impossible to keep to promised delivery times with the extra security meaures. In late September, Kroll brushed off such concerns, insisting "we feel comfortable launching the express product now".

As the first genuine cargo alliance to be announced (previous broad statements of intent by the Star Alliance and oneworld came to nothing), there was much interest in what the WOW partners would come up with.

Lufthansa said right from the start (in May 2000) that it would be a slow process of true integration, rather than the usual bold promises followed by little action. Kroll says this is why it has taken the three partners so long to unveil their first joint product. In particular, much work had to be done on harmonising handling processes and on creating ways for the three carriers' IT systems to talk to each other. Kroll also admits that more work is needed before other joint products are launched, but says the target is for the alliance to have a common portfolio of products by the end of 2002.

Top 5 ranking with alliances - 2000
Alliance	Cargo traffic	Freighters
RTK billion		/combis
1 Skyteam	16.8	50
2 WOW	14.6	32
3 FedEx	11.4	331
4 KLM/Northwest	8.3	34
5 UPS	6.3	245
NOTE: Cargo traffic RTK= Revenue tonne km 1 mile= 1.609km Freighters/combis=dedicated cargo fleet courtesy of Airclaims CASE database. Source: Airline Business rankings 2000.

Separate branding

How common is common, however? Curiously in WOW's harmonised express product, each carrier is keeping its own branding - td. Flash for Lufthansa, Swiftrider for Singapore Airlines and Priority for SAS. Officially all the three are offering is to book and handle the others' products. Kroll insists this is just a matter of keeping brands already familiar to customers, but is ambiguous about whether a single brand will emerge in the future. That suggests that the individual carriers are reluctant to go too far in merging their identities.

There is a question mark, too, over the integration of sales forces. Lufthansa and SAS already have their cargo sales forces under one roof in Europe, but what of Singapore Airlines? Kroll can only say that the partners "are looking carefully" at what can be done, a somewhat weak answer after 18 months of supposed study of the matter by a dedicated sales integration task force. And as Holger Sindemann and Thilo Wrede of the consultancy Roland Berger point out in a recent study on the area, even the sales integration between Lufthansa and SAS is limited. Except in Scandinavia, where the joint sales teams have been fully integrated under a single manager, teams from either carrier have merely been put together in the same building under separate managers. There is no evidence of any tangible measures being taken to realise sales synergies, they say.

By contrast the other major cargo alliance, SkyTeam, has moved much faster. Only launched in September 2000 on the back of the passenger grouping, it is well advanced in setting up a single sales force to handle all international sales out of the USA. The force will bring together the international US sales teams of Delta Air Lines and those of Air France and Korean Air (the latter having joined the project in June after some initial resistance to the idea), and is due to start taking bookings in January.

Jennifer Young, director of alliances and international at Delta Air Logistics, points out that the team will have the single most powerful Asian, Latin American and transatlantic offer in the US market, and says it will even have input into the scheduling decisions of Air France and Korean's freighter fleets.

It has a clear unified management structure, too - it will be headed by Bernard Frattini, Air France Cargo's vice president for North America, with Delta's Ton Nolan as vice president for sales and marketing. However, as Sindemann and Wrede observe, even here the three carriers have no plans to share revenue management data or client databases, which would make the joint sales effort more meaningful.

SkyTeam has also been quick to roll out a joint express product - suspiciously quickly, according to some observers, given that the carrier has not yet undertaken any of the IT or handling process harmonisation that WOW considers essential for a joint express product. However, SkyTeam claims that harmonisation has been made easier by Delta adopting Air France's four-tier product range (Northwest Airlines has done the same with KLM's Select range, though it has balked at adopting more specialised KLM products).

Harmonised product ranges

Delta now offers Equation - the Air France express product - on all international routes apart from Japan, and in August was claiming it had seen a 30% increase in express shipments as a result. The three other Air France products - covering general cargo, special cargo and tailor-made services for forwarders - will be adopted by Delta during 2002. Korean also now offers Equation on Seoul-Paris.

Getting product ranges and sales forces harmonised could potentially make the alliances major forces in air cargo. Dr Borislav Bjelicic of DVB, a German transport bank, pointed out in a report earlier this year that the existing alliances are already stronger than such mighty integrators as FedEx and UPS.

Pooling capacity

He thinks the reason that alliances are still relatively unimportant in cargo is because of their relatively small freighter fleets. However, these are not used in anything like a co-ordinated way. Bjelicic reckons that cargo alliances will not prove truly effective until they pool capacity to create a harmonised global network to match those of the express carriers.

Curiously, this seems to be the area in which the alliances are making the least progress. Lufthansa swops Boeing 747F loads with Singapore Airlines at Sharjah in the United Arab Emirates, but this only accounts for three of Singapore's 16 freighter flights through the airport at present. Lufthansa originally touted the scheme as a way to save costs and promote utilisation of their freighters. Despite this, both carriers seem to prefer to fly to each other's markets largely with their own lift.

Although SAS now uses Lufthansa freighters for flights to Japan and Hong Kong, promised co-operation on transpacific freighter routes between Lufthansa and Singapore Airlines has yet to materialise. Kroll will only say: "We are always looking into possibilities."

One standard of the air cargo industry is that a European and US or Asian carrier might co-operate by swopping loads at Anchorage, almost equidistant from all three continents and a major stopping point for transpacific freighters. KLM and Northwest have supposedly been mulling this scheme for two years.

In August, Jim Friedel, president of Northwest Cargo, said some operational testing had been carried out, and said the commercial aspects of the decision were now being looked at. But he admitted "the problem is the timing of flights on each side, and in a slowdown that keeps changing" - a situation likely to continue for some time yet.

KLM and Northwest Airlines
Members	Traffic RTK	Revenues	Dedicated	Fleet
	billion	$ million	freighter	combi
KLM	4.3	1,007	2	20
Northwest Airlines	4.0	857	12	-
TOTAL	8.3	1,864	14	20
SkyTeam cargo alliance
Members	Traffic RTK	Revenues	Dedicated	Fleet
	billion	$ million	freighter	combi
Korean Air	6.6	1,475	18	-
Air France	5.4	1,180	11	12
Delta Air Lines	2.9	583	-	-
Alitalia	1.7	502	4	5
Aeromexico	0.1	23	-	-
TOTAL	16.7	3,763	33	17
WOW
Members	Traffic RTK	Revenues	Dedicated	Fleet
	billion	$ million	freighter	combi
Lufthansa Cargo	7.7	2,363	23	-
Singapore Airlines	6.1	1,1976	9	-
SAS	0.8	279	-	-
TOTAL	14.6	3,839	32	-
NOTE: Traffic and revenue fiigures from Airline Business Top 100 Cargo Ranking 2000. Fleet figures for September 2001 courtesy of Airclaims CASE database.

KLM and Northwest are the other possible cargo airline grouping, but grand plans by former KLM Cargo boss Jacques Ancher for a global alliance have come to nothing. Ancher's vision would have seen the two carriers join forces with Malaysian Airlines, NCA and Martinair to create a global group. That would have packed an impressive 14.7 billion FTKs in 2000.

The plan had some neat aspects. KLM had a longstanding relationship with NCA, and Northwest was a partner of the Japanese cargo airline too. There was also a close relationship between Malayisan Airlines and KLM, which involved sharing freighters and combis between Amsterdam and Kuala Lumpur.

Revised relationship

Things unravelled, however, when Malaysian changed its cargo management and the new head, Ralph Goetz, started a joint freighter with Swisscargo (ie Swissair). Even before the Swiss carrier's latest woes, that relationship had ended, however, and when Goetz's predecessor, JJ Ong, returned to the helm at MASKargo (Malaysian Airlines Cargo) earlier this year the former relationship was revived. In August there was once again talk of co-ordinating freighter flights between Amsterdam and Kuala Lumpur.

However, Northwest is pursuing its own agenda. It dumped NCA in September 2000 in favour of a cargo partnership with Japan Airlines which includes mutual block space deals on some 23 transpacific freighters a week. Jim Friedel, head of Northwest Cargo also admits to talks with China Airlines, and says "we are certainly open to calls from other carriers", suggesting Northwest at least still regards its relationship with KLM as a distinctly open marriage.

Source: Airline Business