Every year sees a major change to the global alliance movement and this year's survey, the fourth consecutive since 1994/95, is no exception. Last year SAS left the European Quality Alliance for Lufthansa, while this time British Airways ditched its codeshare with US Airways in favour of American Airlines. With dozens of new agreements formed, old ones cancelled and existing ones expanded, the airline alliance movement is more fluid and competitive than ever. Speculation remains rife about whether the BA-American deal will be approved and which major partnership will come apart in the coming year.
Overall our survey shows a slight decline in the number of accords, from 390 in 1996 to 363 this year. Given the number of very old accords, many airlines are still 'cleaning house' where their alliances are concerned, either cancelling obsolete arrangements or updating them, and adding new accords where appropriate.
Furthermore, after the frenetic alliance-building of the past few years, it is natural that carriers should take time to consolidate their agreements and try to reap some benefits. The lull in the expansion of alliances also suggests that carriers now have higher expectations from their alliances and are becoming more willing to cancel pacts and switch partners if agreements do not perform.
This year, therefore, for the first time the number of new accords was lower than the number of agreements which have been cancelled outright. The number of new agreements implemented since May 1996 and not registered as 'planned' in last year's survey remained significant but static at 72, compared to 71 in 1995/96.
Meanwhile the decline in the number of equity investments by airlines in other carriers has continued. Although some significant new equity ties were formed, there was a 7 per cent decline in the number of alliances with equity. Consequently only 14.9 per cent of the alliances in the survey involve equity stakes, compared to 15.9 per cent last year and 21 per cent in 1993/94.
The 12 new equity investments since our last survey were Aeroflot's 5 per cent stake in Transaero; BA's 67 per cent purchase of Air Liberté; Austrian Airlines' investments in Lauda Air and Ukraine International; Swissair's investment in Ukraine International; Maersk Air's purchase of stakes in Estonian Air and cargo charter carrier Star Air; Martinair's investment in Colombian charter carrier Tampa Airlines; startup Pan Am's planned acquisition of Carnival Air Lines; Varig's purchase of 49 per cent of Pluna; and Vasp's investments in Ecuatoriana and LABAirlines (see tables on pages 66 and 67).
Meanwhile other stakes were sold off or written down. Qantas sold its 19.4 per cent stake in Air New Zealand, following the latter's acquisition of a 50 per cent share in Ansett Australia, and the two carriers cancelled all trans-Tasman cooperation.
Continental cashed in its remaining 10 per cent share in Air Canada, making a net pre-tax gain of US$121.7 million, a 550 per cent gain on its original investment in 1993. The two carriers continue to cooperate, despite the disposal of the holding - one of the few examples of a successful equity investment in terms of financial return.
Elsewhere, BA is selling its US Airways shares, Lufthansa sold 19.7 per cent of its stake in Lauda Air to Austrian, and Aerolineas cut its Austral stake from nearly 100 to just 10 per cent.
In contrast, Swissair wrote down its 49.5 per cent share in Sabena, and American wrote off its Canadian investment, though both of these equity relationships will remain unchanged.
The term 'realignment' best summarises events over the past year. Air France is a good illustration. The carrier cancelled cooperation with eight carriers, including Air Canada and Sabena, and updated arrangements with Malev, Royal Air Maroc, Tunisair, Singapore Airlines and Vietnam Airlines. It also signed extensive new codesharing alliances with Alitalia and Delta Air Lines and substituted a new accord for its previous limited one with Continental.
Iberia also freshened up some of its older pacts, updating arrangements with six carriers deleted from its list of alliances last year.
Virgin Atlantic decided to scrap cooperation with Delta in favour of an agreement with Continental, whose chairman David Bonderman has invested in some of the Virgin group's non-airline activities. Varig signed up with United after its alliance with Delta collapsed.
Regulatory approval of the BA-AAlinkup remains dependent on progress in US-UK liberalisation talks aimed at achieving open skies; the UK election on 1 May has delayed progress. If the alliance does receive the go-ahead the often repeated notion that KLM could join the partnership would doubtless rear its head once more. That, however, will also depend on whether KLM's relationship with Northwest can fully recover from an all-time low in the light of KLM's legal challenge to Northwest's 'poison pill'.
KLM's court challenge is one of two legal cases to have seriously shaken the basis for equity investments as a means to cement alliances. In the other case, US Airways is suing BA for compensation in the wake of BA's switch to American. Significantly BA, which has always argued the need for a degree of financial control in a US partner, has no plans to invest in American after it sells its US Airways stake; cooperation with US Airways ended in March.
The last 12 months have been American's 'year of alliances'. The carrier signed new agreements with eight carriers, including BA, Avianca, Taca, Philippine Airlines and Transaero, topping the survey in this respect, and it plans more.
This activity pushed American into fourth place for the most agreements overall with 24, behind Lufthansa in first place with 26 and Air France and Malaysia Airlines joint second (25 each). American's embracement of the alliance movement is significant for a carrier which long refused to entertain multiple codeshare agreements. However most of its new accords are subject to regulatory approval and its BA and Latin American links face particularly strong opposition.
On the aeropolitical front the US finally granted anti-trust immunity to American and Canadian International and to the United-Lufthansa and Delta-Swissair-Sabena-Austrian alliances, putting them on a more equal footing with Northwest-KLM.
Codeshares continued to develop between US and Asian carriers, demonstrating that trans-Pacific services can bypass Japan. China Airlines signed agreements with Continental and American, while Delta extended its codeshare with Korean and agreed a deal with China Southern. US-Japan talks resumed in April, but one year on Delta has still been unable to implement its codeshare with All Nippon Airways.
On the branding front, the United-Lufthansa group were set to relaunch their global alliance in May with a stronger market identity dubbed 'Star Alliance'. The other participating carriers are SAS, Thai International and Air Canada. Varig, which has agreements with United and Lufthansa, was not included; nor was South African, which is linked with Lufthansa but whose US partner is still American.
The tables which follow detail all alliances except standard interline agreements and those limited to frequent flyer plans. Regional airlines with fleets composed of aircraft seating fewer than 100 passengers have also been excluded, although a few larger regionals were listed last year. Details of airline stakes in other carriers are listed on pages 66 and 67.
Source: Airline Business
