The Vienna-based carrier has since 1989 established an extensive network of services in the former Soviet republics, stepped up to join the free competition in the EU, established intercontinental services to Asia, the US and Africa and, most recently, joined with Swissair and Delta Air Lines to form the world's first trilateral codesharing alliance, for service between Washington, Geneva and Vienna. This is the newest relationship in a long-standing strategy that has given Austrian the third-largest assortment of alliances in Europe, after Lufthansa and Iberia.
Leading the small but significant airline, which generated $980 million in revenue last year, is Herbert Bammer, a company man who has directed Austrian's outreach into international markets. All the while, however, Bammer has been intent on not turning Austrian into a carrier like KLM, which is highly dependent on international markets - and its codesharing alliance with Northwest Airlines - for its fortunes.
Austrian, Bammer says, is a niche player that is targeting the EU and old Eastern Bloc countries for its 'stability.' The international spokes - Tokyo, Beijing, Johannesburg and New York, the latter served with two newly delivered Airbus A340-200s - are hooked to Vienna, which feeds places as diverse as London, Frankfurt, Odessa, Riga and Krakow. 'While KLM is more long-haul, we are more European,' he says.
But for Bammer, the comparisons with KLM keep coming. Though the Netherlands has twice the population of Austria, and KLM generates well over four times as much revenue than Austrian, the countries and airlines have a distinctly common feature: complete liberalisation in commercial aviation with the US.
Austria is one of nine smaller European countries that have agreed to sign individual open skies agreements with the US, something the Netherlands did in 1991. Though the US-Austria market comprises only 8 per cent of Austrian Airlines' revenue base and also contributed to last year's loss of Sch204 million (US$21.2 million), open skies with the US and its potential benefits could translate into a strong competitive tool for Austrian.
Deciding to request open skies was the easy part, Bammer says. 'The Dutch had it, SAS wanted it for years, and so we joined the argument. We proposed an open skies agreement two years ago, even before the US proposed it to us. Traditionally we were rather reserved, but we saw the [market] developments and the politics move in this direction. The combination of an open skies agreement and the possibility of getting further cooperation appro-ved is the attraction for us.'
'Further cooperation' is code for anti-trust immunity. During the Bush administration, KLM and Northwest were given the immunity as a reward for Holland agreeing to complete liberalisation with the US, as well as to help seal KLM's $400 million investment in a US carrier that was in financial distress.
Officials at the US Department of Transportation do not necessarily see Austria receiving the same treatment in its alliance with Delta. What those officials do say is that they will consider granting immunity if the airlines seek it. And will Austrian Airlines seek it? 'Yes, just as the Dutch did,' Bammer says.
Austrian's belief in anti-trust immunity's benefits - protection to allow what would otherwise be considered collusionary practices like joint pricing initiatives - ironically comes from lessons taught to Bammer by KLM officials during the Alcazar negotiations two years ago, when a mega-European airline alliance came close to forming. 'We discussed this immunity issue a lot, and we had to learn why it was so important,' Bammer recalls. 'KLM could explain that. It took us a while to get it, but the proof is in the results: Northwest and KLM are doing much better than before.'
The Alcazar concept failed, but Bammer's interest was aroused. Codesharing alliances like Austrian's agreements with All Nippon Airways or South African Airways are good, he says. But anti-trust immunity is better. 'I know there are passengers who don't fly with us but with Delta because it has a better price. Maybe we overestimate the transparency of each other's distribution systems. We have information on how our people sell [tickets]. But I don't know how a travel agent in Braham, Minnesota sells it. That is why it is plausible to say that if [allied] airlines are not allowed to coordinate prices, they definitely have different prices in the market for the same product.'
So far, US airlines have not lodged protests about the nine-country proposal. But if anti-trust immunity were to be broached, as seems increasingly likely, undoubtedly the decision will become highly politicised. Top on the list of likely complaints is the effect to competition, which Bammer believes will be insignificant since the Austria-US market accounts for little more than 1 per cent of transatlantic traffic.
Still, Jon Ash of Global Aviation Associates in Washington is advising Austrian to be prepared for anything, like US carrier opposition to giving anti-trust immunity to an airline 51.9 per cent owned by a foreign government. This, says Bammer, is not an issue since Austrian's management is 'completely independent' from policy makers and public money. Nonetheless, there is speculation that in the next few years the Austrian government will completely privatise the carrier, already owned in part by Swissair (10 per cent), ANA (9 per cent) and Air France (1.5 per cent).
No matter what happens with the immunity request, Austrian, Swissair and Delta plan to develop their trilateral, and individual bilateral, links. Austrian's next codeshare city, if immunity is granted, will be Atlanta, Bammer says.
Though the alliance is only expected to break even initially, further development of the relationship should improve Austrian Airlines' bottom line, based on its contribution to the entire system. 'Otherwise, we wouldn't do it,' he says.
He speaks from experience. Austrian now has 15 alliances, most of them involving codesharing. What is perceived by some as Austrian's heavy reliance on codesharing is considered by Bammer to be simply an opportunity for market development using large, sophisticated marketing tools. 'Yes, we rely on them, but not so much because they buy our seats. It's because they use their marketing power to the benefit of our joint route. We have a small sales organisation in Japan, so ANA generates most of the traffic for us because they have much more recognition with Japanese travel agents. Same with the US. Delta has its own presence and travel agent partners. That is real power.'
But in establishing that power, Austrian is not willing to give up total control or give in to a total convergence of airline systems. When speaking of how far the alliance will develop with Delta, for example, he uses the highly evolved KLM-Northwest alliance as a measuring stick: 'Maybe not that close. We are still concentrating more on Europe.'
Part of the Europe alliance scene appears to be unravelling for Austrian, though not necessarily with negative repercussions. The European Quality Alliance, established in the late 1980s between Austrian, Swissair, Finnair and SAS, may soon be down to two members. Finnair dropped out long ago, and SAS is being wooed by Lufthansa.
Would there be a problem if the EQA lost the support of SAS? Not really, says Bammer. 'We have not developed the cooperation as much as we had with Swissair. Personally, I think most of the alliance [with SAS] could stay in place even if we don't go further. It was a similar case with Finnair. They left, but the cooperation we had is now even stronger than what it was with the EQA. We have a blocked-space arrangement with them.'
Besides, there already appears to be a carrier waiting to take SAS's place in the alliance, which will probably no longer be called the EQA. That airline, Sabena, could be a beneficial addition to Austrian's fold of alliances, provided the Brussels hub does not drain traffic away from Austrian. 'If Swissair owns a substantial part of Sabena, I see a good chance for us to establish a direct relationship,' Bammer says. 'It makes sense to develop a partnership, but I don't know if it could be EQA-like. I would think it would strengthen our group - if Brussels doesn't compete directly with Vienna and we are not really affected by their operation.'
Perhaps the primary question should be whether Brussels - meaning the European Commission - is going to let Swissair take over Air France's former stake in Sabena. Earlier this year, the transport commissioner Neil Kinnock was incensed enough about the US's nine-country proposal and Switzerland's participation in it that he threatened the proposed investment. He has also threatened to seek a ruling by the European Court of Justice against the six EU states, including Austria, that have negotiated open skies with the US. The broader issue is the power - or lack thereof - of the Commission to negotiate aviation bilaterals for all EU countries, and the belief by the six EU states that they are independent.
On the latter point, Bammer is emphatic. 'The basis for the open skies agreement is the Dutch bilateral, and Holland was definitely an EU country when the agreement was signed. There is no EU agreement on aviation with any other state. So why should we be stopped from signing an agreement with the US? What about Latvia? No one told us we couldn't sign an agreement with them. We should look at the total perspective, not just the Austria-US agreement. [As a new EU member, Austria] has the same rights from the moment it joined. Basically, why should we behave better than the others? There is certainly no reason to have to behave better than the Dutch.'
Such staunch independence is seemingly paradoxical coming from the president of an airline so dependent on other companies for survival. However, the use of alliances to develop international routes with minimal investment, plugged into an extensive European network along with direct flights from strong long haul markets like Tokyo and Beijing, is undoubtedly helping Austrian back to profit. The carrier expects a break-even result for 1995 and aims to be in profit in 1996. Though this is not great, it is certainly better than the past three years of losses, and produced with no government intervention.
The other aspect of alliances, Bammer believes, may be less quantifiable but is certainly felt, especially by sales staff. 'There is a psychological side to it as well. If you know that Swissair, Austrian and Delta are joining forces to fill the airplane, it can be better than the cost saving [itself].'
Source: Airline Business
