Some smaller carriers are lagging behind in the migration to interline e-ticketing. Are they at a disadvantage compared with larger airlines or do they just need to fight harder to keep their interline partners?
IATA's newly extended e-ticketing deadline may have afforded airlines an extra five months to prepare for the migration to interline e-ticketing (IET), but some smaller carriers are still concerned that they could lose out on vital interline revenues as they slip down the priority list of larger airlines during the changeover.
In general, smaller airlines say they are ready and willing to implement IET but they are finding themselves at the bottom of the agenda of their larger counterparts when it comes to translating existing paper interline deals into electronic agreements. "The main issue is not a lack of willingness to do IET, it is that major airlines are prioritising who they're going to do it with. This gives them a competitive advantage," says David Savy, chairman of Air Seychelles.
"The question is: are we really looking at the customers' interests? Today the system allows a choice of smaller airlines for customers - this could end up being narrowed, making it more expensive for passengers."
Rwandair Express chief executive Manzi Kayihura agrees that migrating paper interline agreements to IET with smaller carriers is "not a big priority" for larger airlines, but he says that now the IATA deadline has been pushed back from 31 December to 31 May 2008, he is more confident of achieving that goal. "Our biggest concern was getting all our interline agreements in place by the end of the year, but now the e-ticketing deadline has been extended we should have enough time," says Kayihura.
Rwandair Express has 19 interline agreements in place, and Kayihura says it will "fight to keep all of them". But while the Kigali-based carrier already has the in-house ability to offer IET, and investing in the necessary resources is "not a problem", Kayihura says it is a long and slow process: "None of our interline partners have said they won't migrate, it's just that the process takes a long time. It takes about two months to get one agreement done."
Practice makes perfect
But IATA, the driving force behind the global shift to IET, believes the process speeds up considerably as airlines become more experienced in concluding IET agreements. "Once you've done a few it's amazing how quickly you can do them. In three months, some airlines have concluded more than 20 IET agreements," says Bryan Wilson, project director of e-ticketing at IATA.
He lists a number of initiatives IATA has launched to help make it easier for airlines to move to IET, such as providing an "e-ticketing buddy" to offer free-of-charge consulting, but says it is ultimately up to smaller airlines to decide who they are targeting and to vocalise to their target airlines what advantages they can offer.
Wilson admits that smaller carriers can find themselves at the receiving end of some "quite ruthless" behaviour by larger airlines: "A number of large airlines have told us they've looked at their interline agreements and decided that out of, say, 200 partners, the flows of traffic with the last 100 are so infrequent that IET is not worth doing."
However, he adds that smaller carriers can improve their chances by presenting themselves as being efficient and ready for action with their own dedicated IET project manager in place. "Our message to all airlines is: please get on with your IET - don't just sit back and think this is too difficult. Many carriers, both big and small, are implementing IET successfully."
Savy of Air Seychelles says he has followed this advice, but the problems lie on the commercial side. "We have done a number of IET agreements successfully and we have a team dedicated to the e-ticketing project. We have one team leader who is an inventory specialist, one IT specialist and one systems specialist. We are geared and ready to do as many agreements as possible. In fact, if we had willing airlines we would easily do a cutover every week."
Savy says Lufthansa terminated its interline agreement with Air Seychelles earlier this year, and he accuses US carriers of having "generally shunned smaller airlines outside their region".
Lufthansa, while declining to comment on specific agreements, says it constantly reviews its interline partnerships, but the IET drive means it is "having to look more closely to see if our partnerships are commercially viable". It adds that the move to IET means there is more IT work to be done, and it only wants to do this with partners that generate sufficient revenues for Lufthansa. "It is not true that small partners are being systematically dropped. If an interline partnership generates a certain amount of revenue for us, we will keep running it," says the German carrier.
In the USA, Mark Erwin, Continental Airlines senior vice-president Asia Pacific and corporate development, says the Houston-based carrier has cancelled over 100 relationships with very small carriers throughout the world over the last three years, and warns there will be more cancellations to come. "We have to look at the costs of implementing e-tickets versus the gains in revenue enhancement. Lots of carriers are having technical challenges to be compliant by May 2008," says Erwin.
Northwest Airlines last December announced it would terminate interline agreements with about 50 airlines worldwide that were unlikely to meet the original IET deadline. Northwest vice-president of alliances Nathaniel Pieper says that position remains unchanged, despite the deadline extension. "You only have so much bandwidth, so you put effort towards relationships that generate the most value," he says.
Similarly, in the Asia Pacific region, Japan's All Nippon Airways says that while it will not terminate any codeshare agreements because of challenges with IET, it "will have to terminate interline agreements with carriers that only have a small amount of business with ANA when the IATA deadline comes around".
Glimmer of hope
But it's not all bad news for smaller carriers. ANA points out that it is "not the end of the world" because interline agreements "will be reinstated as IET continues to be developed beyond the IATA deadline". This sentiment is echoed by IATA's Wilson, who says that while the months leading up to the deadline will be important, "airlines can continue developing their expertise beyond the e-ticketing deadline".
However, this is not enough to reassure some smaller carriers. "Once things settle down, major airlines might extend more interline agreements to smaller carriers, but by then passengers will have found alternative ways of reaching destinations that bypass us," says Savy. "It's important for small airlines to tap into the networks of larger airlines, and IET evaporates our ability to do this."
One smaller airline that does seem to be making IET work is Air Malta. The carrier's chief executive Joe Cappello says being dropped by larger carriers in the run-up to IET is "not a significant issue for Air Malta". He agrees that "being smaller makes it difficult to get high on other airlines' agendas", but says all of Air Malta's IET agreements with airlines it previously did business with are "either in place, or we have a date set for them to be put in place".
Brussels Airlines also had been concerned some of its interline agreements with larger carriers would not have migrated to IET in time for the original IATA deadline. However, Brussels Airlines vice-president of planning and alliances David Lyssens says the carrier now "should be able to make the new deadline". He adds that 27 agreements have already migrated, representing over 90% of the carrier's interline revenue. A further 30 to 40 agreements will follow. But Brussels Airlines also has interlines with many smaller carriers and between 50 and 60 of these will be cut. "Many of our interline agreements that represent very small annual revenues for us will not be renewed," admits Lyssens.
One possible lifeline for small airlines that may be finding it difficult to become IET compliant ahead of the deadline is a solution being developed by a French company called APG Global Associates. APG, under instruction from IATA, has prepared a product known as the APGIET, which it says will allow any carrier that is too small to pay for the entrance costs to the system, or does not have enough interline traffic to justify investing in e-ticketing, to enter into IET agreements.
APG president Jean-Louis Baroux says his company has signed an agreement with Heli Air Monaco, whereby the Monaco-based operator's code would be picked up by travel agents via a global distribution system and used to issue an e-ticket for flights involving several journey legs operated by different carriers. Baroux says the cost to an airline for using this service should "more or less match" standard interline service charges.
"Air France has about 357 paper interline agreements and it will drop around 300 of those when IET comes in," says Baroux. "The first to sign up [for APGIET] should be the bigger airlines because how can you drop 300 interline agreements without having political problems?" He adds that the initial response from larger airlines has been "very enthusiastic". APG aims to have the system ready by October.
But IATA's Wilson says the "jury is out" on whether larger airlines would want to go to the trouble of using such a system when they already have their own capability in-house. "We agree with APG that it would be useful if carriers with IET were issuing them to other airlines, but it introduces complexities as well," he says. Those complexities can arise when an airline has a codeshare or block space agreement in place, in which case "very careful implementation" would be required.
Wilson says there has been "a definite speed-up in the number of IET agreements being concluded", with 1,300 agreements already signed - a figure which is expected to rise to 2,300 by the end of the year. "Interlining is very much alive and well, but it will become more concentrated with IET," he warns. Lyssens of Brussels Airlines believes IATA "missed a historic chance" to develop a neutral platform that would have enabled IET between all airlines, but says there is no longer a business case to be made for developing such a platform.
So it looks like it's a case of larger and smaller airlines battling it out among themselves, with the likelihood being that some smaller carriers will inevitably become casualties along the way. Obviously this is not going to sit well with those that fall victim to being discarded by larger interline partners, but some could argue that this is the price to pay for progress.
Codeshares go from strength to strength
For small and mid-size carriers codeshares are an essential way of offering passengers a global network that could not possibly be offered using the airline's own fleet. "Codeshare agreements have always been important to us because we are a small player and they allow us to put new destinations on our map, especially long haul," says Brussels Airlines vice-president of planning and alliance David Lyssens. He adds that the Belgian carrier "does not have the ambition to become a worldwide network carrier", but with codeshare agreements in place with airlines in China, India, the Middle East and the USA, Brussels Airlines has "more or less covered the most important areas" for its passengers. Even much larger carriers, such as Northwest Airlines, recognise that they are not going to be as big as some of their peers, and are signing codeshares with smaller players that can offer passengers onward connections within continents in which the larger airlines only serve a handful of cities with their own aircraft. "We're pretty comfortable with who we are - we're not going to be the size of American, United, or even Delta," says Nathaniel Pieper, vice-president of alliances at Northwest. "We're never going to fly our airplanes to every place in the world that our passengers want to go. There are a number of smaller carriers in Asia that fly to destinations beyond Tokyo, so there's value there for us." Airlines are also finding value in entering strategic partnerships, which include codesharing, with carriers in countries and regions already served extensively using their own fleets. For instance, Lufthansa, which serves a number of destinations in the former Soviet Union, recently entered a partnership with five-member Russian airline alliance AirUnion. Under the agreement, the two sides will begin cross-selling tickets in early 2008 and will later start codesharing, offering a frequent flyer programme and developing a hub at Moscow's Domodedovo airport, says Lufthansa vice-president of alliances, strategy and subsidiaries Goetz Ahmelmann. "It's important to engage in a long-term strategic partnership and AirUnion is a perfect fit for us," adds Ahmelmann. "We will take a step-by-step approach - we're not going to rush them. We will share our knowledge with AirUnion so they develop into a big, strong Russian competitor." |
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Source: Airline Business
