Air Transport World

Alliances: are we making money yet? (strategic alliances between international airlines)(includes related article on Department of Transportation alliance policy)


International airlines, hamstrung by operating and ownership limits, have leaped headlong into what grandly are called "strategic alliances." Often, it seems, they are more tactical, less strategic. Their dominant, common feature is code sharing: The use of an airline's 2-letter designator on a partner's flight, producing the equivalent of an online connection and therefore, a more favorable CRS display.

Proponents list wondrous benefits for the links: Access to restricted markets, increased revenues, lower costs, new traffic, "seamless" consumer service. With prodding, a few even mention profits. The degree of emphasis varies with the airline. But access tops the list. A government manager told ATW: "Foreign carriers are getting tremendous access to the U.S., and U.S. airlines mostly weren't competing in markets where they now code share."

However, consultant Bruce Cunningham warns: "Everyone says they're doing this because of access. But the market's no better afterward. There are still restrictions." And a U.S. DOT analyst suggests: "If everyone perceived an alliance as a single carrier, it wouldn't matter whether there were two codes or one. But carriers can be lemmings." A private economist sees nothing new. Doug Wilson, of Sypher:Mueller in Canada, says: "The industry goes back and forth. There used to be aircraft interchanges and pools. After deregulation, they discontinued multilateral agreements and expanded internally. Now, they're drifting back again."

DOT, albeit the chief sponsor among governments of international code shares, has concerns about their competitive impact. But having failed to open the skies of major countries, it announced that trading of codesharing rights is the next best way to gain access abroad.

Many are very uncomfortable with the lack of data backing DOT's policy. Both Congress's General Accounting Office and Gellman Research Assoc. studied code sharing in 1994 and concluded that DOT is at a huge disadvantage in assessing whether the deals enhance or reduce competition; gain access or boost traffic for U.S. carriers, or simply shift it; make or lose money and for whom.

But DOT data collection was reduced radically in the last decade, under airline and budget pressure. The airlines have some of the data but give them grudgingly. And except in a few instances, non-U.S. partners don't have to file anything relevant. DOT is trying to rectify the situation but it has already approved more than 60 airline partnerships.

A former U.K. CAA manager commented: "A lot of people have convinced themselves that code sharing's very beneficial. [But] how can it be a tradable commodity, if no one can tell you what its value is?" USA-BIAS, the airport group, feels the same way. It objects "when code-sharing rights for U.S. carriers are considered more important than the achievement of more liberal bilateral route provisions," and are substituted for them. So do carriers, when it suits their convenience. Several U.S. airlines are objecting to Continental's becoming the operating carrier for Alitalia on their Houston-Rome code share, because U.S. access to Italy is restricted so heavily.

The EU Commission not only has no data but has sat on the sidelines while its airlines have signed deals with one another and/or partners. Its competition division has not felt the need to act. But it did jump into the SAS-Lufthansa venture and it is studying whether to apply its competition rules or create new ones, and whether previous code shares--for example, British Airways' six in the U. …

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