Air Transport World

Disappearing act.

Will airline alliance partners find savings in outsourcing with one another?

Code sharing, revenue enhancement and market access get most of alliance partners' and competition authorities' attention. But after today's commercial linkages are history and have been replaced by real mergers, alliance cooperation to reduce cost may have more impact.

In fact, outsourcing among partners may be the easiest way to start controlling major airline costs. Most importantly, a Braathens manager says, "once airlines outsource, the work won't come back. It's too hard to restart these things."

The road to cost saving is not smooth. An IATA economist describes commercial cooperation as "a no-brainer." That's because "it's all cooperation that can be broken," another IATA official suggests.

But noncommercial projects are another matter. The economist continues: "Then, it becomes gray. Cost-saving requires a step jump, where [alliance] airlines actually have to integrate and depend on one another. They make trickier and trickier decisions that take some agonizing," particularly where significant expenditure is involved.

At a recent IEA-Gemini Consulting conference, Chris Tarry, a London-based financial analyst, said some alliances now have a "high enough comfort factor" to begin joint cost-reduction efforts. When traffic declines, "alliances should have greater importance, though they are not a panacea for in-house cost reduction. [But] real cost savings won't occur until Airline A hands over activities to Airline B." He doesn't expect that to occur until alliances have matured (see graph), a precarious assumption.

Swissair and KLM have gone the furthest, not surprising since they were two of four partners--with SAS and Austrian--in the ill-fated Alcazar venture of 1992. …

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