How airlines are getting bigger by getting it together
ALLIANCES: Integration by carriers is beginning to find favour among customers sceptical that the benefits never quite matched the marketing pizzazz.
By AMON COHEN
13 June 2005
Financial Times

In March, Star Alliance announced it is to build a mini-hub at Terminal 1 of Charles De Gaulle airport in Paris. Twelve partner airlines will occupy it, making it easier for passengers to connect between them.

This is one small example of why airlines claim passengers benefit from alliances. Ownership restrictions and lack of funds make it impossible for a single carrier to build a worldwide route network. Instead, they achieve global reach through aligning with others. The alliances started in the 1990s and have consolidated to three principal groupings: Star Alliance, Oneworld and Skyteam.

The benefits for airlines are obvious. Apart from stitching together a virtual global network at low operational, sales and marketing costs, economies of scale can be gained through sharing maintenance facilities and purchases of parts for aircraft.

Whether the traveller gains as well is more debatable. The alliances have their supporters, without doubt. One is Karen Bellis, programme manager for Shell LiveWire, which helps to promote young entrepreneurs. "I like it when airlines work together," she says. "The recognition of your frequent flyer status with other members in an alliance is a real plus, especially for things like lounge access and priority reservations on busy routes."

Use of lounges and the ability to "earn and burn" mileage across frequent flyer schemes are certainly touted as two principal benefits for travellers. More efforts are being made to co-ordinate schedules and move aircraft closer to each other, as at Charles de Gaulle, to minimise connection times.

Alliances are even starting to offer genuinely integrated negotiated deals to corporate clients after several years of failure to align sales strategies. "I was a long-term sceptic: most deals offered by alliances were little more than a handful of Post-It notes stuck one on top of another," says Kevin Iwamoto, chairman of the National Business Travel Association of the United States and global airline, car and ground commodity manager for Hewlett-Packard. "Lately, there has been much greater co-ordination among some of them."

So much for the plus points. Yet alliances are not always as smoothly intertwined as their marketing positions them to be.

Tony Hughes, president of the global travel management company network Radius, cites the notorious practice of code sharing, whereby two or more airlines promote and sell seats on the same flight. This can lead to problems at the airport.

Mr Hughes checked in recently for a flight from Washington with United Airlines. The passenger in front of him was also queuing for what he thought was a United flight to Vienna. When he reached the front of the line, the passenger was told the flight was actually operated by Austrian Airlines and was made to walk over to the Austrian check-in to queue again.

The lack of co-ordination can continue in the air, where facilities offered by cash-strapped US carriers are falling behind the standards of partners from other continents.

"How can you compare the service in business and first class of United and Singapore Airlines?" asks Mr Hughes, referring to two Star Alliance partners. "I get confused by code sharing - and I work in this industry."

More perniciously, there is a case to be made that alliances distort the market. The International Air Transport Association has long overseen a process called "interlining". This means travellers can buy fully flexible fares that allow them to make a journey of several legs for one price on one ticket. Interlining also allows bags to be checked through from one carrier to another and for the traveller to switch to alternative airlines on the same route.

Given that passengers can interline between any Iata members (which means almost all airlines other than budget carriers), the much vaunted connectivity of alliances seems spurious. Worse still, alliances arguably undermine interlining. "Airlines will re-issue or re-route a ticket without quibbling so long as it is from an alliance partner," says John Scent, fares manager at the travel management company ATP International.

"But our travellers' experience is that airlines are much more reluctant to honour obligations to non-alliance partners. In the past, tickets were totally interchangeable but the growth of alliances has led to a swing away from that flexibility."

Oneworld managing partner John McCulloch concedes there is "a grain of truth" in what Mr Scent says. Oneworld partners, for instance, have special arrangements for honouring each other's tickets and they have made it possible to buy electronic tickets that include flights on any combination of the alliance's partners. These arrangements do not exist consistently with non alliance airlines.

In answer to Mr Hughes' criticisms, albeit of another alliance, he also agrees that "North American and international standards do differ" on service.

However, Mr McCulloch argues that alliances force all partners to keep up their game so they can aspire to consistency of service. Furthermore, he says, alliances have done a huge amount to keep airlines afloat during difficult times.

"Oneworld produced Dollars 600m of profit last year for its partner airlines," he says. "That money is being invested back into the businesses."

Efforts are also being made to improve the seamlessness of customer service at airports. Mr McCulloch says Oneworld is close to introducing technology that will enable any partner airline check-in desk to access the bookings of any other partner airline.

That would allow, for instance, a BA employee to check in passengers on an Iberia flight to Madrid if they wandered into the wrong queue at Heathrow.

There are plenty of other innovations, including alliance wide group fares for multinational conferences.

Alliances are improving service for customers who can use just one of them but are arguably destroying the co-operation that previously existed between all airlines.

EU probes Oneworld, Star airline alliance pacts

BRUSSELS, April 20 (Reuters) - The European Commission launched two antitrust investigations on Monday against certain members of the Star and Oneworld airline alliances on concerns their agreements on transatlantic routes might breach EU rules.

The probe relates to two sets of agreements between Star Alliance members Air Canada, Continental, Lufthansa and United on the one hand, and between Oneworld members American Airlines , British Airways and Iberia on the other.

The competition watchdog of the 27-nation European Union said the agreements provided for the coordination of the airlines' commercial, marketing and operational activities principally on routes between the EU and North America.

"This is a normal part of the process of examining anti-trust immunity for the proposed alliance. We are relaxed about the commission's decision," a spokesman for Spanish carrier Iberia said in a statement.

Last year, the EU launched an investigation into a planned tie-up between Iberia, British Airways and American Airlines after the trio said they had agreed to a transatlantic tie-up, to take advantage of the U.S./EU "Open Skies" agreement.

American, BA and Iberia intend to cooperate commercially on flights between the United States, Mexico and Canada and the European Union, Norway and Switzerland.

A spokesman for Lufthansa said the German carrier had been informed of the probe ahead of time and it was delivering information to the Commission. United's UAL Corp said the probe was a standard step which it had anticipated.

Stephen Rose, partner and competition lawyer at London-based Eversheds, said the probe meant the Commission was looking very carefully at aspects of the agreements, and the airlines were likely to get very detailed questions from the Commission.

"Indeed they may already have had a quite a few, they are going to be in an ongoing dialogue with the Commission, to explain and justify the extend of their cooperation," he added.

"It is significant because there is a risk of fines if the Commission finds something it really does not like," he added.

If it found that the airlines had broken EU rules, the Commission could order them to stop any illegal practices and fine them up to 10 percent of global turnover.

"When you have cooperation between airlines in such areas as pricing, schedules and capacity, we have to make sure that the consumer actually benefits," Jonathan Todd, a spokesman for the European Union's executive Commission, told a news briefing.

A Commission statement said the level of cooperation under the arrangements in question appeared far more extensive than that generally extended between those airlines and others in the Star and Oneworld alliances.

The Commission said it would assess whether these joint activities may restrict competition but that it had no dispute over the formation of airline alliances as such.

"What we have potentially a problem with is the very specific and detailed cooperation between these airlines on such issues as schedules, capacity and pricing," Todd said.

Justice Department opposes antitrust immunity for Continental to join United Airlines team
29 June 2009

DALLAS (AP) - The Justice Department opposes Continental Airlines Inc.'s broad request for antitrust immunity to work more closely with United Airlines and other carriers in setting prices and schedules for international service.

The department says the airlines should get more limited immunity. It argues that broader immunity could hurt competition on other routes between the U.S. and China and raise fares within the United States.

Continental, the nation's fourth-largest airline, wants antitrust immunity to cooperate with United and other Star Alliance airlines, including US Airways, Lufthansa and Air Canada.

The Justice Department noted that Continental and United also plan to sell seats on each other's U.S. flights, combine customer lounges, consolidate operations at airports served by both, and work together on procurement. Such an arrangement would go beyond normal "code-sharing" deals that involve reciprocal sales and mileage programs.

The DOJ said it could closely resemble a merger, although the department said the two airlines "assert that they will maintain their separate domestic networks and make independent pricing, scheduling and sales" decisions in the U.S. Continental and United discussed a merger early last year, but Continental broke off the talks when United's financial health deteriorated rapidly.

The final decision on Continental's request for immunity to join United's alliance of other airlines rests with the Transportation Department. However, antitrust experts said the Justice Department's stance, disclosed in a regulatory filing late Friday, raised the chances that Continental won't get everything it wanted.

The Transportation Department gave preliminary approval to the request several weeks ago, but soon after that the Justice Department signaled that it wanted a chance to study the proposal.

Continental spokesman Dave Messing said the airline is still confident that the Transportation Department will approve its request. Messing said Continental needs the approval to compete fairly with airlines that already have antitrust immunity.

"In this economic crisis, it is more important than ever for the U.S. government not to hamper our industry's and company's efforts to remain competitive and serve our consumers and communities," he said.

The Justice Department said the benefits that Continental claimed from antitrust immunity could be achieved without immunity. It cautioned that immunity for Continental and United, the No. 3 U.S. carrier, to work more closely could hurt competition on U.S.-Beijing routes and "raises significant concerns" about hurting competition within the United States.

The department also said letting Continental cooperate with Air Canada and European SkyTeam members could leave consumers with fewer choices and higher fares on travel between the U.S. and Canada and on some routes to Europe, including New York-Geneva and Chicago-Frankfurt.

Robert Doyle, an antitrust attorney in Washington, said the DOJ's concerns were not surprising, given the broad sweep of Continental's immunity request. Even though the final decision rests with the Transportation Department, he said Attorney General Eric Holder "has a lot of weight" to influence the outcome.

"It seems reasonable for DOJ to say (the Continental request) is too broad," Doyle said. "It's open-ended immunity for any deal they decide to do. We don't know what deals or acquisitions or affiliations they are considering."

The Justice Department's opposition to immunity for Continental could affect AMR Corp.'s American Airlines, which wants immunity to work closely with British Airways and Spain's Iberia on trans-Atlantic routes. American, BA and Iberia belong to an alliance called oneworld.

American still expects to win immunity from the Transportation Department by the end of October, said spokesman Andrew Backover.

"The sooner that our application is approved, the quicker it will lead to healthier and more robust competition by allowing oneworld to compete on the same playing field" against two other alliances that already have immunity, Backover said.

SkyTeam, including Delta and Air France, already has antitrust immunity on trans-Atlantic routes, as do Star Alliance members other than Continental.

Houston-based Continental expects to leave SkyTeam on Oct. 24 and join Star quickly.

Continental shares rose 8 cents to close at $8.86 in trading Monday.

American Airlines, British Airways hope to begin cooperation on trans-Atlantic flights by 2010
7 June 2009

KUALA LUMPUR, Malaysia (AP) - American Airlines and British Airways voiced confidence Monday of winning approval from U.S. and European authorities to allow them to cooperate on trans-Atlantic flights by 2010.

American Airlines is seeking immunity from U.S. antitrust laws so it can cooperate with BA, Iberia Airlines, Finnair and Royal Jordanian, which are partners in the Oneworld alliance that allow them to sell tickets on each other's airlines and give reciprocal miles.

With an antitrust exemption, they can now work together to set pricing and schedules. It will be the closest thing to a full merger that the airlines can form without violating limits on foreign ownership of U.S. airlines.

BA Chief Executive Willie Walsh said their case was "stronger than ever" as two other group of airlines were already working together on prices, schedules and other details.

"This is about leveling the competitive playing field and we are confident our case has significant merit," Walsh told reporters on the sidelines of an airline conference in Kuala Lumpur. "We expect to get approval in the current calendar year, which will allow us then to proceed with the joint business by 2010."

Carriers are vying to bolster cooperation on sales and scheduling to cut costs amid a slump in demand caused by the global recession.

British, American and its alliance partners argue that they should get antitrust immunity because two competing alliances already have it -- Star (Lufthansa, United, and beginning this fall, Continental) and SkyTeam (Delta, Air France-KLM).

Authorities have rejected appeals from American and BA for closer cooperation twice, but prospects for their cooperation on trans-Atlantic flights are brighter because of difficulties facing the industry in recent years.

Critics, led by Virgin Atlantic Airways head Richard Branson, say American and BA are already too dominant and immunity will lead to higher fares on U.S-U.K. routes. American's own pilots' union also feared it will shift flying assignments to lower-cost foreign carriers with more open-skies agreements.

American Airlines Chief Executive Gerard Arpey said U.S. and European authorities were expected to make a decision by the end of October. He said their bid has received support from business groups, politicians and airports, and "we are confident of a positive outcome on both sides."

He said allowing them equal footing with other airline groups would benefit consumers by providing greater travel options and more attractive fares as competition increases on international routes.

^^ I hate alliances because airline companies use that to dominate on various routes, eliminate competition and hence increase airfares...in other words, it is just monopoly or at the most duopoly in cute packaging...

Airlines criticize Justice Department opposition to their bid for broad antitrust immunity
7 July 2009

WASHINGTON (AP) - Continental, United and eight other airlines say the Justice Department's opposition to their bid for broad antitrust immunity was based on shortsighted analysis that ignored conditions in the airline industry.

The airlines, part of an alliance that Continental plans to join this fall, want immunity to cooperate in setting prices and schedules on international service without violating U.S. antitrust laws. They said in a filing Monday that consumers benefit when airlines can expand their networks through alliances with other carriers.

The decision is in the hands of the Transportation Department, which gave preliminary approval to the immunity request in April.

But the Justice Department weighed in last month, saying that broad, global immunity would drive up fares and reduce competition on some international routes.

It recommended that the Transportation Department approve a scaled-back immunity shield to cover trans-Atlantic routes, but not on all the routes sought by the nine airlines, which make up the Star Alliance, one of three major teams of global carriers.

The airlines said the Justice Department's "radical shift" in policy would hobble them in competing against SkyTeam, a competing alliance led by Delta Air Lines Inc. and Air France, which already has immunity.

The Star Alliance members accused the Justice Department of trying to "substitute a narrowly focused and ill-conceived policy that ignores unique considerations affecting international aviation."

AMR Corp.'s American Airlines, which is separately seeking antitrust immunity to work more closely with British Airways on trans-Atlantic service, also opposed the Justice Department's position. American said a new policy limiting airline alliances "could not come at a worse time."

Airlines have been battered in the past two years, first by rising fuel prices and then a global recession that has undercut travel demand.

The Transportation Department declined to comment on the cases.

Shares of Houston-based Continental Airlines Inc. fell 31 cents, or 3.2 percent, to $9.45; and shares of United parent UAL Corp. dropped 9 cents to $3.25 in morning trading Tuesday.

U.S. DOT approves Continental joining alliance

CHICAGO, July 10 (Reuters) - The Obama administration on Friday approved a bid by Continental Airlines Inc to join UAL Corp's United Airlines and other carriers in the global Star Alliance.

The final U.S. Transportation Department order, which gave the carriers limited immunity from antitrust law, permits carriers to share pricing, scheduling and other information within the alliance.

Opponents of the immunity had argued that allowing Continental into the alliance would dampen competition and harm consumers with higher fares.

UAL and Continental, however, cheered the government decision, which enables carriers to build international networks without running afoul of U.S. law that discourages mergers between domestic and overseas airlines.

"United, Continental and the Star Alliance carriers will be able to compete more effectively in an increasingly global air travel market," UAL Chief Executive Glenn Tilton said in a statement.

"It ensures global competition with other antitrust immunized alliances while encouraging the retention and growth of open skies between the U.S. and other nations," said Continental Chief Executive Larry Kellner in a statement.

Continental shares jumped on the news, gaining 6.6 percent to $10.01 on the New York Stock Exchange early Friday afternoon. UAL fell 0.3 percent to $3.19 on Nasdaq.

"From a network perspective, their network just got a lot bigger, and it will allow them to be more competitive with other airlines," said Stifel Nicolaus analyst Hunter Keay.

UAL and Continental initiated the partnership last year in lieu of a discarded plan to merge the two carriers. Some experts, including UAL's Tilton, say the airline industry desperately needs consolidation to remove excess capacity and cut costs.

OVERCOMING ANTITRUST CONCERNS

The Star Alliance was created in 1997 with member airlines offering a combined 17,000 daily departures to 160 countries.

The nearly two dozen members of the Star Alliance include US Airways Group Inc , Deutsche Lufthansa AG , Air Canada , Air China Ltd and Thai Airways International .

The immunity designation allows alliances to maximize revenues by operating crucial aspects of their businesses as one company, a practice normally prohibited by antitrust laws.

The order, signed by Christa Fornarotto, an acting assistant secretary at the Transportation Department, limited antitrust immunity for some U.S. routes to Canada and to Beijing, acknowledging concerns raised by antitrust officials at the U.S. Department of Justice.

"The venture, as well as the broader alliance, will create substantial new service options and fare benefits for consumers," the Transportation Department said in the 3O-page order.

"After careful consideration of DOJ's and other parties' arguments, we confirm our tentative decision that this application is not anti-competitive," the government said.

INTERVIEW-Airline pacts are key says British Airways exec
16 July 2009

CHICAGO (Reuters) - The new alliance between United Airlines and Continental Airlines is pressuring rivals to forge partnerships that could result in capacity cuts on crowded international routes, the head of British Airways' U.S. operations said Thursday.

"In a world where you're not allowed to do full mergers, this is the next best thing," Simon Talling-Smith, executive vice president Americas for British Airways, told Reuters.

British Airways, Europe's third-largest carrier by revenue, American Airlines parent AMR Corp and Spain's Iberia have applied for government antitrust immunity to form a transatlantic alliance that would permit cooperation on fares, schedules and cost cutting.

Last week, the U.S. Transportation Department approved a similar request by Continental to join UAL Corp's United Airlines in the global Star Alliance. That permission gives Star Alliance members an enormous competitive advantage on some international routes.

"It certainly puts pressure on us to get it done," Talling-Smith said. "That leaves us a little ways behind."

British Airways, AMR and Iberia expect to receive approval from U.S. regulators in October. The plan also needs authorization from European Union officials.

BA and American had an application for antitrust immunity rejected in 2001 due to a shared dominance of the London airport. But a new law allows airlines to access any U.S. city from any point in the European Union and vice versa, meaning previously restricted airlines can now access London's Heathrow airport.

"It is our firm belief that the sooner that our application is approved, the quicker it will lead to healthier and more robust competition," AMR said in a July 10 statement.

Airlines which spent years ramping up their international operations, are now being punished for that strategy as demand for overseas travel has plummeted during the economic recession.

To combat this problem, major airlines are slashing capacity and seeking partnerships that enable them to cut costs and capacity. The challenge, however, is to form alliances that do not run afoul of antitrust and foreign ownership laws.

As they cut capacity, the prospect of alliances becomes more appealing to carriers who hope to keep their route structures intact, said DePaul University transportation expert Joe Schwieterman.

"As they look to cut capacity, the value of those alliances goes up exponentially," Schwieterman said.

"It's a dogfight for a diminished traffic base," he said. "Everybody is cutting but wants to maintain schedule strength."

American Air aims for alliance approval by October

TOKYO, July 29 (Reuters) - American Airlines expects to win U.S. approval by October to form an alliance with British Airways and Spain's Iberia , and it is pinning its hopes on intra-alliance competition and global partnerships to help it survive, an executive said on Wednesday.

American Airlines parent AMR Corp , British Airways, Europe's third-largest carrier by revenue, and Iberia have applied for U.S. government antitrust immunity to form a transatlantic alliance to work together on fares, schedules and cost cutting.

The carriers have been under growing pressure after the U.S. government earlier this month approved a similar request by Continental Airlines to join UAL Corp's United Airlines in the global Star Alliance, giving Star Alliance members a competitive advantage on some international routes.

"We remain optimistic that we'll accomplish the approval by October and implement it after that," Craig Kreeger, American Airlines senior vice president, told Reuters in an interview in Tokyo.

"It seems that intra-alliance competition and building a global network with partners is the long-term way in which airlines will succeed, and this represents a very big step in that process and an important one," he said.

BA and American had an application for antitrust immunity rejected in 2001 due to concerns that the alliance would have control of an unfair number of takeoff and landing slots at Heathrow airport.

US Congress Antitrust Hearing Postponed - Source
14 September 2009

LONDON (Dow Jones)--The U.S. Congress has postponed its hearing on antitrust immunity for airlines, which if granted would allow carriers to bypass monopoly laws, a person familiar with the matter said Monday.

The House of Representatives Judiciary Committee on Competition Policy had originally intended to hold a hearing Wednesday in Washington.

The person said the hearing was postponed at short notice because the committee has "a must-pass piece of legislation to debate on Wednesday," and added that a new date is expected to be set this week.

The hearing will also closely scrutinize an application by British Airways PLC (BAY.LN), AMR Corp.'s (AMR) American Airlines and Spain's Iberia Lineas Aereas de Espana (IBLA.MC) - all members of the Oneworld alliance - for antitrust immunity, which would allow the three carriers to work together more closely.

The three carriers have asked the Department of Transportation to approve a joint business agreement allowing them to share revenue and coordinate flight schedules, mirroring approvals already granted to members of the SkyTeam and Star alliances.

American Airlines and BA have already twice tried to secure antitrust immunity, and expect to have an initial decision from U.S. transportation officials by the end of October.

The president of BA rival Virgin Atlantic, Richard Branson, an opponent of the transatlantic pact and who was called to testify at the original hearing, will attend once a new date is set, a Virgin Atlantic spokesman said.

Branson "will be speaking to various congressmen in the meantime," the spokesman added.

Virgin Atlantic has long opposed granting BA and American Airlines antitrust immunity because it would make it difficult for them to compete on some transatlantic routes.

BA will have no one representing it as it hasn't been asked to appear by the committee, a spokesman for the U.K. carrier said.

European regulators are also reviewing the deal.

Company Web site: www.britishairways.com; www.aa.com; www.iberia.com

i think alliances of these airlines may be good for their business but it will ceratinly not good for the travellers