Somewhat ruefully, a speaker at AvMan's recent CEO conference for Latin American and Caribbean airlines remarked that it now seems as if all roads lead to Bob Crandall, American Airlines' president and chief executive officer. There is a wide gulf, however, between those who eagerly hope to tread that path and those who fear a frogmarch into the unknown if they find themselves excluded from Crandall's circle of friends.
Federico Bloch, chief executive officer of the Taca Group, declared himself firmly in the Crandall camp, embracing the concept of open skies with all the passion of a religious convert and stating: 'We put our money where our mouth is. We believe in open skies and in an open market.' But, to steal a now infamous line from a British spy court case, he would say that, wouldn't he?
Bloch is being courted by Crandall to forge an alliance between American and the six Central American carriers that make up the Taca Group. American is also seeking similar alliances with Air Aruba, Avianca of Colombia, BWIA of Trinidad and Tobago, and Brazil's TAM, which has taken over Lapsa of Paraguay and renamed it TAM Lineas Aereas del Mercosur.
None of these alliances has yet received US Department of Transportation approval, much to the frustration of the airlines involved, and the DOT has launched formal investigations into the Air Aruba, BWIA and Taca proposals. The proposed Avianca alliance is likely to draw similar attention.
Yet the mere prospect of such agreements has other South American and Caribbean airlines questioning their own ability to survive in this new market environment, while causing several US airlines to cry foul. Their protests, which parallel the controversy that surrounds the proposed American/British Airways alliance, centre on the huge scale of what Crandall is proposing, as well as American's existing dominance at Miami Airport, gateway to Latin America.
'Miami is the issue,' says Continental Airlines senior vice-president corporate development David Grizzle. 'If [the Taca] proposal did not include Miami, there would not be the same heated debate.'
Sweeping aside a call from Continental to 'drop Miami', Bloch prefers to stick to the more general debate of open skies and the benefits, as he perceives it, that they would herald. 'You cannot say that you want freedom of competition and also say you want the government to say who you can have an alliance with. You cannot be half pregnant,' says Bloch. He argues that, even where one airline with its alliance partners dominates some 85 per cent of the market, the open skies environment in which it operates nevertheless encourages competition and new entrants.
Nonsense, responds Grizzle. 'Once you have built fortresses of concentration, the marketing barriers are practically impenetrable. We like to see open skies, but we also look to see how concentrated that market is. No-one will be able to enter these markets economically, even if they can enter them legally.'
Continental's battle with American is personal. Both airlines are bidding for a stake in Aerolineas Argentinas, and Continental is seeking to bolster its own presence in Latin America, using its hubs in Houston and Newark - a gameplan it feels would be seriously challenged by the proposed American alliances.
So Continental's chairman and chief executive officer, Gordon Bethune, unashamedly turned up the fear factor by a notch or two at the CEO conference when he sounded the following warning to his Latin American and Caribbean audience: 'Dominant carriers entering into a relationship with another dominant carrier may prefer to use the term "alliance" because it sounds friendly. But, where I come from, you can dress a pig up and call it anything you like. It's still a pig.'
'These so-called "alliances" are virtual mergers. What's more, once these carriers align with a giant like American, they aren't true partners. They turn over the strategic steering wheel to their bigger neighbours to the north and hope for the best.'
Robert Papkin, from Washington DC-based law firm Squire, Saunders & Dempsey, implies that this is at least a valid question when he asks: 'Is it possible that American views its codeshare partners as carriers which can never threaten the strength of American, but are best kept under American's thumb, in that they are potential allies of other US carriers?'
Papkin also throws up the most interesting question of all, which is what the Central American countries hope to gain from signing open skies agreements with the US. 'Much of Central America has operated for a number of years under a one-way de facto open skies regime which has allowed US carriers free entry and beyond rights throughout Latin America into what are countries with essentially one gateway,' points out Papkin. 'The transformation of this arrangement into a de jure open skies arrangement will strengthen the rights of US carriers, while the rights that carriers from Central America will receive to serve all points in the United States may be largely illusory.'
Juan Emilio Posada, CEO of Aces Colombia, recognises that point only too clearly. 'The world has decided that survival of the fittest is not always in the best interest of the public. Colombia is very little and needs protection against such eagle-lion alliances. We should not confuse quasi-monopolies with global alliances,' he says.
But it was left to Arthur Barnett, the CEO of tiny Bahamasair, to summarise the problem most succinctly: 'We cannot compete with American Airlines if they open up the market. We need a level playing field. They are too big, they have too much money, and they are too smart for us.'
Source: Airline Business
