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Aviation History
1993
1993 - 0025.PDF
AIRLINE ALLIANCES The world's airlines appear to he lookingfor the holy grail of glohalisation. It will he a long time before the industry finds it, argues Kevin O'Toole, who lists the airline links so far established. The world is getting smaller. Indus tries, from finance through to pharmaceuticals, are now domi nated by a handful of global corpo rations doing business across the world with little regard to national frontiers. Yet, ironically, the airline industry, which has played such a key part in making the world smaller, remains one of the last bastions of national ownership. True, the level of cross-border ownership is advancing, as our map (P 24-5) demon strates, but the process has been frus- tratingly slow for those awaiting the emergence of the truly "global airline". How fast the goal is achieved depends largely on the political situations within the economic power blocks of North America, Europe and Asia Pacific. The three dominant carriers which emerged from US deregulation — American Airlines, United Airlines and Delta Air Lines — already have some claims to be operating on a global basis. A hub-and-spoke system is in place within the giant home market, with regional-airline networks such as AMR Eagle and Delta Connection feeding traffic into the international hubs. There is still unfinished business from deregulation, not least the fate of the carriers now under the protection of US bankruptcy laws. The majors, however, have less interest in taking over their ailing competitors than in buying up their assets. Elsewhere, a US-Canadian axis is beginning to emerge, with Canadian Airlines in talks with American and Air Canada angling for a stake in Continental. At an international level there is also less incentive for the "big three" US carriers to seek major alliances than to use the USA's powerful bargaining position to gain them selves greater market access in Europe and the Pacific Rim. That process could be slow. EUROPEAN DEREGULATION European airlines, heeding the "mistakes" of US deregulation, want to ensure that their own liberalisation is a slower, smoother transition. Most are arguing for a period of grace in which to liberalise the internal European Community market be fore opening it up to the full force of competition from the giant US and Pacific Rim carriers. Frederick Reid, who heads Lufthansa's transatlantic operations, stresses that Eu rope is not asking for permanent barriers but needs a five-to-ten year-period to "...get its act together". Europe's concerns are real. With the exception of British Airways, the majority of Europe's carriers still have to undergo the potentially painful transition from state- owned flag-carrier to a free-standing priva tised business. There is also the prospect of a wholesale consolidation in the market as the myriad of national carriers is reduced to only three or four world-class players. Domestic European markets are undergo ing domination by single carriers. During 1992, SAS took control of its main Swedish domestic rival, Linjeflyg; Air France consol idated its hold on the UTA and Air Inter subsidiaries; and BA picked up the sched uled rump of Dan-Air. As Alitalia chief executive Giovanni Bisig- nani points out, the lesson learned from US deregulation is that airlines neglect domes tic markets at their peril. Despite their size, carriers like Pan American World Airways and Trans World Airlines did not control their domestic systems, whereas American, United and Delta did — the result is history: one entered Chapter 11 bankruptcy proceedings, the other is out of business. Likewise, in Europe, Bisignani argues that "...in the very near future, companies that have a number of passengers less than 10 million will not be able to survive by themselves". The timescale of when the round of intra-European mergers begins in earnest is difficult to assess. Bisignani comments that, when he arrived at Alitalia three years ago, the consensus was that everything would be resolved within six months — he is still waiting. How soon the revolution comes depends largely on the speed with which Europe develops the much-talked-about "level-playing" field. The next phase in air liberalisation, which came on-stream on 1 January, will help. The largest European players are already in the process of staking out their claims to a central place within a single European market. BA, having failed to secure agree ments with Sabena and KLM, has instead taken a strategic position in France and Germany through smaller stakes in French regional carrier TAT and Deusche BA. Air France was the eventual winner in the battle to win a one-third share in Sabena, FLIGHT INTERNATIONAL 6 - 12 January, 1993 23
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