Iberia is a good example of a carrier which clearly had too many small alliance agreements and has carried out a much-needed rationalisation. Iberia's 27 alliances were among the largest number held by any carrier in our survey last year. With a review of its alliances in full swing, the Spanish carrier's total alliance tally has since more than halved to just 13. Iberia's limited codeshare agreements with carriers like Air Mauritanie, Air Seychelles, Balkan Bulgarian and Garuda Indonesia are among the deletions. New block space and codeshare agreements were added with Korean Air and SAS.
Other carriers which noticeably reworked their alliances included Austrian Airlines, which cancelled six agreements and added four; Swissair which added six new agreements and dropped three; United which cancelled six and added two; Alitalia which deleted one and added three; and Air France, which axed accords with Air Canada, Austrian, Korean Air, Tarom and Sabena, but still had a net gain of two alliances. Air New Zealand tied with Swissair for the largest number of new agreements added since May 1995, by adding six new partners.
In Eastern Europe, CSA Czech Airlines added five new accords with Air UK, Continental, Luxair, Malev and Tarom. Meanwhile Malev's alliance with Alitalia looked decidedly shaky in light of the Hungarian carrier's privatisation plans, and American's tie-up with LOT was in difficulties.
The scale of the 'tidy up' varies from carrier to carrier and is a function of how much control and thought went into evolving a network of alliances in the first place. For a few major carriers the result is a clearly mapped-out alliance strategy, but for many the picture is simply a less confused one.
The global alliance strategies stand out as the most clear-cut, headed by Lufthansa and its partners United, Air Canada, Thai Airways International, SAS and South African Airways; the Delta group of carriers which includes Swissair, Singapore Airlines, Sabena and Austrian; and of course KLM and Northwest. But then such global alliance strategies are often simplicity itself, in stark contrast to a more complex web of route-specific arrangements.
This does not preclude their changing, of course. While BA was still stating its commitment to the tie-up with USAir in April 1996, there were continued rumours of talks with American Airlines. And if BA were to opt out of its alliance with USAir, this may pave the way for a tie-up between USAir and Air France, which has maintained links with former adviser Stephen Wolf and its previous director of development, Rakesh Gangwal, both now ensconced at USAir.
This year's Airline Business survey lists 389 alliances, a net increase of more than 19 per cent over 1995 and of 38.9 per cent over 1994. While many small agreements were dropped, a larger number of new ones was introduced. About 71, or 18 per cent of the total, are new alliances formed since around May 1995.
The proportion of alliances with an equity stake declined further. Less than 16 per cent of the agreements in this year's survey involve an equity investment, compared to 18 per cent last year and 21 per cent in 1994.
There were 18 new entrants to the alliance movement including Polynesian Airlines, Royal Tongan, Air Pacific, Air Vanuatu, Solomon Airlines, Air Caledonie, LTU International Airlines, Vasp, Aerocaribe, World Airways, Emery Worldwide, El Al, Avensa and Air Europe Spa. This brought the total number of carriers to 171.
Major strategic partnerships remained relatively stable, but some were strengthened considerably. The most significant changes were driven by Luthansa's honing of the first truly global alliance covering the five continents. Having joined forces with United and Thai International last year, Lufthansa added agreements with SAS, Air Canada and South African Airways. It also has a longstanding arrangement with Varig.
The exclusive nature of the Lufthansa agreements became clear when the Lufthansa-SAS linkup led to SAS's withdrawal from the European Quality Alliance with Swissair and Austrian, while its cooperation with Continental was discontinued in favour of United Airlines. Adding to this momentum, Air Canada announced its intention to reduce its stake in Continental in May, subject to its shareholders' approval, and fully to dispose of its stake by early 1997. Air Canada already has a codeshare alliance with United which dates back to 1992. Meanwhile Lufthansa cancelled its cooperation with Canadian Airlines International as a result of the Air Canada link, and its stake in UK carrier Business Air was transferred to British Midland, itself minority owned by SAS.
Swissair completed a deal to purchase a 49.5 per cent stake in Sabena, bringing the latter into its alliance with Delta and other partners. Persistent rumours of renewed talks between KLM and BA had not materialised at presstime and the Dutch carrier focused instead on improving its European feed through agreements with Eurowings, Maersk Air, Tyrolean Airways and Aer Lingus.
KLM bought a 26 per cent share in Kenya Airways and Air New Zealand continued its efforts to invest in Ansett Australia, but generally there was a definite trend towards disposing of equity investments rather than making them. Continental sold part of its stake in America West in the first quarter, cutting its investment to just 1 per cent of equity and a 7.9 per cent voting interest.
Iberia transferred most of its stake in Aerolineas Argentinas and part of its investment in Ladeco to Andes Holding, a holding company controlled by Spanish state investment company Teneo, a move that was forced by the European Commission.
Political expedience as a result of the forthcoming return of Hong Kong to China in 1997 led to a reduction of Cathay Pacific's stake in Dragonair through the sale of 17.66 per cent of its investment to CNAC Group. The move will enable CNAC, which is also buying part of Citic Pacific's Dragonair stake, to make Dragonair the vehicle for the development of its airline interests in Hong Kong.
In the US-Europe market, the question of US anti-trust immunity for alliances other than KLM-Northwest remained very much a live issue at presstime as both the Delta group and Lufthansa-United awaited decisions on their applications (see feature). The Germans have made the implementation of an open skies agreement with the US contingent on immunity for the Lufthansa-United alliance, but there were fears the US could carve out parts of an alliance for immunity while excluding others.
Codesharing remains confusing for many passengers. Attempts to impose self-regulation on the industry in terms of clearly informing passengers when booking them onto a codeshare flight with a connection are continuing. In April the European Civil Aviation Conference drew up a list of initially voluntary measures for airlines, CRS providers and travel agents and warned that stronger steps could be taken if a review in a year's time concluded that these were necessary.
Across the regions some of the most notable new alliances included: KLM and Kenya Airways; Aer Lingus-Delta; British Airways-America West; Northwest-Air China; LTU-Air New Zealand; and Olympic-Vasp.
The next 22 pages provide a fully cross-referenced list of airline alliances by carrier. Major airlines' domestic feeder agreements with regionals are not included but trans-border ones are. The survey is restricted to scheduled carriers.
The listing indicates the presence of an equity link but gives no details. Next month, part two of this survey will give a full listing of airline equity holdings in other carriers.
Survey by Jackie Gallacher
Source: Airline Business