=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2004/02= /04/BUG7N4O8P41.DTL ---------------------------------------------------------------------- Wednesday, February 4, 2004 (SF Chronicle) Airlines teaming up to share routes, costs/Alliances help weather rough tim= es David Armstrong, Chronicle Staff Writer Trying to bolster a badly sagging bottom line any way they can, the nation's major airlines are increasingly signing up in global alliances designed to lure and pamper lucrative frequent fliers. Such alliances, airline executives say, can work well for carriers and consumers alike. For the airlines, global alliances generate revenue, reduce operational costs, eliminate duplicated services and extend air routes. For travelers, they promise smooth transfers between airlines on long- haul flights, worldwide access to swank airport lounges, shared frequent-flier programs and other attractions. That's in theory. In practice, glitches happen, and partners sometimes blame each other for problems with systems that are not fully integrated. Passengers, when changing airlines, sometimes find glaring inconsistencies in service. Nevertheless, airline alliances can make for more comfortable travel for consumers and pump up revenue for carriers such as United Airlines, which has taken in several hundred million dollars a year from shared ticket revenue. In the very early days, cultural differences between the airlines led to conflict and unwieldy arrangements. But "after a very shaky start, these things appear to be stabilizing," said Darryl Jenkins, director of the Aviation Institute at George Washington University in Washington. The three global alliances -- Star Alliance, Oneworld and SkyTeam -- were initially loose partnerships of a handful of carriers. More recently, the alliances have become much larger and more tightly knit, as recession, war and fears of terrorism have prompted member airlines to scramble for a competitive edge. Such alliances, observed airline industry pundit Joe Brancatelli, allow major carriers to retain a highly visible global presence even as the airlines have cut back their international flights. "As they have retreated to code-share service with international carrier= s, the Big Six have withdrawn flights from dozens of overseas markets," Brancatelli observed on his Web site, www.joesentme.com. United Airlines, the world's second-largest carrier, sees its membership in the Star Alliance as part of its plan to cut costs and raise revenue so it can emerge from Chapter 11 bankruptcy protection. Star Alliance membership also proved helpful for crisis management, given that many countries have no close equivalent of Chapter 11 and wrongly equate filing for bankruptcy with liquidating a company, said Graham Atkinson, United senior vice president "The alliance members did a great job sustaining our credibility when it was being seriously questioned a year ago," said Atkinson, who also chairs the Star Alliance management board. "The PR message they put out in important places like Germany let people know we were still flying." Beyond the credibility issue, there is a matter of cold cash. United saves money by ceding unprofitable routes such as San Francisco- Auckland to Star Alliance partner Air New Zealand and by directing United passengers to jointly operated lounges, such as a sleek new Star Alliance lounge in Zurich, Switzerland, according to United spokesman Stephen Roth. United also hopes to save money by signing on to a new Star Alliance Fuel Co. This company will make joint purchases of jet fuel, whose volatile prices often keep airline executives awake at night. Incorporated in Delaware, the fuel company should be up and running this year, said Atkinson. A smaller joint purchasing program at London's Heathrow Airport saved United $40 million last year, according to Roth. United, which entered Chapter 11 in December 2002, makes money by splitting ticket revenue with alliance partners such as Japan's All Nippon Airway. ANA ferries United passengers from Tokyo Narita airport to smaller markets in Japan, where ANA is strong and United doesn't operate. Additionally, ANA operates daily, nonstop flights between Washington, D.= C. , and Tokyo that bear United flight numbers and carry many passengers who book their flights through United, spokesman Tom Fredo said. Passengers can earn frequent-flier miles redeemable on any member airline in the Star Alliance, which has 16 members, including Lufthansa, Singapore Airlines and Air Canada. Eighty percent of the revenue typically goes to the operating airline, s= ay airline industry experts, while the remaining 20 percent stays with the ticketing airline. Such arrangements can be lucrative. United earned $245 million in 2000 through ticket revenue splits with Star Alliance partners, said Atkinson, noting the most recent figure "is considerably north of that." United, which co-founded Star Alliance in 1997, is one of the most internationally minded U.S. carriers, and counts its hub at San Francisco International Airport as its largest source of international flights. Additionally, the Bay Area has the largest concentration in the world of members of Mileage Plus, its frequent-flier program, United officials say. The economics of the aviation industry, which requires a large labor for= ce and big reserves of capital, have made airline alliances necessary, said Tony Tyler, director of corporate development at Hong Kong's Cathay Pacific Airways. Cathay is a member of 5-year-old Oneworld, whose members include American Airlines, British Airways and Australia's Qantas. In a rational world, Tyler said, big international airlines would be allowed to pursue outright mergers and acquisitions. But concern for national security and national pride won't permit regulators to go for cross-border mergers. As a result, he said, an industry that has arguably done more than any other to bring the world together is hampered in its own attempts to globalize. The toughest opponent of aviation globalization, Tyler said, is the Unit= ed States, which limits foreign ownership of airlines to 25 percent. "This is from the same people always urging openness and transparency," = he said of U.S. authorities. Without outright mergers, airline alliances are the next best thing, said Kevin Mitchell, chairman of the Business Travel Coalition, a trade organization for corporate travel planners. However, they do run into problems, he added. "Business class on one airline can be very different from business class on another," Mitchell observed. "I know of one CEO who took a flight to Japan on a partner of his usual airline and found there was no AC connection for his laptop computer in business class. He was irate." Accountability can also be a problem, said George Washington University's Jenkins. "If a bag gets lost, they don't know where to affix the blame."Such problems are only growing pains for aviation alliances, airline executives say. In any case, alliances are not going away anytime soon. In fact, greater integration is in the flight plan. The Star Alliance, for example, plans to roll out electronic ticketing by the end of this year among all its member airlines, which will grow to 17 when US Airways joins this summer. The alliance is also relocating its members to one central terminal at Tokyo's busy Narita airport, the better to ease interline transfers as airlines become ever more closely linked. Global air alliances Star Alliance Founded: 1997 Members: 16, including United Airlines, Lufthansa. US Airways will join this summer. Network: 679 airports in 129 countries Oneworld Founded: 1999 Members: 9, including American Airlines and British Airways Network: 570 airports in 134 countries Skyteam Founded: 2000 Members: 8, including Delta Air Lines and Air France Network: 492 airports in 114 countries Source: Chronicle research E-mail David Armstrong at davidarmstrong@xxxxxxxxxxxxxxxx=20 ---------------------------------------------------------------------- Copyright 2004 SF Chronicle