Consolidation of U.S. airline industry takes off on worldwide scale

Business travel

January 27, 1992|By Tom Belden | Tom Belden,Knight-Ridder

The consolidation of the U.S. airline industry over the last few years into a handful of big players is beginning to repeat itself globally.

Last week, Northwest Airlines was reported to be in preliminary talks with two of Europe's biggest carriers, British Airways and KLM Royal Dutch Airlines, about a possible worldwide marketing and operating alliance.

Although the three airlines might not formally merge, they may all be held in a parent company under common ownership and could cooperate so closely that they would function as one huge carrier. KLM already owns 49 percent of Northwest and the two companies jointly market some trans-Atlantic service.

Three other major carriers, USAir, Lufthansa German Airlines and Japan Airlines, have been reported to be considering a close alliance similar to the one KLM, British Air and Northwest are exploring.

Two other groups that cooperate more loosely in international marketing and scheduling are Continental Airlines with Scandinavian Airways System, and Delta with Singapore Airlines and Swissair.

Some industry analysts and consultants think that loose alliances will not be enough in the future to compete against U.S. mega-carriers the size of American, Delta and United, which have become the world's largest airlines. Worry about the clout of those three is one reason British Air, KLM and Northwest are talking.

In the next few years, the analysts say, there will be efforts to change a U.S. law that prohibits foreign companies or citizens from owning majority control of a U.S. airline. That's because only by actually operating more of their service together and buying equity positions in each other are airlines the size of USAir, Continental, Northwest, KLM, Swissair and Singapore going to be able to compete with the three giant U.S. carriers, according to the observers.

"We're going to see these [U.S.] carriers try to define new global airline companies by allying themselves with European and/or Asian carriers," said Albert A. DeLauro, vice president and head of the transportation practice at Cresap, a management-consulting firm.

"They possibly won't use standard marketing agreements," he said. "In all likelihood, they'll push the edge of the envelope in terms of equity arrangements. We will probably see new ownership legislation as a result."

As this process unfolds, other industry watchers wonder whether the major U.S. airlines know what they're getting into overseas.

Jan Herring, vice president of The Futures Group, another consulting firm, and a former CIA analyst, said few U.S. companies use a formal process of intelligence-gathering as a way to size up the competition and know what to expect in the future.

"Most U.S. airlines are just now beginning to compete overseas," Herring said. "They've got a lot of business intelligence on each other here. They come under competitive pressures all the time. But most airlines don't have that same kind of network internationally. They don't know, for instance, why some airlines may have become strategic allies in the past."

Business intelligence involves more than market research, Herring says. It includes a thorough analysis of competitors' capabilities and plans, understanding industry trends and structural changes, keeping up with technological developments, knowing how customer demands are shifting and how political and economic issues and climates will affect business and knowing what kind of security threats to expect, including from the competition.

Herring added that while Europe, which is developing a unified market and reducing regulatory restrictions on airlines this year, is a hotbed of competition and shifting alliances right now, Asia could become even more competitive for airlines in the years ahead.

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Virgin Atlantic Airways' marketing wizards have devised another clever way to entice travelers -- the "Virgin Flyer Program." The promotion, in cooperation with the British Tourist Authority, will refund the application fee of any Virgin Atlantic passenger who is getting a new or reissued U.S. passport.

The passport fee was increased last year and now is $55 for adults and $35 for children. The program is open to anyone flying on Virgin between Jan. 15 and May 31 who has a passport issued after Dec. 1, 1991, that has not yet been used. The airline serves London from Newark, N.J., New York's Kennedy Airport, Boston, Los Angeles and Tokyo.

To get a refund, a passenger pays for a ticket and then asks for a voucher when checking in for the flight. After the trip is taken, a passenger turns in copies of the ticket and boarding passes with the voucher, and the airline will return the passport fee.

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Radisson Hotels International is awarding triple-mileage credits to guests who stay at any Radisson hotel in conjunction with a flight on Air Canada, Northwest Airlines or USAir. Under the promotion, which runs through March 31, a Radisson guest who travels via one of the three airlines will earn 1,500 bonus miles in that airline's frequent-flier program, rather than the normal 500.

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Dollar Rent a Car said it would continue to honor all award certificates for car rentals issued by Pan American World Airways to its frequent-flier program members.

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