Sunday, September 29, 2002
SkyTeam alliance globalizes Delta
Deal with foreign carriers increases revenue, riders
By James Pilcher, jpilcher@enquirer.com
The Cincinnati Enquirer
ATLANTA As U.S.-based airlines compete more for international traffic, Delta is determined not to be left behind.
That's why the Atlanta-based carrier, which operates its second-largest hub at the Cincinnati/Northern Kentucky International Airport, is putting more emphasis on its SkyTeam alliance with five other airlines, including Air France, Alitalia and Aeromexico.
Globalization is not only a word any more, but a reality for most of our major customers, Air France president and chief operating officer Pierre-Henri Georgeon said this month at a conference of SkyTeam officials. A lot of travelers are making difficult trips all the time.
They need answers and so do we in this environment, and alliances are the answer.
At the conference, officials with the airlines said they were pleased with the results so far, even though SkyTeam began only in June 2000, while other alliances have been around as long as 1997.
So far, SkyTeam has generated $430 million annually in extra revenue for all the partners combined since its inception through this year's second quarter, including nearly $150 million in the last quarter alone
Neither Delta nor its fellow alliance members would break those numbers down by airline, nor would they say whether the alliance is profitable. But Delta officials did say that nearly 25 percent of its international traffic is now somehow affiliated with SkyTeam.
And any boost in revenue and traffic is more than welcome for the still struggling industry, which is not expected to turn a profit until at least 2004 and is expected to lose nearly $7 billion domestically this year.
I've been here five years and the creation of SkyTeam is one of our greatest accomplishments in that time, Delta chairman and chief executive officer Leo Mullin told reporters at the conference. Candidly, we were quite far behind; but now, it is turning into an extremely powerful weapon against the competition.
Airline officials see the alliance as a low-risk way to build traffic under their own names on other's flights in a practice called code-sharing, where one carrier sells a seat on another carrier's flight under its own name or code. The selling carrier essentially buys that seat at wholesale from its partner, and then sells it for profit to its customer.
And SkyTeam members get to take the partnership one step further, with the U.S. Department of Transportation last year granting Delta Air Lines and its European partners antitrust immunity. That means that Delta, Air France, Alitalia and CSA Czech Airlines can share not only network information, but also marketing and pricing data. Delta has the same antitrust immunity with Korea Air, the sixth SkyTeam partner.
This antitrust immunity extends to two flights one on Delta and one on Air France from Cincinnati to Paris' Charles De Gaulle Airport, where Air France operates its main hub. The two airlines cannot share information about each other's first class or business elite seats on the two flights because of concern that the practice is anti-competitive.
But otherwise, all flights are fair game. That means the airlines can coordinate schedules to maximize connections at their various hubs, but also can harmonize prices to provide what they hope is as seamless a travel experience as possible (although member airlines say that the cooperation on that level is just beginning).
Code sharing also allows member airlines to further leverage traffic, keeping passengers within the alliance for as many as four connections. On the two Cincinnati-Paris flights, for example, only 17 percent of the ridership begins and ends in the two cities, with 59 percent featuring at least one connection at either end and 24 percent with two or more connections.
But while outside analysts agree such partnerships offer little risk for the airlines, they also say that there is no way to measure how well they are performing overall or against each other.
Given the profound lack of empirical data surrounding these alliances, comparing, say, SkyTeam to Oneworld is an inexact science at best, said Jamie Baker, airline analyst for the Wall Street firm JP Morgan Securities, Inc.
SkyTeam is the newest and the smallest of these alliances, ranking third to the Star and Oneworld partnerships in numbers of airlines and in number of markets served.
(Oneworld features eight carriers including American Airlines and British Airways, while Star has 14 members including United Airlines and Air Canada).
But all of SkyTeam's member airlines say size is not the most important factor in remaining competitive.
It is not our intention to become the United Nations of the skies, said Delta president and chief operating officer Fred Reid, a veteran of the European market, having served as the president and chief operating officer of German airline Lufthansa where he helped create the Star alliance. We want to be able to sit at the same table and solve any problems.
It's not about the total number of seats, it's about the strength of the network as a whole and the markets that we serve.
Still, the alliance could get larger and stronger, if federal regulators approve a proposed code-share alliance among Delta, Continental and Northwest. Continental and Northwest already partner with Dutch airline KLM, and any future alignments domestically would be sure to include KLM, which in turn would make SkyTeam's European network even stronger.
And there are more future plans for SkyTeam, which include branded ticket offices that can sell seats on any of the member airlines, cooperative agreements on purchasing such things as fuel and aircraft parts, and a cohesive luggage handling system at hubs such as Atlanta and Paris.
One example: a joint agreement to buy Coca-Cola products, with Atlanta-based Coke agreeing in turn to market the fledgling SkyTeam brand.
And while challenges such as the continuing struggles with security and possible regulatory roadblocks continue, SkyTeam members say they are poised to be the best alliance available.
We're strongly focused on revenue generation and customer service, and we think we can become the industry leader, Mr. Reid said.
SkyTeam alliance globalizes Delta
Tristate-Latin trade is abloom
Entrepreneur 'emerges' from cancer with vision
Ah, candles: Once just light, now they're a collectors' rage
RadioShack pinning hopes of holiday sales on tiny cars
Tristate business notes
What's the Buzz?
Self-critique can keep your business alive
Working instead of whining