Geoff Dixon, CEO, Qantas Airways

Home , Lufthansa Cargo, Qantas, SkyTeam Cargo

A MAGAZINE FOR AIRLINE EXECUTIVES 2004 Issue No. 2

T a k i n g y o u r a i r l i n e t o n e w h e i g h t s

AN ALLIED FRON T A conversation with … Geoff Dixon, CEO, Qantas Airways

INSID E

Air France and KLM form 4 Europe’s Largest Airline

18 The Evolution of Alliances

A Conversation with oneworld, SkyTeam 26 and Star Alliance

global alliances, elected officials are often both the current alliance members as well as Global alliances will continue to evolve increasing anti-trust scrutiny. While the new associates. Existing members can as business conditions change. Some of the European Union and NAFTA are on opposite observe the business practices of associate evolution will benefit members and some will sides of the debate, they are not the only members without fully committing to part- not. One rule of evolution, of course, is “sur- Carrying the Freight regulatory bodies impacting global alliances nership. The associate members can ease vival of the fittest.” today. Many countries are signing open skies their way into the alliance without having to agreements, which foster global alliance rela- make all of the necessary business and tech- Unraveling Global Alliances tionships because they remove bilateral restric- nical changes at once. Perhaps the most worrying characteristic of Like their passenger counterparts, global cargo alliances, although still tions to capacity and frequency of air service. Lite participation will also certainly entail global alliances is that they are not easy to in the early going, have potential to help reshape the airfreight industry. Meanwhile, the E.U. requirement to fewer regulatory issues than full membership. unravel. Alliance members share many remove country designators from third-coun- The risk, however, is that lite membership may resources: commercial, financial, operational try bilaterals is meeting resistance from non- lead to a two-tier structure where the more and technical. While sharing resources is one E.U. countries as well as countries that do not junior members of the alliance have fewer of the primary benefits, it also exposes a belong to a large trade pact such as NAFTA. In benefits and more burdens than the full mem- weakness. What happens when a primary recent discussions between a Japanese and a bers. For example, CSA Czech Airlines, a member of an alliance dissolves? Several large European airline, the issue of bilateral restric- smaller carrier, is a full member of SkyTeam members of global alliances are struggling for tions was broached with the Japanese govern- while Malev, a partner of CSA that is actually financial stability. The failure of any of these ment, which said that it would not allow the slightly larger than the Czech airline, may only carriers would have a profound impact on the European carrier to operate to Japan because be allowed to enter SkyTeam as an associate health of its alliance partners. its ownership was not majority held in the member. Such lite memberships should be When the Wings alliance led by Photo courtesy of Lufthansa Cargo of Lufthansa courtesy Photo European country in which it was based. watched carefully to see if they evolve suc- Swissair unraveled, the ripple effects impact- Such issues could, for example, cause cessfully for all participants. ed all members. Although more of a regional problems for airlines such as KLM, a Dutch The final alliance trend is toward pro- than a global alliance, the fate of Wings illus- company whose majority ownership will be in curement partnering. When global alliances trates the effect of the collapse of a key France. Certainly, as global alliances become were first formed, one of the envisioned ben- alliance member. Wings was devastated by more pervasive and complicated, the regulato- efits was the purchasing power members the failure of its anchor carrier. Almost all of ry environment will also become more thorny. would enjoy. For the most part, however, the former members of the Wings alliance This added complexity might make more limit- these advantages have not been a significant have gone out of business or suffered financial ed participation in a global alliance attractive. contributor to profitability of individual airlines. hardship following the collapse of Swissair. As global alliances become more com- This lack of impact may soon change. When With rising fuel prices, dropping yields and plex, a trend toward “lite” membership could oil was around US$20 a barrel, airlines had lit- increasing competition, it is difficult to imagine accelerate. Under lite agreements, an airline tle incentive to enter large procurement part- that all of the troubled carriers will survive, becomes an associate member of a global nerships for fuel. threatening the health of the current alliances. alliance to obtain most of the benefits of par- Purchasing economies that could be Global alliances improve the passenger ticipation without the requirements of full realized through procurement partnering are experience and benefit member airlines. Even membership. small at US$20 per barrel. Today, oil, at more with the challenges they face, global alliances In the SkyTeam’s associates program, than US$40 per barrel, is considerably higher, can look forward to a healthy future — even if for example, a full member may sponsor an and procurement partnering among alliance individual members continue to struggle. a airline for the associates program through members becomes much more attractive. which it only participates on certain routes Other procurement partnering is already taking and with certain restrictions while receiving place with manufacturers, maintenance access to common resources such as fre- providers, ground handlers, catering compa- Shane Batt is a partner with Sabre Airline quent flyer links, branding and promotion. nies and similar suppliers, and it is a trend that Solutions Consulting. He can be contacted This form of lite membership is desirable for is sure to grow. at [email protected]. By Mukundh Parthasarathy | Ascend Contributor

xpanding network reach. Providing seam- of services they received from their passen- The cargo alliances help airlines “meet E less services across airlines. Generating ger alliance. the demand for rapid deliveries to all parts of +count it up incremental revenue. Reducing costs. For Building on those discussions, in April the world,” according to an article in SAS years, large passenger airlines have known 2000, Lufthansa Cargo, SAS Cargo and Singapore Cargo’s Cargotimes. 700 million — Euros per 12 — Percent of possible fuel savings 3 — Number of doctors who delivered about the benefits of membership in a global Airlines Cargo launched the New Global Cargo “[A]irfreight companies have recog- day, according to the International Air the European Organisation for the Safety a baby aboard a KLM flight from alliance. Now, more and more cargo airlines alliance, now known as the WOW alliance, which nized that they must create global networks,” are discovering the same thing. has since been joined by Japan Airlines Cargo. the article said. “The new economy has made Transport Association, that aviation of Air Navigation, or EUROCONTROL, Amsterdam to Chicago Aug. 18. The About five years ago, the cargo divi- Five months later, the cargo divisions of sever- cooperation essential. No single airfreight contributes to the tourism industry estimates could be generated by minimiz- Jordanian woman and her healthy baby sions of Star Alliance members Lufthansa al SkyTeam alliance members — Aeroméxico company has a reasonable chance of meeting in Europe, creating considerable ing the inefficiencies in air traffic manage- daughter were taken to a local hospital German Airlines, Scandinavian Airlines Cargo, Air France Cargo, Delta Air Logistics the needs of all customers.” employment in the aircraft and ment systems, according to the in Newfoundland, Canada, where the System and Singapore Airlines began looking and Korean Air Cargo — also joined together By joining together, the members of the engine manufacturing industries. International Air Transport Association. aircraft made an emergency landing. for ways to create a cooperative airfreight to form the SkyTeam Cargo alliance. CSA WOW alliance can provide customers a com- group to provide some of the same types Cargo and Alitalia Cargo later joined the alliance. bined fleet of 43 freighters and the belly

22 ascend ascend 23 industry industry

capacities of more than 760 passenger air- future,” said Peter Grølund, general manag- SkyTeam Cargo has a member from South work of alliance members, cargo alliances by differing information technology systems, craft. Together, the alliance’s network compris- er of SAS Cargo, when WOW was launched. America or Africa. Leading Cargo Airlines deliver a better product to customers. corporate and national cultures, and varying es 523 destinations in 103 countries on five “A stand-alone model is no longer sustain- Several large cargo airlines, including The alliances also allow their members to cargo services. continents. Similarly, the SkyTeam Cargo able if we are to offer customers the ser- American Airlines Cargo, United Airlines The top 20 airlines for international consolidate ground sales and marketing Alliance members must standardize freight traffic in 2003. alliance members combine to provide more vices they demand.” Cargo, British Airways World Cargo as well as (in millions of scheduled freight infrastructures. pricing, as well as product offerings and lev- than 8,217 daily flights serving 512 destina- Although they are relatively new, and cargo-only airlines such as Polar Air Cargo, ton kilometers) The alliances are gaining acceptance in els of service. Individual airlines must also tions in 114 countries using more than 1,200 include just a handful of members, the glob- continue to keep their options open. Some air- the industry — last year, the Asia Freight and harmonize their similar products — express 1. FedEx 13,320 aircraft. Also, by seamlessly coordinating their al cargo alliances will have a dramatic impact lines have remained on the sidelines due to Supply Chain awards even created a new cat- delivery, for example — so that packages 2. Lufthansa 7,260 networks, alliances can drastically reduce the on how freight is transported. Airline indus- the degree of integration required by member- egory for best air freight alliance, won by move seamlessly through the network. 3. Korean Air 6,896 amount of time — in some cases by several try observers say they expect the cargo ship in a successful cargo alliance. WOW in 2003 and 2004. They also must set up a mechanism to deter- 4. UPS 6,732 hours for an urgent delivery — required to alliances to grow and new alliances to form Despite such gaps, the cargo alliances In addition to the large alliances, many mine how to split the revenue generated 5. Singapore Airlines 6,681 transport freight. in the coming years. The current alliances represent a response to the demands of the cargo divisions are, like their counterparts on from a shipment that involves multiple 6. Cathay Pacific Airways 5,197 Joining an alliance “will lead to exten- themselves still have plenty of room to grow. current marketplace. By providing extended the passenger side, exploring individual links alliance members. 7. Air France 4,875 sive advantages for our customers and WOW, for example, currently lacks a North global networks that can better handle with specific partners through codeshare One promising development that may 8. China Airlines 4,727 strengthen our market position into the American partner. And neither WOW nor express shipments and by utilizing the net- agreements. Smaller airlines are creating such assist cargo carriers in addressing these chal- 9. EVA Air 4,713 links with larger international carriers to pro- lenges is that developing technology is emerg- 10. Japan Airlines 4,388 vide worldwide coverage. Air Jamaica Cargo, ing — such as cargo reservations, revenue 11. Cargolux 4,348 for example, has formed alliances with 13 air- accounting and claims managment — that can 12. British Airways 4,194 lines and four major trucking companies. help airlines integrate their cargo operations. 13. KLM 4,085 hightech There are also numerous individual relation- Standardizing IT platforms will enable the indi- 14. Northwest Airlines 3,001 ships. JAL Cargo and American Airlines Cargo vidual carriers to more efficiently coordinate 15. Emirates 2,586 have a strong relationship as do British operations as well as communicate with each 16. Asiana 2,566 News on New and Improved Products Airways and Qantas Airways. And there still other. Consistent standards will help the cargo 17. American Airlines 2,555 exist some relationships outside the global alliances offer a unified service. and Services from Sabre Airline Solutions 18. United Airlines 2,388 alliance framework, such as SkyTeam Cargo Although still in the early developmental 19. Nippon Cargo 2,321 member Korean Air Cargo’s alliance with phase, cargo alliances likely will play an 20. Air China 2,177 WOW member SAS Cargo. increasingly important role in the future of product Rapid recovery — Crew schedulers can features Although positioned to become more freight transport. a Source: International Air Transport Association develop a solution quickly, resolving important in the industry, cargo alliances still Sabre ® AirCrews ® both pairings and crew, and then target Automated solutions — Once a crew face a number of challenges to their operation. Disruption Control the most efficient resolution to a particu- tracker receives updated flight informa- The world’s top 50 cargo airlines One of the key steps for a successful lar type of disruption. tion, Disruption Control provides an transported 125,299 million freight ton cargo alliance is to create a unified “store- Cost savings — Disruption-related costs, automated solution to a particular kilometers in 2003, of which 95,010 front” that coordinates pricing and selling at a Mukundh Parthasarathy is in the cargo description such as lost short-term revenues caused disruption based on data provided million FTKs were handled by the top global level, leading to cargo transported under product marketing group at Sabre Airline by cancelled and delayed flights and by the crew tracker. 20 cargo airlines. the alliance brand rather than that of an individ- Solutions. He can be contacted at AirCrews Disruption Control is an decreased customer satisfaction and Deadheading or positioning of crew — ual airline. To do so, however, is complicated [email protected]. industry-leading system designed to loyalty that may have a long-term The system considers all flight legs avail- help airlines overcome crew schedule impact on an airline’s brand, can be able for deadheading, utilizing a unique minimized through efficient disruption deadhead-selection logic to select a disruptions quickly so crewmembers recovery. subset of all deadheads to be included THE HIGH LEVEL are able to return to regular operations Smart integration — While offering in the development of a solution. with minimal schedule interruption. direct integration with other products in Graphical user interface — The system’s News Briefs from Around the Globe the Crew Management Suite, Disruption user-friendly interface enables a crew vıew benefits Control can also interact with other crew tracker to quickly create a solution operations systems. scenario by specifying the inputs and Who review work schedule changes and “Partnering with Sabre Airline Efficient deployment — Utilizing recovery parameters, which control the The system lessens the economic impact Comair perform trip trades automatically Solutions will have a positive impact Disruption Control, crew schedulers can type of crew and flights chosen for the of unexpected costs to airlines and online. on daily operations at Comair, analyze various solutions as scenarios solution. What prevents significant revenue loss during prior to implementation, ensuring that Recovery parameters — With the providing us with improved opera- times of irregular operations. By integrating a solution adequately addresses the recovery parameters defined, the system Selected the Sabre ® AirCrews ® Why tional reliability while maintaining the capabilities of Disruption Control with desired needs without causing additional provides a list of affected and candidate Operations Manager to efficiently “With the implementation of a level of cost effectiveness that those of the Sabre ® AirCrews ® Crew problems to crew operations. crewmembers, which can be reviewed by Cross-functional integration — the crew tracker to determine whether to track flight crew. Included in the Operations Manager, Comair will a carrier our size needs. Management Suite or the Sabre ® Flight Integration with other Sabre Airline include or remove crew from the solution. agreement is the Sabre ® AirCrews ® have quicker, more reliable access to “We expect Comair to benefit Control Suite, the system provides several Solutions recovery products provides Multiple scenarios — At any time, the Crew Connection, which will provide information about all aspects of our from the increased operational flexi- benefits enabling airlines to competently airlines with the necessary tools to recovery parameters can be changed manage both flight schedule and crew produce recovery solutions in the areas in Disruption Control so an alternative increased benefits to Comair’s flight crew operations,” said Pat Ryan, bility granted by the proven system,” disruptions: of crew, aircraft and passengers. solution can be considered. a crewmembers, enabling them to director of crewmember services. he said. a industry industry