Oneworld's aim is air supremacy

News Analysis: Virgin may protest, but British Airways' global alliance with four major airlines creates a pounds 25bn world network
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Indy Lifestyle Online
RICHARD BRANSON rarely fails to get his message across. Yesterday was no exception. Outside the venue chosen by the five partners in "oneworld" to launch their global airline alliance was a 38-tonne truck with the defiant slogan "No Way BA-AA" painted on its side in the familiar red and white livery of Virgin Atlantic.

Inside, the chief executives of British Airways, American Airlines, Cathay Pacific, Canadian Airlines and Qantas were introducing their vision of a "seamless travel experience".

Mr Branson criticised the partners, claiming they were more intent on creating "one company" than "oneworld", but he is flying in the face of a global trend.

The airline market is increasingly dominated by a handful of huge alliances. Oneworld will be right up there. With a fleet of 1,524 aircraft serving 632 destinations in 138 countries, combined revenues of $43bn (pounds 25bn) and 174 million passengers, oneworld ranks alongside the other big global airline grouping, the Star Alliance, which is headed by United Airlines and Lufthansa.

In keeping with the location for the oneworld launch - the former LWT television studios in central London - there was plenty of hype in evidence yesterday and a certain showbiz feel to the event. Taking the stage Bob Ayling, BA's chief executive, modestly predicted that oneworld would change airline travel in a way that would have made the Wright brothers proud.

In reality, it is largely a giant code-sharing exercise and a chance for the partners to share each other's frequent flyer programmes and airport lounges. American Airlines already has separate marketing links with the four other partners and BA has commercial links with three of them. American owns 33 per cent of Canadian Airlines, while BA has a 25 per cent stake in Qantas.

But behind the hype there is a deadly serious game, and the prize is domination of the world's airways. The creation of oneworld fills an important gap in BA's global strategy. Cathay Pacific gives it the presence in the Far East it has lacked until now. Cathay has been the one leading airline to hold out against an alliance. Its chief executive, David Turnbull, said: "When you finally get married you want to make sure you have made the right choice because getting unmarried can be quite difficult."

Oneworld, however, plans to be a serial polygamist. Iberia of Spain has been formally invited to join, while Finnair, Dragonair of Hong Kong, LOT Polish and Malev of Hungary are also being lined up as future brides.

Star Alliance is similar: membership is formally limited to six carriers - Lufthansa, United, Thai, SAS, Air Canada and Varig of Brazil - but Singapore Airlines, Ansett of Australia, Air New Zealand and All Nippon Airways are affiliated and may become full members.

With Delta, Swissair, Sabena and Austrian Airlines joined in the North Atlantic Excellence alliance and KLM, NorthWest, Alitalia and Japan Air Systems in another pact, the only major players still to select partners are Air France, Continental and South African Airways.

Don Carty, the chief executive of American, says there will be cost savings to be wrung from the alliance, but the real benefits for the five partners will be felt on revenues. "The ability to fit together the networks of the five partners to provide incremental income will be our focus."

Mr Carty is coy about how big those revenues will be. But when United and Lufthansa linked two years ago they estimated that the alliance was worth an additional jet load of passengers flying from Frankfurt to New York each day.

The rule of thumb with airlines is that once break-even has been reached, 80 to 85 per cent of all extra revenues flow straight through to profit.

At a time when storm clouds are gathering over the world economy and the air travel market is on the downward slope of the cycle, the partners in oneworld hope their alliance will afford them some extra protection against the buffeting.

For BA and American, it comes just as the two carriers hope finally to receive the green light on both sides of the Atlantic for their bilateral alliance after a wait of two years.

Chris Tarry, aviation analyst with Dresdner Kleinwort Benson, says: "The formation of oneworld is sensible and logical and everyone hoped that Cathay would come to the party. If it doesn't make economic sense to do the BA-AA deal, the two can continue with what they have, which makes oneworld a win-win situation."

Mr Branson suspects baser motives. The oneworld partners say they will retain their separate identities and continue to compete where they operate on the same route. There will be no pooled timetable and no shared revenues.

But the Virgin boss thinks it cannot but be anti-competitive in the long run. Mr Branson has experimented with partnerships - Virgin had a transatlantic link with Delta, later ditched for Continental. But he has resisted a big alliance, preferring to fly solo. If oneworld works, that will become a cold and lonely place.

Outlook, page 19