Multilateral alliance good for ANA, but JAL isn't convinced

All Nippon Airways Co. President Yoji Ohashi could hardly contain his joy last month when he witnessed the entry of Asiana Airlines Inc., South Korea’s No. 2 carrier, into Star Alliance, the world’s largest airline coalition.

“We have eagerly awaited this moment,” Ohashi said at a joint news conference in a Seoul hotel. “We acknowledge the rapid economic development in (South) Korea and China, and expect Asiana to make the most of its vitality for expanding Star Alliance networks in fast-growing Northeast Asia.”

Asiana’s move is part of a global trend in multilateral tieups. ANA, Japan’s second-largest airline, joined Star Alliance in 1999, becoming the only Japanese carrier to join the trend. Star now has 15 members.

In contrast, Japan Airlines Co. — ANA’s rival and Asia’s largest airline — has sought tieups only on a bilateral basis. It believes a multilateral tieup could jeopardize its bilateral partnerships and marginalize its brand.

The two different approaches seem to fit the carriers, given the difference in their international presence. But JAL may have to reconsider its future course, depending on what the multiparty groups do, some industry observers say.

For ANA, joining Star was the most efficient way to expand overseas, experts say. ANA was 32 years behind JAL when it started regular international flights in 1986, and has yet to bring its international operations into the black.

“The more the Star Alliance name spreads around the world, the more the chances are for people outside of Japan to recognize ANA, which is still considered by some outsiders to be an affiliate of JAL,” an ANA official said.

The tieup paves the way for ANA to share sales channels via computer reservation systems with other members and conduct code-sharing to sell seats on each other’s flights. It also offers customers more opportunities to benefit from frequent-flier programs, the official said.

Although Asiana’s entry is not expected to have an immediate impact, it will help alliance members secure customers in the long run, the ANA official said.

ANA has come to enjoy an increase of 10 billion yen in annual ticket sales — mainly through its partners — since it joined the alliance.

When Star accelerates efforts in joint-marketing and other undertakings, including joint supply purchases and joint use of airport facilities, it will further help member carriers reduce operating costs, the official added.

Experts say it is imperative for major airlines to make use of alliances to efficiently expand their networks amid intensifying price competition and to keep up with customer services.

According to the Alliance Survey 2002, issued in July by Airline Business, a London-based monthly, the number of alliances reached 548 among 163 major passenger carriers.

The trend has accelerated since around 1997, when Star Alliance was launched by United Airlines, Lufthansa and three other big carriers.

Two other big global alliances followed suit: oneworld, which consists of British Airways, American Airlines and six other airlines; and SkyTeam, which is made up of six members, including Air France and Delta Air Lines.

The trend originated in trans-Atlantic cooperation between European and American airlines, said Yoshiro Ishihara, editor in chief of Wing Travel Weekly, a publication for the air travel industry.

KLM Royal Dutch Airlines and Northwest Airlines formed an alliance in 1989. Northwest is scheduled to join SkyTeam in April and KLM will follow suit later.

In the 1990s, European airlines wanted to improve their service networks amid intensified competition with the market integration of the European Union, while American carriers were seeking a chance to expand overseas as the domestic market became saturated, Ishihara said.

“Now those global alliances are finally reaching out to Asia to expand their markets further,” he said.

While most leading carriers have jumped on the global alliance bandwagon, JAL remains the only one sticking to bilateral agreements.

Domestically, JAL tied up with Japan Air System in October to form a holding company, Japan Airlines System Corp.

Internationally, JAL has formed bilateral partnerships with 21 carriers, including American Airlines, British Airways, Air France and Northwest Airlines. They each share flight codes or frequent-flier programs.

JAL officials are confident the carrier’s longtime effort to build up bilateral alliances, with sufficient network coverage and service, are paying off.

“Alliances are necessary in the sense that you cannot be self-sufficient in international services in today’s trend toward globalization and must make efficient use of resources together with partners,” said Tsutomu Ando, assistant vice president of Japan Airlines’ international affairs. “ANA has made the right move, and the only difference is whether we do it bilaterally or multilaterally.”

“If Star comes to influence the Japanese market in such a way that we see a mass exodus of our customers to ANA, we might have to do something about it, and so we will leave the door open,” said Toru Mizuno, a JAL international affairs director. “But that is not an imminent threat.”

Sticking to bilateral alliances best meets customer needs, JAL officials said, noting that many customers are based in Japan and mainly fly between the country and overseas destinations.

Mizuno also said joining a big alliance might undermine JAL’s brand, which has long been Japan’s flag carrier.

“If alliance members come to agree on joint purchasing of materials, including paper cups and napkins, that will surely reduce costs,” he said. “But in that case, we would see the JAL logo disappear from those items. And we don’t want that.

“The bottom line is which brand do you promote — a certain group alliance or your own airline?”

Another possible downside to joining a multilateral group is that JAL may lose long-term relations with some bilateral partners, the officials said.

“A global alliance is essentially intended to be an exclusive circle,” said Natsuki Miyahara, who covers international airlines for Wing Aviation Press, a publication for the industry. “If JAL were to join oneworld, it would not be able to sustain its current partnership with Air France, which is a key player in SkyTeam.”

Certain tension exists within global alliances, too, Miyahara added, citing the strains between Star Alliance members Thai Airways International and Singapore Airlines, whose hub airports, Bangkok and Singapore, are in close proximity.

But some observers say the multilateral groups will grow faster once major carriers recover their financial and passenger footing, which was made shaky by the Sept. 11, 2001, terrorist attacks in the United States.

“If all goes well with each airline, the focus of attention will eventually shift to whether JAL continues to maintain its current level of bilateral alliances,” Ishihara said.

JAL’s bilateral partnerships with Thai Airways and Air New Zealand, which are both Star Alliance members, could be threatened if Star starts to wield more control over its members, he said.

“It doesn’t necessarily mean such factors will directly lead JAL to join a global alliance. But the day may come when JAL feels the pressure to join one.”