Friday, April 9, 2010

oneworld, Ready or Not

MARINA DEL RAY, Calif. - The high-end airline alliance oneworld celebrated its 10th anniversary last year. This year, it's accelerating efforts to further integrate its 11 members on the operational side. Those changes are coming both alliance-wide and in bilateral deals between member airlines hoping to get through tough economic times by joining forces.

Indeed, deals - pending and fondly hoped-for - dominated talk by airline CEOS at yesterday's conference here on the breezy, sunny seaward edge of Los Angeles.

One item that got everyone's attention was the ever-closer cooperation between American Airlines and Japan Airlines. JAL is restructuring in bankruptcy, and is expected to emerge as a much smaller, leaner operation. That has focused the minds of executives at American, who helped convince JAL to stay with oneworld after rival alliance SkyTeam wooed the Japanese carrier in hopes that it would peel away from oneworld and join SkyTeam. Didn't happen.

JAL's president, Masaru Onishi, attended the conference. He didn't confirm reports in Japan's Nikkei business daily that JAL will cut up to 16,500 jobs. Nor did he comment on a report in U.S.-based Business Week that JAL has proposed paring pension payments to retirees by as much as 50 percent.

Onishi did join American Airlines CEO Gerard Arpey - who chairs oneworld's directors - in touting plans for joint trans-Pacific cooperation.

Japanese media have reported that JAL's major creditors are demanding huge international cutbacks. If a big route reduction actually happens, JAL will become more of a short-haul, Japan-focused airline. That would open up international opprtunities for its Japanese rival, All Nippon Airways, a member of Star Alliance. It could also mean American greatly ramps up its own trans-Pacific service.

JAL spokeswoman Yap Sze Hunn told me at the conference that the big decisions on JAL's restructuring are expected to be made this June or July.

I asked Arpey if American, in essence, wants to take over any abandoned JAL international routes. Referring to applications to the U.S. and Japanese governments for antitrust immunity, Arpey replied that "Until we get immunity, we are not allowed to talk to JAL about routes.''

But, Arpey added, should antitrust protection be granted, the two carriers will launch a number of joint ventures that could reshape trans-Pacific air travel, especially on well-traveled routes between Asia and North America. He didn't spell out what those ventures would be.

Already, Arpey said, AA and JAL have 11 employee teams working on matters of mutual interest. He said AA is, for example, sharing information from its FuelSmart program - i.e., how to cut back on use of costly and polluting jet fuel - with JAL.

For now, JAL and AA are funneling passengers onto each other's flights, relocating operations in major airports so that transfers between airlines become faster and easier for travelers, and expanding access to AA airport lounges for JAL's passengers.

Arpey said that AA has applied to launch service between Chicago O'Hare International Airport and Haneda International Airport, the convenient in-city airport in Tokyo. That possibility was opened up by an Open Skies pact signed early this year by the U.S. and Japan. "If we are awarded those routes, we'll start them right away,'' Arpey told me.

British Airways and Spain's Iberia, both members of oneworld - the style-minded alliance likes to lower-case its name - announced Thursday that they plan to conclude an outright merger late this year, subject to regulatory approval. Each airline will keep its name, livery and identity, acccording to BA's CEO, Willie Walsh, who attended the meeting here.

While talk was dominated by the courtship dance between JAL and American - a matter of intense preoccupation to the big contingent of Japanese reporters who winged across the Pacific to cover this meeting - other matters of interest to travel-biz types came up, too.

I chatted on the sidelines with Cathay Pacific Airways CEO Tony Tyler. He told me that the Hong Kong carrier's lucrative premium business-class traffic is finally beginning to recover after a frightening freefall brought on by the Great Recession.

"It started to rise late last year, and it has continued into this year,'' Tyler said. "It seems the bankers have started to travel to China again.''

When inquisitive journos asked American's Arpey about what AA will do if rivals United Airlines and US Airways merge - as many media reports say they want to do - he declined "to speculate about something that may or may not happen.''

Arpey did allow that "There will inevitably be consolidation around the world in the airline industry.'' But he downplayed the signifcance of mergers, as opposed to airline alliances and the kind of joint venture deals that oneworld partners are crafting.

"I don't necessarily think that consolidation is the answer to all of the economic challenges that the industry faces,'' Arpey attested. "I don't think that is the silver bullet for solving some of the industry's financial challenges.''

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