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Business

Star Alliance Faces Major Test

The Star Alliance built around Deutsche Lufthansa AG and its U.S. partner, United Airlines, faces its biggest test so far: all of its 15 members look set to book full-year losses. One has even filed for insolvency.

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Lufthansa planes at Frankfurt Airport.

The Star Alliance of airlines built around Deutsche Lufthansa AG and its U.S. partner, United Airlines, faces its major test so far as all of its 15 members look set to book full-year losses.

United’s senior vice president, Graham Atkinson, who is also responsible for the Star Alliance, agrees that the financial position of its members presents the alliance with a serious challenge.

But while the crisis in global aviation that has resulted from the events of Sept. 11 may have pushed all Star Alliance’s members into the red, it’s also served to demonstrate the alliance’s importance.

"It’s the alliance that is now helping its member airlines to weather the crisis," reasoned Uwe Weinreich, aviation analyst at HypoVereinsbank.

Star Alliance is the world’s leading grouping of its kind, ahead of the British Airways-led One World, with eight members, and the Air France-led Sky Team, with six.

For Lufthansa chief Jürgen Weber, an alliance with strong partners gives his group a head start in international competition. It offers access to a broader client base.

Additionally, international service is improved as passengers get to use the lounges and airport clubs of partner airlines.

There’s also a link-up of frequent-flyer programs. On top of all that, the Star Alliance network, with its coordinated schedules and timetables, makes it easier to fly passengers into any corner of the world.

This is a big advantage in winning business travelers, the most lucrative section of the market.

Lufthansa has estimated that being in the alliance boosts its revenue by DM 500 million ($ 231 million) annually.

Alongside Lufthansa and United, the Star Alliance partners are: Air Canada, Austrian Airlines, SAS, Lauda Air, Tyrolean Airways, Singapore Airlines, All Nippon Airways, Air New Zealand, Ansett Australia, Varig, Thai Airways, Mexican Airlines and British Midland.

For all the advantages conferred by being a member of an alliance, though, some of the member-airlines are in serious difficulties.

Ansett Australia, for example, has just become the first Star Alliance member to file for bankruptcy.

The situation at Air Canada and at Brazil’s Varig is also seen to provide cause for concern.

But the most serious single problem faced by the alliance is the plight in which United Airlines finds itself.

The US giant has been losing millions of dollars daily. In the three months from July to September it booked a loss of $542 million, the largest quarterly loss it has ever seen.

The airline is now under the stewardship of John F.Creighton. His predecessor, James Goodwin, left after warning that the airline faced the threat of bankruptcy.

After Sept. 11, Creighton laid off one in four of the airline’s 100,000 workers and cut back on the timetable from 2,400 flights daily to 1,650.

But analysts believe that even these moves won’t be enough, and they are forecasting that Creighton will get workers to make a further contribution to the restructuring efforts.

At the same time, analysts don’t believe that United’s current crisis will prove existence-threatening. For one thing, its financial situation is strong.

As Senior Vice President Atkinson points out, it has $2.5 billion cash reserves and $4 billion in unmortgaged assets, including aircraft.

For Lufthansa chief Weber, this is a consoling thought. Lufthansa in 2000 generated no less than one seventh of its 15 billion euros sales revenue on transatlantic routes, so a bankruptcy of its U.S. partner would come as a real blow.

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