Problems ahead for global airline alliance immunity

The Department of Justice recently expressed objections to the antitrust immunity agreement that nine Star Alliance carriers (plus Continental, which will be a Star member later this year) are seeking. The airlines, which include United, Lufthansa, Air Canada, SAS and Swiss (but notably, not US Airways), have been looking to obtain global immunity from antitrust laws for some time now. In April, the Department of Transportation gave the carriers a tentative green light, but last Friday, the DOJ instead called on the DOT to "deny the broad requested immunity and instead grant a more limited immunity" - probably just a more limited transatlantic cooperation.

Right now, Continental technically competes with Star Alliance members on its routes, but under the proposed immunity agreement, that competition would be eliminated. The DOJ went further in its explanation, saying that Asian and Latin American routes flown by United and Continental would probably see price increases, as the airlines would no longer be competing. And the DOJ also took fault at some transatlantic routes; Continental has a pretty extensive list of European destinations, and the DOJ said that competition on some routes between the US and some of those cities would decrease substantially.

So, what implications does this have? First, it shows that the federal government is getting more serious about enforcing anti-trust policies, especially under the new presidential administration (as had been expected). Secondly, it could have serious effects for a similar agreement that rival alliance oneworld is trying to put together, and could be in the shape of things to come for such global agreements. And the DOJ statement also goes after cooperation between United and Continental on domestic US routes; "a sweeping grant of immunity raises significant concerns about harm to domestic competition," it said - something that might indicate obstacles to a potential United-Continental merger.

photo by caribb

Long-haul a loser for SAS

photo courtesy SAS

Intercontinental (or 'long-haul') routes account for 12.7% of sales at Scandinavian Airlines, but account for almost a whopping 50% of their losses, according to a boarding.no article. The recent economic downturn, which has seen a slump in business travelers, has only made a bad situation worse for SAS. "Half of our most recent quarterly deficit of one billion Swedish kronor [comes] from our inter-continental business," said CEO Mats Jansson in a takeoff.dk article.

This is really serious - if the long-haul routes only account for less than 13% of sales but half of the losses, then something needs to be done. A couple of factors are at work here. One is that the planes that they're flying - the A330 and A340 - aren't flying full. SAS might consider upgrading its inflight service product (it really isn't anything special). Right now SAS offers a "low-cost" service for high prices; it should try to do the opposite. In other words, "we need to look at costs," as CEO Jansson said. That's difficult when Denmark, Norway and Sweden have some of the highest average wage rates in the world. Not to mention, SAS has a fleet that could be euphemistically labeled "diverse"; it needs to simplify. After all, how much sense does it make to fly the A321 next to the 737-800? (It should be pointed out that the MD-80 fleet will be gone by 2010.)

Another problem that Scandinavian faces is that there really isn't much originating and departing traffic at its main international hub in Copenhagen, which is similar to other European cities such as Madrid, Dublin, and Lisbon in that they're large enough to support non-stop service to a few international destinations, but not large enough to become a big international hub. London and Paris, on the other hand, have sufficient O&D traffic to ensure that they're successful international hubs. That said, SAS has the potential to transform Copenhagen into a relatively successful international hub. It might not be able to be anything on the scale of Lufthansa's Frankfurt or even KLM's Amsterdam, but it could promote Copenhagen as a less-congested way to connect from, say, North America to Asia. But a handful more of destinations from Copenhagen might be a good idea (right now Chicago, New York, Washington, Tokyo, Beijing, and Bangkok are the only long-haul routes flown from Copenhagen; Seattle is currently flown as well but will be dropped later this year).

And SAS should also consider flying a handful of international routes from Oslo, which it has neglected in terms of long-haul flights, and increase service from Stockholm (at present, only Chicago and Newark are served). They should probably be able to get enough traffic for some of these to justify point-to-point service.

Austrian's 50th anniversary colors

photo courtesy of Austrian Airlines

To celebrate its 50th anniversary, Austrian Airlines has painted an Airbus A320 (OE-LBP) in a "retro" colors. Austrian's first flight was on March 31, 1958, from Vienna to London (via Zurich) on a Vickers Viscount. Austrian is the latest European airline to commission such a livery - others, such as Lufthansa and SAS, have done so as well.

SAS looks towards fleet renewal

photo by Larsz

ATW has reported that Scandinavian carrier SAS has announced that it will be looking to replace its fleet of Bombardier Q400s (like the one pictured above) as well as its sizable fleet of MD-80s. Last month, SAS made the decision to ground its fleet of 27 Q400s after three much-publicized crash landings in a six week period. Although Bombardier has repeatedly said that the Q400 is safe, SAS CEO Mats Jansson said in a statement that "confidence in the Q400 has diminished considerably" and that SAS "customers are becoming increasingly doubtful about flying in this type of aircraft.'' (Qantas, Austrian, and Horizon are three airlines with larger Q400 fleets, and as of right now, none have plans to ground their fleets, although Qantas did temporarily take its Q400 fleet out of service to perform safety checks.) Finding a suitable replacement for the Q400 is "a top priority," according to a spokesperson for the airline, and it is currently seeing "big interest from airlines all over the world" as it looks to sell off the Q400s.

SAS will also be looking to replace its 44-strong MD-80 fleet, and a spokesperson for the airline said that a decision could be made as early as the first half of 2008. SAS is split up into three divisions: SAS Sweden, SAS Denmark, and SAS Norway. (SAS Norway does not operate the MD-80.) Along with the MD-80, SAS Denmark operates A319s and A321s while SAS Sweden flies the Boeing 737-600 and 737-800. This might mean that SAS would order new airplanes from both the A320 and 737 families. SAS Norway, which acquired several Boeing 737-400s and -500s from its merger with Braathens, might also be looking at some newer 737 models as well.