Paris air France and Delta

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Delta and Air France Partnership
To Send Ripples Across Atlantic

By Daniel Michaels


The Wall Street Journal
Page A23
(Copyright (c) 1999, Dow Jones & Company, Inc.)

PARIS -- Air France and Delta Air Lines officially announced their partnership.

The pairing, which was expected, could create a fourth large airline bloc and give the carriers a boost in catching up with other established groupings such as the Star Alliance between UAL Corp.'s United Airlines and Lufthansa, the Oneworld grouping of AMR Corp.'s American Airlines with British Airways, and the alliance of KLM Royal Dutch Airlines, Northwest Airlines and Alitalia.

Those partnerships allow groups of airlines to coordinate operations and provide passengers with seamless service across multiple carriers. Existing alliances have cut costs through economies of scale while increasing revenue, in part by grabbing passengers from unaligned airlines such as Air France .

"What we plan to build with Delta is a major global alliance," said Air France 's chief executive, Jean-Cyril Spinetta. He said Delta and Air France hope to line up other partners, particularly in Asia.

The pairing is sending ripples across the Atlantic: Swissair and Belgium's Sabena, both controlled by SAir Group of Switzerland and which have been allied with Atlanta-based Delta in the so-called Atlantic Excellence partnership, said they will start working with American Airlines on some trans-Atlantic routes.

Swissair and Sabena said they will maintain their partnership with Delta . Delta 's president and CEO, Leo Mullin, while announcing the alliance with Air France , said he hoped Swissair, Sabena and Austrian Airlines will continue working with Delta and now Air France . But industry observers consider that unlikely, because Swissair and Air France compete on major routes and their hubs are too close to complement each other.

For Delta , losing Swissair would be small compared with gaining Air France , Europe's third-largest airline after British Airways and Germany's Lufthansa. Together, Delta and Air France will hold 20% of North Atlantic air traffic and control Atlanta's Hartsfield Airport, the biggest U.S. air hub, and Paris's Charles DeGaulle. Yet while Air France and Delta predict their partnership will increase operating profit by $100 million annually at each airline, the new team has a long way to go before realizing the full benefits of an alliance. That is a lesson American Airlines and British Airways have learned as they have tried to make their Oneworld alliance realize its promise.

Fliers might see little difference among alliances; each offers combined frequent-flier plans, unified ticketing and other perks. But airline executives do. Northwest-KLM, Star and Atlantic Excellence have regulatory waivers from their governments that allow them to share business data and work as a single entity. Oneworld and the Delta - Air France alliance don't have such antitrust immunity.

"Without antitrust immunity, we have some limitations with respect to what we can talk about on the revenue and the service side," Delta 's Mr. Mullin says. With immunity, he says, airlines can form an operation "that has maximum potential for revenues and also gets you your efficiencies."

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