Roundtable discussion hosted by the GSGA reveals the extent of the gap between the theory and the reality of such coalitions (960 words)

Published: 11/9/2001

As part of its strategy of encouraging Russian airlines to seek alliances, the GSGA held a roundtable discussion on the 1st November aimed at addressing the issue. Gennady Pavlenko of the GSGA believes that the formation of such alliances is "an essential move to assure the future of efficient and profitable air transport in the country". But some speakers blamed the government for failing to create the right conditions for alliances and mergers and so holding up the process. For Pavlenko, the creation of alliances is a global trend, driven by the need for airlines to reduce costs through the more efficient use of fleets, while expanding both routes and access for passengers. He specifically cited the experience of SAS, asserting that the airline's failure to join with Lufthansa has restricted the airline's ability to offer passengers destinations and has therefore left it at a competitive disadvantage. He urged Russian airlines to learn from this mistake. Ruslan Korzh, of management consultants A.T. Kearney Russia, said the primary objective of an alliance is for the whole to be greater than the sum of its parts, with benefits come through improved scheduling, efficient use of capacity, additional and larger marketing opportunities and better distribution of ticket sales. He added, however, that Russian airlines had been particularly slow in taking advantage of a trend that already demonstrated benefits for carriers internationally. Igor Desyatnichenko, Aeroflot Deputy General Director of Economics, warned that the concept of alliances was not necessarily as easy in Russia as some of the other speakers had suggested. Commenting on government's role in the process, Desyatnichenko said that while government sought to encourage alliances and merger, it did little to change the legal framework to assist the process. He added that, while Aeroflot had signed co-operation agreements with a number of Russian airlines, in most cases, they remain on paper. This is primarily due to legal constraints, involving licences, in which an airline that wants to cooperate with another on the same route where they both hold licences, can find that they surrender the two licences for one combined: a big commitment for a sector currently in the early stages of alliance development. Desyatnichenko also said that the air transport infrastructure within Russia did not lend itself to alliances without large investments, particularly in ticketing where the use of different booking systems works against the creation of joint ticketing, illustrated by Aeroflot's experience with its Gabrielle system and other carriers' operating different systems. He suggested that this was an area in which government action could facilitate the process of alliance development. Commenting on Aeroflot's plans to join SkyTeam, he said that Aeroflot saw the alliance as a means of combating the airline's negative image internationally and the generic association of any air transport problem in the country with Aeroflot. “If foreigners see that an aircraft crashes in Russia, most of them think it is an Aeroflot aircraft" said Desyatnichenko. According to Desyatnichenko, the first alliance route for the airline will be Moscow - Paris, giving Aeroflot and its passengers access to the Latin American and African markets and Skyteam members access to Russia and the CIS. Victor Fursov, Manager of the Russian Open Sky Alliance, commented that the main benefit for the members of its alliance was financial and stressed the importance of equality in this respect. The Russian Open Sky Alliance unites Krasnoyarsk Airlines, Chelyabinsk Airlines Holding (Encor), Aviaexpresscruise, Sibavatrans, and Kogalymavia, but has recently lost Domodedovo Airlines over a dispute with the KrasAir regarding route licences. Fursov did, however, admit that, to date, the alliance had achieved little tangible result as a result of its activities. He added, as an interesting insight into the task in hand, that small achievements were not necessarily a bad thing, as more extensive cooperation was probably more than the organization could handle. The alliance, he said, continues to work on coordinating connections and standardising tariffs. Victor Galkin, Head of air traffic control regulations at the GSGA, said that he believes that Russian airlines are reluctant to join alliances and that such alliances in Russia fail to meet the criteria of one plus one equals more than two. Galkin believes the state is not pushing the sector hard enough to restructure through its management of air transport and cited the 1996 GSGA introduction of criteria under which airlines could operate in an effort to improve safety. The effect of these measures was to reduce the number of airlines. Galkin doubts that the airlines will voluntarily make the alliances happen, as they do not perceive it to be in their interests. The country still has 250 airlines, with the top twenty still carrying 90% of passengers and, in Galkin's view, the numbers still have to be reduced. Galkin added that he was having problems persuading insurance companies to align and share the ATC systems insurance burden. He said that on 31st October he had spoken to several insurance companies about a tender to insure the ATC for a minimum of $1 billion needed because of the costs associated with air losses, that Galkin estimated in the case of the loss of two Boeing 747s could reach $2.5 billion. He said he was unable to arrange cover, as the insurance companies would not share the risk. Anatoly Golomolzin, Deputy Minister of Anti-Monopoly Policy and Enterprises Support, said that the result of the EU's investigation into the complaints of alliances restricting competition was that they had to be formed within a framework and if the alliances began to integrate vertically into the air transport infrastructure, then the government would look very closely at any such developments.

Article ID: 2900