United's Woes Raise Alliance Concerns
Dec. 06, 2002
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FRANKFURT, Germany (AP) _ A possible bankruptcy by United Airlines threatens to spread turbulence throughout the Star Alliance network it shares with 13 other airlines _ in particular, to German airline Lufthansa and its lucrative business-class traffic across the Atlantic.
With 1,800 of the network's 11,000 daily flights, United provides the key connections for non-U.S. airlines that want to sell tickets into and out of the world's biggest economy.
The airline, based outside Chicago, has about 400 connections every day with Lufthansa, ties so important Lufthansa's stock dipped 2.75 percent Friday, largely on news of United woes. Lufthansa has talked to United about offering unspecified financial help.
``United is a significant feed for Lufthansa on trans-Atlantic routes,'' said Olga Razzhivina, an analyst with the AvMark aviation consulting firm in London. ``There will be a very significant impact on Lufthansa if United stops flying.''
United is key to wooing ocean-hopping business travelers whose companies are willing to pay $3,000 or more to get convenient connections once they've landed in New York, Chicago or Washington.
Analyst Jan Herbst of Sal. Oppenheim in Frankfurt said 10 percent to 12 percent of Lufthansa's passengers are on trans-Atlantic routes, and that those flights accounted for up to 40 percent of passenger revenue.
United has said it will keep flying even if it files for Chapter 11 bankruptcy protection as it tries to reorganize. The trouble could come months later if it trims routes or fails to emerge from bankruptcy with a new business plan.
Lufthansa spokesman Thomas Jachnow said all flights would continue as before, and that ``there will be no changes in the near future.''
Star Alliance spokesman Knut Lovstuhagen in Frankfurt said ``we expect, whatever course of action United might take, that it will be business as usual.''
The alliance members, who range from Singapore Airlines in Asia to SAS in Sweden and Varig in Brazil, coordinate schedules to give people the speediest connections, credit miles flown on partner airlines on their frequent flier programs, and move airport facilities close to each other to shrink connection times.
All told, the Star Alliance links 729 cities in 124 countries. The rival Oneworld alliance has eight airlines, including British Airways and American, and more than 550 cities, while SkyTeam has six members such as Air France and Delta and over 500 cities.
United is important enough to its partners to have leverage in pressing them to help it regain its footing. Razzhivina said one option would be Lufthansa contributing cash in return for an equity stake once United files for bankruptcy _ though U.S. law restricts foreign companies to a 25 percent stake, so an outright takeover isn't possible.
Lufthansa wouldn't detail what help it has discussed with United. It said any aid would be secured with assets such as planes or real estate.
United's troubles, however, could be an opportunity for another partner, Air Canada, which could take over any routes United might drop north of the border.
``From Air Canada's perspective, this actually is potentially an opportunity,'' said analyst Ben Cherniavsky of Raymond James Ltd. in Vancouver.
In the worst case, if United eventually stops flying, the Star Alliance could try to poach a new partner. In the United States, one logical target could be American, said analyst Nick van den Brul of BNP Paribas in London. The reason: Its current cooperation with British Airways under the Oneworld alliance is limited because it doesn't have an ``open skies'' agreement freeing it from antitrust oversight.
But previous alliance divorces have been expensive and time-consuming, he said. ``It would take a long time to disentangle,'' said van den Brul.
The other members of the Star Alliance are: Air New Zealand, ANA, Austrian Airlines, British Midlands, Lauda, Mexicana, Thai Airlines, and Tyrolean Airlines.