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AIRLINE ALLIANCES AREN'T TAKING OFF BRITISH AIRWAYS AND OTHER GLOBAL PARTNERS ARE FINDING IT HARD TO GET ALLIANCES ALOFT

By Published on .

LONDON-British Airways, a little more than a year after forging its global triumvirate with USAir and Australia's Qantas, is learning how hard it is to get an international alliance off the ground.

BA's vaunted alliance-designed to give it more access to the hottest travel markets, the Far East and Americas-is the biggest and most ambitious ever in an industry scrambling for similar international linkups.

"Together British Airways, USAir and Qantas have 1,142 aircraft, 110,000 employees and more than $20 billion in annual

sales," said Michael Batt, 40, BA's director of marketing. "No one [else] comes close."

But unexpected turbulence has hit from all three quarters: BA is in the throes of an agency review, USAir's financial state is perilous and Qantas is in the midst of being privatized by the Australian government.

And while BA is confident its global strategy is likely to pay off handsomely in the future, the airline is still grappling with the issue of how to meld several airlines into one seamless service.

The biggest obstacle to the alliance right now is USAir, whose very survival depends on massive cost cutting and the ability to allay concerns about passenger safety following a September plane crash. In January 1993 BA sank $400 million into a 25% stake in USAir but has cut off further investment until the airline, which lost $685 million in 1994 and $350 million the year before, restructures financially. BA's original intent had been to invest $750 million in USAir.

On the other side of the world, Australian partner Qantas is preoccupied with the sell-off in mid-1995 of the 75% stake the Australian government still owns in Qantas. BA bought the other 25% in 1993 for about $500 million, the maximum foreign stake allowed.

Then, in January, BA's 11-year relationship with Saatchi & Saatchi Advertising Worldwide was wrecked by the departure of former Saatchi Chairman Maurice Saatchi and other execs at Saatchi key to the BA account. Mr. Saatchi is not only close to the $135 million BA business but also to BA Chairman Sir Colin Marshall.

The account, hailed for creative excellence and held up as one of the few examples of global advertising while at Saatchi, will now be pitched next month by Saatchi, Mr. Saatchi's New Saatchi Agency, J. Walter Thompson Co. and Bartle Bogle Hegarty.

The BA alliance was sparked by its belief that someday only six or eight global airlines will rule the skies. The idea behind the linkup, therefore, is to make sure BA is one of those elite few.

So far, few competitive alliances-with the exception of Northwest and KLM-have taken wing. In a global industry that collectively lost $4.1 billion in 1993-$2.3 billion of that in Europe-few airlines can afford equity links. BA, once a bloated, money-losing state airline until it was privatized in the early 1980s, racked up $450 million in pre-tax profit for the year through March 1994 and is a rare exception.

Scandinavian airline SAS was unable to complete a partnership among medium-size European airlines-SwissAir and Austrian Airlines-when the partners couldn't agree on strategy. The deal collapsed last year.

And Europe's pampered state airlines like Alitalia, Air France and Iberia are undergoing painful restructuring to stem losses and repackage themselves for privatization when the European airline industry is finally deregulated in 1997.

Only one other international airline partnership, between Northwest Airlines and the Netherlands' KLM, has reached the stage of running an international ad campaign. The $30 million global campaign showcased the partners' World Business Class and was a joint collaboration of Fallon McElligott, Minneapolis; Foote, Cone & Belding and the Lane Agency, both New York; and PMSvW/ Young & Rubicam, Amsterdam.

The USAir problem has delayed BA's global advertising for the alliance.

The extravagant launch commercial, shot last summer at Australia's Great Barrier Reef, will probably instead emerge re-edited as a BA global spot this spring-regardless of the result of the agency review.

"We're doing the sensible things, but we're concentrating on the nuts and bolts rather than the packaging" for the global alliance, said Mr. Batt.

For example, BA is pushing ahead with more low-key-but still profitable-plans ranging from harmonizing frequent-flier programs at the three airlines to helping USAir start up a new business class service called Business Select last month. Business Select offers business class comforts at full economy fare and replaces first class on short-haul flights.

Meanwhile, Mr. Batt is working on enhancing customer services and airline revenue. Despite financial problems at USAir, the alliance is already paying off; an internal BA study has identified $100 million in additional revenue and cost savings attributable to the alliance for the financial year ending March 31, 1995. The savings are derived largely from code-sharing (selling seats jointly) and coordinating sales efforts and frequent-flier programs.

Cost savings aren't the only reason for the partnership, however. BA badly needs a bigger piece of the growing American and Far East markets.

"When we look at the future, the world's biggest aviation markets will be the U.S., the Far East and Europe, with 85% of the market, and to be a truly global player we need to be represented in all three," Mr. Batt said.

Currently, $4 billion of BA's annual ticket sales of $6.3 billion originate in Europe. Flyers in the Americas and Far East spent only $1.2 billion and $620 million, respectively, on BA tickets last year.

"In the U.S. and Asia it's clear that on our own we're simply not big enough to be a strong competitor," said Mr. Batt.

Mr. Batt said BA was the first airline to set up a brands management department, recruiting executives from consumer goods companies like Procter & Gamble to revamp BA as a family of brands.

With one major relaunch about every nine months, several brands are on their second overhaul.

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