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World Airlines Push for Access to US Markets

A STORM is brewing for the world's airlines.

Already, cold blasts of recession and declining revenues are buffeting air carriers. The storm ahead looks even fiercer.

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Deregulation. Consolidation. United States-style airline wars writ large. Many international airlines will probably not survive the decade.

"There has never been a more precarious time for the air transport industry," Air France chairman Bernard Attali told a London audience last month.

"It's a worldwide problem," says a US airline analyst. "There are too many airlines chasing too few passengers."

To prepare themselves, world airlines are taking US-style measures: slashing costs as they get bigger. They are also forging links with US airlines. For example:

* British Airways (BA) has a joint venture with Russia's Aeroflot and now proposes to buy 44 percent of USAir, the sixth-largest carrier in the US. A BA-USAir linkup would be the world's third largest airline behind United and American.

* Air Canada and a group of Texas-based investors want to buy 55 percent of bankrupt Continental Airlines, the nation's fifth largest carrier. That's just a start. The two airlines are looking for other partners. In September, Air France announced a strategic partnership with Air Canada.

* KLM Royal Dutch Airlines has won preliminary US approval to consolidate operations with Northwest Airlines. It is the first such agreement under a new "open skies" policy in which the US offers countries unlimited access to its airline market in return for the same. Together, Northwest and KLM would become the world's fourth-largest airline.

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The logic of such partnerships is compelling. A US airline feeds passengers into the waiting hands of its international partner and vice versa. If the combination works both carriers get stronger.

"It all fits in with the global consolidation thesis," says David Pizzimenti, analyst with Nomura Research Institute America. "It will continue along that trend."

It may be that airlines will consolidate without an outright merger. The top two airlines - United and American - have made no big moves yet. Delta Airlines, the other likely survivor of the US airline wars of the 1980s - has only begun to fashion its overseas links. Singapore Airlines and Swissair each own 5 percent of Delta's stock. The Brazilian airline, Varig, is also pursuing a marketing agreement with Delta.

Obstacles remain for the competitors. Major US carriers object to the USAir-BA deal. They argue that BA will gain effective control of USAir, whose primary hub is here in Pittsburgh. Thus, they say, BA will gain access to the US market that US carriers don't have in Britain.

The carriers want Britain to open its market to US carriers, particularly London's Heathrow Airport. BA refuses. In New York on Wednesday, BA's chief executive, Sir Colin Marshall, said he would call off the USAir deal if the US insisted on opening up Heathrow. Several US airlines criticized the remarks, saying that BA was trying to have it both ways: protectionism at home while seeking new markets abroad.

One unanswered question is whether the outgoing Bush administration will decide the issue or pass it on to President-elect Clinton, who has voiced reservations about the deal. Transportation Secretary Andrew Card has said he would rule on the matter by Dec. 24. "He still intends to make that decision," spokesman Bill Mosley said on Wednesday.

The battle over access is not just a US-British dispute. The European Community is trying to liberalize its internal airline market gradually. But several EC countries, including France and Germany, oppose moves that would open Europe.

"Those who advocate `open skies' today should say that they feel the time has come to conquer Europe in the name of the American carriers," Air France's Mr. Attali said. "Be aware that this is a game where everyone loses."

But financial pressures continue to push airlines to seek new alliances and markets. Last year was the first time since 1945 that international air traffic declined. In the US, the airline industry has lost $5.8 billion in the past two years. It looks as though it will lose another $2 billion this year, says Tim Neale, spokesman for the Air Transport Association. Northwest Airlines, in particular, continues to post huge losses.

Overseas, the picture isn't any better. Air France lost $300 million during the first half of the year; Lufthansa lost $372 million. Canadian Airlines International desperately needs a government cash infusion. BA, one of the few profitable carriers, saw its second quarter profits fall 23 percent from the same period a year ago.

"In 1980, we deregulated," says an airline analyst. "You had a collapsing of the air carriers in the US. That's going to have to happen around the rest of the world. There's definitely a third round where some of the players pair off to create truly international airlines."

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