DELTA'S DOMINANCE THREATENS ALLIES

DELTA'S DOMINANCE THREATENS ALLIES

When the three made their pact and agreed to swap equity, each had a corner of the world to itself. They never assumed one of their partners might begin the poaching process.

Neither Swissair nor Singapore Airlines anticipated that Delta Air Lines would jump so swiftly into international service. With the Atlanta-based carrier flexing international muscle in Europe and Asia, the trilateral could be in jeopardy.Swissair didn't reckon Delta would acquire Pan American World Airways' European network. Yet, next summer Delta will more than double North Atlantic services to 263 round-trip flights a week, up from 101 during summer 1991. Swissair will fly 98 round trips to North America from Switzerland. Delta flew to six foreign countries in 1991. Next summer it will fly to 24.

NO BIG THREAT

In spite of this activity, Swissair does not consider Delta a serious threat to its cargo business. "Delta has never been a strong international cargo carrier," Werner Baumann, Swissair general manager of marketing for North America, said. "Swissair offers considerable cargo space. We can handle big shipments and we have a strong cargo operation."

Still, the new European routes mean Delta will accommodate former Pan Am cargo customers, Mr. Baumann acknowledged. Pan Am had a viable cargo business on the North Atlantic while it flew Boeing 747s. When it began operating Airbus A310s a couple of years ago, it never succeeded in adjusting prices upward and became known as the market's low-priced cargo carrier.

CHANGE THAT IMAGE

This is an image Delta hopes to change as it begins flights to Europe with A310s, Boeing 767s and Lockheed L-1011s. It is at a marketing disadvantage however, because the A310 and B767 have significantly less cargo capacity than Swissair's B747s. Moreover, the Swiss carrier intersperses 10 to 14 B747 combis into its schedule every week, adding still more cargo capacity.

Nevertheless, Delta can hardly avoid taking a greater interest in cargo. International freight represented 25 percent of cargo revenue before the Pan Am acquisition and is projected to become 50 percent by next year. Delta anticipates that it will gross $525 million from cargo during 1991. Four years ago, international shipments were 8 percent of its cargo revenue of $350 million.

BIG IMPROVEMENT

Even before Delta began flying Pan Am's routes its cargo performance had increased dramatically. During 1990, it flew 190 million cargo ton-miles. A cargo ton-mile represents one ton of cargo flown one mile. In just the first nine months of 1991 it flew 180 million cargo ton-miles. System-wide, cargo revenue for the first nine months in 1991 increased 22 percent to $383.4 million over the comparable period in 1990, while nine-month figures show international cargo grew 60 percent over last year.

Singapore Airlines foresaw Delta's expansion into the Pacific, though it may not have anticipated the Atlanta-based carrier's latest undertaking. Delta flies from Portland to Tokyo, Nagoya, Seoul, Bangkok and Taipei and from Los Angeles to Tokyo and Hong Kong. Now it is formulating plans to open a major hub in Taipei with regional flights operating to Kuala Lumpur and Jakarta.

Management at Singapore Airlines says it will compete with Delta where necessary but competition won't jeopardize or strain the alliance, according to a company spokesman. In fact, Singapore has undertaken its own foray over the North Atlantic. In June 1991, it began Singapore-Vienna- Amsterdam-Toronto service. During the latter half of this year, it plans Singapore-Frankfurt-New York flights.

As yet, the trilateral alliance doesn't provide any special cargo relationships between Delta and the other two partners. Singapore and Switzerland have cooperated in building cargo community systems to let agents, carriers and government agencies communicate electronically.

Furthermore, Swissair's Carido booking and tracking system in Zurich is linked with Singapore Airline's Forsc system in Singapore. Although Delta continues internal expansion of its own Cargofax system for pricing and tracing cargo, it has yet to connect with either partner.

PREVIOUS ARRANGEMENTS

Swissair has discussed the possibility of handling Delta's cargo at overseas locations where it has vastly more experience, like New Delhi. But Delta still honors Pan Am contracts and cannot use its partner at many destinations.

"And in the U.S., there is no talk of joining cargo operations for the time being," Mr. Baumann said.

While both Swissair and Singapore Airlines conduct joint cargo ventures with other international partners, Delta is still new to the game. However, the strength of the trilateral alliance does not stem from integrated cargo activities but from passenger marketing, and on this level, Delta could emerge as the dominant player.

Delta's vast U.S. network offers substantial passenger feed to its growing international routes. Since the Pan Am acquisition, it will move more passengers into John F. Kennedy International Airport. This may help fill Swissair's two daily flights from JFK to Switzerland in addition to Delta's own European services. For inbound passengers, all three partners can check them and their baggage all the way from overseas cities through their U.S. gateways to secondary destinations served by Delta. To facilitate this, Delta restructured domestic departures at U.S. gateways to mesh with Swissair's overseas arrivals.

However, computer reservation system displays are proving troublesome. For example, a flight from a local airport through New York to Geneva may be listed as a one-stop Delta flight on the system, even though passengers must change aircraft at JFK. Whereas, the Swissair flight with the same routing must show a change of aircraft at JFK and therefore receives a less preferential ranking on the display. How Delta resolves anomalies like this could affect the future of the partnership.

IMPACT ON PARTNERS

"To the outside world," Mr. Baumann said, "Delta looks like the major player. But our presidents discuss this together and we are working on a plan now to give each player a place to exist in the alliance."

"We shouldn't be a threat to Swissair," added Eric "Ric" Griffiths, Delta's manager of alliance projects during a telephone interview. The two carriers met after the Pan Am acquisition to analyze how their European route structures could complement one another. "I don't think they feel that we've diminished their role. And Singapore knows we will develop the Taipei hub later this year."

As evidence of the synergy that the partners envisioned for the alliance, Mr. Griffiths cites the $45 million annual fee Delta will pay Swissair to maintain the 20 Airbus A310s it received from Pan Am.

The takeover of Pan Am changes some rules of the game, Mr. Baumann noted. ''It is not always easy to come to a quick solution, but the overall goal is still more important. The idea is to join forces and fight competition with networks, service, and worldwide coverage. No matter what they say, no other airline can offer a network as broad as we can."