US AIRLINE MERGERS SEND RIPPLES WORLDWIDE

US AIRLINE MERGERS SEND RIPPLES WORLDWIDE

The consolidation of the U.S. airline industry over the last few years into a handful of big players is beginning to repeat itself globally.

In recent weeks, there have been reports that Northwest Airlines was in preliminary talks with two of Europe's biggest carriers, British Airways and KLM Royal Dutch Airlines, about a possible worldwide marketing and operating alliance.Although the three airlines might not formally merge, they may be held in a parent company under common ownership and could cooperate so closely that they would function as one huge carrier. KLM already owns 49 percent of Northwest and the two companies jointly market some trans-Atlantic service.

Three other major carriers, USAir, Lufthansa German Airlines and Japan Airlines, have been reported to be considering a close alliance similar to the one KLM, British Airways and Northwest are exploring.

Two other groups that cooperate more loosely in international marketing and scheduling are Continental Airlines with Scandinavian Airways System and Delta with Singapore Airlines and Swissair.

Some industry analysts and consultants think loose alliances will not be enough in the future to compete against U.S. mega-carriers the size of American, Delta and United, which have become the world's largest airlines. Worry about the clout of those three is one reason British Air, KLM and Northwest are talking.

"We're going to see these (U.S.) carriers try to define new global airline companies by allying themselves with European and/or Asian carriers," said Albert A. DeLauro, vice president and head of the transportation practice at Cresap, a management-consulting firm.

"They possibly won't use standard marketing agreements," Mr. DeLauro said. "In all likelihood, they'll push the edge of the envelope in terms of equity arrangements. We will probably see new ownership legislation as a result."

In the next few years, the analysts say, there will be efforts to change a U.S. law that prohibits foreign companies or citizens from owning the majority control of a U.S. airline.

That's because airlines the size of USAir, Continental, Northwest, KLM, Swissair and Singapore are going to be able to compete with the three giant U.S. carriers only by actually operating more of their service together and buying equity positions in each other, according to observers.

As this process unfolds, other industry watchers wonder whether the major U.S. airlines know what they're getting into overseas.

Few American companies use a formal process of intelligence-gathering as a way to size up the competition and know what to expect in the future, said Jan Herring, vice president of consultancy the Futures Group.

"Most U.S. airlines are just now beginning to compete overseas," Mr. Herring said. "They've got a lot of business intelligence on each other here. They come under competitive pressures all the time. But most airlines don't have that same kind of network internationally. They don't know, for instance, why some airlines may have become strategic allies in the past."

Business intelligence involves more than market research, Mr. Herring says. It includes a thorough analysis of competitors' capabilities and plans, understanding industry trends and structural changes, and keeping up with technological developments. It also includes knowing how customer demands are shifting, how political and economic issues and climates will affect business, and what kind of security threats to expect.

Europe, which is developing a unified market and reducing regulatory restrictions on airlines this year, is a hotbed of competition and shifting alliances right now, and Asia could become even more competitive for airlines in the years ahead, Mr. Herring added.