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Delta, Air France form alliance
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June 22, 1999: 8:10 a.m. ET
Carriers sign 10-year deal, shutting out Continental; Swissair, American unveil tie-in
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LONDON (CNNfn) - Air France signed a wide-ranging strategic alliance with Delta Air Lines Tuesday that threatened to set off a chain reaction through the combines which have emerged to carve up the global airline industry.
The 10-year deal spells disappointment for Continental Airlines, which had hoped to expand its own relationship with Air France.
However Swissair hopes to preserve its own trans-Atlantic alliance with Delta, casting doubt on the "exclusive" tag placed on the Air France-Delta deal. The Swiss carrier and its own partners Sabena of Belgium and Austrian Airlines also announced a new marketing tie-up with American Airlines Tuesday.
Matthew Stainer, airline analyst at Crédit Lyonnais Securities in London, said Delta was "the best possible choice" for Air France and said the deal promised to shake-up the existing alliance groupings. "There are now clearly four players," he said. However, he suggested Air France management had made a strategic error in allowing Delta to maintain its Swissair link.
The new deal with Delta expands the code share deal launched last June and includes broader marketing ties such as access to each other's frequent flyer programs. Air France said it would generate $150 million in annual profit gains from the deal after three years.
The two are expected to form the kernel of a new global alliance grouping to compete with the Star grouping headed by Lufthansa and United Airlines, the "one-world" alliance led by American Airlines (AMR) and British Airways (BAY), and the Wings grouping of Northwest Airlines (NWST), KLM and Alitalia. Continental is also expected to join Wings.
Air France has been transformed over the past three years after running up heavy losses and surviving only with heavy cash injections from the French government. The government floated a minority stake in February and posted record profit of 290 million euros in 1998.
Air France and Delta have agreed not to join another group for 10 years and hope to sign up new regional airline partners by the end of the year.
Stainer upgraded his outlook on Air France to neutral on the basis of the Delta choice. He said a link with Continental, though offering greater long-term mutual benefit, would have come under more regulatory scrutiny, particularly from the European Commission.
Air France shares dipped 0.23 percent to 17.60 euros while Swissair fell 1 percent to 337 Swiss francs.
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