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Market Scene : High-Flying No More, Asian Airlines Regroup : They're cooperating on frequent-flyer incentives and pushing for expanded routes in the United States.

July 20, 1993|CHARLES P. WALLACE | TIMES STAFF WRITER

SINGAPORE — Now that the era of soaring profits for Asia's airlines appears to be over, the region's carriers are being forced to look into American-style gimmicks to attract customers.

Since the 1960s, Asia's leading carriers have cultivated tenacious passenger loyalty with a combination of modern aircraft and luxurious service, offering such goodies as vintage champagne served up by women attendants who projected an image of youth and beauty.

Singapore Airlines and Hong Kong-based Cathay Pacific Airlines have no domestic routes and were forced to look overseas for 80% of their passengers. Singapore long ago became the world's most profitable airline, and Cathay consistently followed close behind.

Both giants always sneered at the American carriers for having to offer gimmicky frequent-flyer programs instead of attracting passengers with a good product.

Now, because of the worldwide recession and other regional factors, the good times have ended for Asian carriers--although not as drastically as in the United States or Europe, where many airlines are close to bankruptcy. Singapore Airlines last month reported that its operating profits dropped to $409 million from $539 million the year before.

So, faced with a declining market share and thinner profits, a number of Asia's major airlines this month have begun to offer their own frequent-flyer programs for the first time in an effort to compete with American carriers such as Delta and Northwest, which fly the Pacific, and European carriers, such as British Airways and Swissair, which have recently started incentive programs.

In a unique twist to the American way of doing things, Singapore, Cathay and Malaysia Airlines have linked up to establish a joint frequent-flyer program called Passages, which is administered by an independent company owned by the three carriers.

Thai Airways simultaneously launched its own program, which closely resembles a traditional American promotion. Companies such as Japan Air Lines and Philippines Airlines have previously had small programs of their own.

The decision to form a joint Asian frequent-flyer program mirrors some of the major restructuring now under way in the airline industry. A number of European carriers--KLM, Scandinavian Airlines System, Swissair and Austrian airlines--have already announced plans to form a "mega-carrier" by 1997.

The move forced Singapore Airlines to announce that it was considering dropping its existing alliance with Swissair because of the potential for conflict of interest on some routes.

In another sign of regional air muscle being flexed, 15 Asian carriers agreed in Bangkok earlier this month to lobby their governments to revise what they consider to be an outdated air-services accord with the United States. The agreement allows American carriers to ferry passengers from one point to another in Asia, but it does not permit Asian carriers to carry passengers between U.S. airports.

Asian airline officials said that these steps, including cooperation on the frequent-flyer program, may be the first toward the formation of an Asian "mega-carrier" to compete with the United States and Europe.

Under the Passages program, a passenger who flies on either Singapore, Cathay Pacific or Malaysian airlines will be able to accumulate points and then claim free travel on any of the three airlines. For now, the program is open only to residents of Asia and to passengers who travel in first or business class.

The airlines will avoid the kind of potential liabilities faced by American carriers by operating the program on a debit-credit basis. For example, when a passenger flies on Singapore Airlines, the airline will pay the Passages program a cash fee and when a passenger claims a free ticket, Passages will pay the airline.

Nonetheless, notes Foo Jou Min, who follows the airline industry for Crosby Securities Ltd.: "Obviously the airlines will be losing seats they could sell. It's going to impact their bottom lines."

Airline executives maintain that without having launched an incentive travel program, they would have seen their customer base desert them for rival carriers in Europe and the United States.

"We were definitely losing market share--there's no question," said Nick Rose, a spokesman for Cathay Pacific in Hong Kong. "We were losing to the Europeans, and we were losing to the Americans. We were being attacked on both sides. This is purely a defensive move against other frequent-flyer programs."

James P. Reinnoldt, Northwest Airlines' regional manager for Southeast Asia, said that when only a few carriers offered frequent-flyer programs, this gave some airlines an advantage. But with virtually everyone now offering mileage plans, none of the airlines will benefit, he contended.

"It's like a fare cut," Reinnoldt said. "Everyone really loses. It's good for the consumer but not for carriers."

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