Aer Lingus board expected to push for strategic alliance with Oneworld

The board of Aer Lingus meets this morning to consider a strategic alliance with the Oneworld international airline grouping, which includes American Airlines and British Airways.

An alliance with Oneworld, which would have to be approved by the Government, is expected to involve one of the major alliance partners taking a small equity stake in Aer Lingus.

Completion of an alliance would clear the way for a public offering of shares in Aer Lingus which, in turn, would help raise the funding necessary for its future growth and development.

An Aer Lingus spokesman declined to comment yesterday on any aspect of the proposals to be considered by the board this morning.

However, The Irish Times understands that after intensive discussions with representatives from several of the global alliances, senior Aer Lingus executives will recommend the proposal worked out with Oneworld. The executive team is understood to have examined seven proposals and to have put forward Oneworld as the best strategic option. If the Aer Lingus board approves the recommendation, it will then pass the proposal to the Minister for Public Enterprise, Ms O'Rourke, for approval. She has appointed adviser Salomon Smith Barney to examine the findings. Any sale of an equity stake in Aer Lingus will have to be decided by the Minister, representing the State shareholder.

The Oneworld alliance includes British Airways and American Airlines, with Cathay Pacific, Canadian Airlines and Quantas. Finnair and Iberia are about to join the alliance.

In the rapidly consolidating international air transport market, Aer Lingus needs to form strategic alliances with major partners to ensure its medium to long-term survival.

The main advantage of an alliance is the potential revenue gains from the opportunity to increase passenger numbers by feeding from the routes and hub points of their partners.

There are four key strategic alliances in the air transport sectors - Oneworld, Star, Atlantic Excellence and Wings.

As a small national airline without partners in a global marketplace, Aer Lingus would have found its opportunities to increase revenue diminishing as partners in strategic alliances channelled passengers through the services of their partners.

Even more critical for the airline would have been the risk of loss of revenue, as alliance members changed schedules and services to squeeze out non-member competitors.

Strategic alliances involve detailed scheduling co-operation so that passengers can transfer easily between the services of the different airlines within the alliance. They create a wide network of routes for the airline selling the tickets. Because airlines within alliances can usually offer their customers a full route service for long-haul travel, they can retain the full fare for the entire journey within the alliance. Within Oneworld, Aer Lingus should be able to increase passenger numbers on its lucrative transatlantic routes by feeding from the US hubs of American Airlines.

The Government asked Aer Lingus almost two years ago to examine the issue of an alliance partner.

While preliminary discussions took place with several airlines, the issue took second place to other pressing operational issues, such as the protracted sale of TEAM and agreeing cost reduction plans with the unions representing employees.