oneworld Governing Board media briefing, Paris, 4 June, 3 pm

CEO speaking remarks


oneworld Vice-President Corporate Communications Michael Blunt:

The gentlemen on the top tables are:

From your left:
• Aer Lingus Chief Executive Dermot Mannion
• Finnair Chief Executive Jukka Hienonen
• LAN Group Chief Executive Enrique Cueto
• Cathay Pacific Airways Chief Executive Philip Chen
• Qantas Chief Executive Officer Geoff Dixon
• British Airways Chief Executive Willie Walsh

And on the table to your right:
• oneworld Managing Partner John McCulloch
• Iberia Chairman and Chief Executive Fernando Conte (current chairman of oneworld’s Governing Board)
• Japan Airlines Group Chief Executive Designate Haruka Nishimatsu
• American Airlines Chairman and Chief Executive Gerard Aprey
• Malév Chief Executive János Gönci
• Royal Jordanian Chief Executive and Deputy Chairman Samer Majali

Iberia Chairman and CEO and current oneworld Governing Board Chairman Fernando Conte:

It is very good to see you here today – even if we are in the home base of one of our major competitors! However, I hope that most of you flew from overseas with our group of airlines!

So here we are in this great city, on the eve of the 2006 IATA's summit - a chance for us together to try to pursue our common goal - sustainable profitability!

Certainly those of us in oneworld have found that alliance working is a very important means of helping keep us ahead of our rivals in our own competitive race and avoid the sad sight of red on our accounts pages. Alliances have very fast become a must-have ingredient for network airlines.

A recent study by the Eclat consulting organisation showed that oneworld and the other two airline groupings, which together comprise 36 airlines between them, now account for 60 per cent of the total global airline capacity. Low cost operators have an 11 per cent slice of the pie, with all the remaining unaligned legacy airlines between them – dozens and dozens of them around the world - holding a shrinking 29 per cent market share.

Of the biggest 20 airlines in the world, all but two are already playing this game or are in the process of joining.

Customers are increasingly seeking alliance solutions to their travel needs.

In an industry of thin profit margins, I know my fellow CEOs agree that oneworld provides us all with not just a crucially important competitive tool, but also a vital financial contribution in terms of both revenue generation and cost reduction.

And I’m pleased to say that the past year has seen the alliance achieve a record performance on this front. More about this from John McCulloch later.
The past 12 months have been a real landmark year too for oneworld in terms of expansion. We have invited our first new recruits to join us in more than five years – Royal Jordanian and Malév late last year and, today, Japan Airlines. With three new airlines lining up to come on board, this is oneworld’s most significant membership expansion since the alliance was launched in 1999.

Samer, János and Nishimatsu-san, it gives me great pleasure, as Chairman of the Governing Board, on behalf of all of my colleagues, to welcome you on board and to your first full oneworld meetings today.

We are also pleased to have Dermot Mannion with us today, even though Air Lingus will be leaving us in the year ahead – but it goes to show that we are parting on good terms. As we said earlier this week, with its strategy now geared towards low-fare point-to-point traffic and oneworld’s market focussed on the connecting, premium, frequent international traveller, we are no longer compatible.

Aer Lingus represented less than 2 per cent of our total network capacity last year. It will leave as our three new members join, increasing that capacity by more than 20 per cent.

In Royal Jordanian, we have the first airline in the Arab world to find a home with any of the alliances. RJ is already one of the highest quality carriers in its region, and it is further transforming its customer offering this year with a virtually complete fleet renewal ahead of its privatisation and oneworld accession.

Its Amman base will provide oneworld with an excellent hub in the heart of one of the world’s fastest growing regions for air travel.

In Malev we have what is undoubtedly the best airline in Central and Eastern Europe, with its excellent management team charting it firmly back on track towards profitability. Its Budapest hub is ideally positioned as a gateway to another of the world’s fastest growing regions.

Both are making excellent progress towards becoming part of our alliance, early next year.

Royal Jordanian has signed contracts for the five key new IT systems it needed to introduce to be able to deliver oneworld services and benefits and is well ahead in rolling them out. It has also moved airports at Paris to operate alongside most of the established oneworld carriers there.

Malév has concluded the bilateral agreements with existing oneworld members that were a condition of its membership. It has been code-sharing and linking frequent flyer programmes with my own Iberia for several months now, and today signed a similar agreement with British Airways.

It has introduced interline e-ticketing with four of the eight established oneworld airlines in the past few months and moved terminals at Madrid and New York to offer improved connections with its oneworld partners.

And Japan Airlines…With American Airlines acting as its oneworld sponsor, I leave it to Gerard to explain why JAL is such an important recruit for us and what progress we are making towards its membership.

We believe all three newcomers will add considerable value to oneworld. And we believe oneworld will add considerable value to them.

I know that when we start taking questions, you’ll want to know why oneworld waited several years before opening the alliance up to new recruits, and who may be next to join us.

To answer the first point… oneworld’s focus during this time was on helping our member airlines fly through the terrible financial turbulence the industry was going through – and, as John McCulloch will detail, we have an unmatched track record on this front. We believe maintaining a stable alliance of high quality carriers was a critical element in that success.

At the same time, we already offered the most international network of any alliance. It is only through their recent recruitment that our competitors have caught us up.

So a year or so ago we looked at where we should expand, and Japan, the Arab world and East and Central Europe were the first regions on our list.

Who next? Well, I am sorry, but I am not going to give names today. What I will say is that there are still some parts of the world where we would like to improve our network.

Cathay Pacific is the first to highlight that we also need a carrier on board from mainland China.

We are pleased and proud to count the leading airline in Latin America as one of our members, in LAN, but, again, Central and South America is a vast region with demand for air travel expected to grow substantially, so there is scope for expansion there too.

Despite what some other alliances would have you believe, oneworld was the first with an airline in Africa on board, in the BA franchisee Comair, but this too is a continent with potential for membership growth.

At some stage, we’d also welcome a recruit from India.

And there are a number of other places elsewhere where we keep a close eye on potential developments.

What sort of airlines are we interested in? When it comes to new recruits, we are particularly picky. We will only invite on board airlines that fit our brands, the quality of our customer service and our overall approach to business, with a firm eye to the bottom line – carriers like Malev, Royal Jordanian and JAL...

Now, I would like to hand over to you, Gerard.

American Airlines Chairman and CEO Gerard Arpey:

As Fernando indicated, when we were looking for parts of the world where we wanted to grow and strengthen oneworld’s presence, Japan was at the top of the list. In fact, it has been at the top of our list for some time. Many of you know we invited Japan Airlines to join us many years ago.

Nishimatsu-san, we are really thrilled that you’ve decided to join us.

Today’s announcement is great news for us, and for our customers, who will enjoy better access to Japan and a more streamlined travel experience.

The oneworld carriers will consolidate operations alongside those of JAL in Terminal 2 at its main international base, Tokyo’s Narita Airport. Qantas is already located there, and we at American Airlines, along with Cathay Pacific and Finnair, plan to move there next year.

With Narita International Airport Corporation investing JPY19 billion – or nearly US$200 million – in airport improvements, we will be able to offer our Narita customers state-of-the-art facilities as well as the smoothest of transfers.

I should note that we have had a lot of success with our consolidated oneworld facilities in Madrid, and we look forward to similar results when we consolidate at London Heathrow the year after next.

In the meantime, we’re pleased that we have already been able to extend the oneworld Global Explorer fare to Japan Airlines’ network – thus enabling JAL to offer its very first round-the-world fare.

A year ago, oneworld became the fist global alliance to enable passengers to fly throughout the alliance network using electronic tickets – and we will soon be able to extend this to our new members as well.

We still have a lot of work to do to incorporate our three new member airlines, but I am very encouraged by the progress we have made already – which I am sure bodes well for our collective future.

Finally, let me conclude by emphasizing once again how pleased and proud we are at American Airlines to be JAL’s oneworld sponsor.

On behalf of the entire oneworld alliance, I am delighted to extend to Japan Airlines a formal invitation to join oneworld. Nishimatsu-san, please accept this letter of invitations with the warm best wishes of us all.

Gerard Arpey presents the letter of invitation to Japan Airlines Group Chief Executive Designate Haruka Nishimatsu, who hands back a letter of acceptance.

Japan Airlines Group Chief Executive Designate Haruka Nishimatsu:

Thank you, Gerard. Thank you, Fernando and all our new colleagues.

On behalf of the JAL Group, I am honoured to accept the invitation from oneworld to become a member of your alliance.

We know we will be in very good company. oneworld is without doubt the leading quality alliance. Your members have some of the best airline brand names in the world. 　You are among the best-managed companies in this industry. You place a strong focus on excellent customer service – and on delivering a proper return to your shareholders. These are qualities that are very important to Japan Airlines.

Joining oneworld will enable JAL to offer our customers even greater convenience, comfort and value… seamless travel across a more extensive global network, more opportunities to earn frequent flyer miles and tier status points, more opportunities to redeem those miles, and more lounges to use.

It will also provide JAL with the opportunity to earn more revenues and reduce costs.

Through our strong market presence in Japan and the rest of Asia, we are well-positioned to take a leading role in the alliance’s strategy. We will play a central role in oneworld’s global activities and work together with the other members to further enhance the competitiveness of the alliance.

It has taken just six months from our application to join to reach this stage today, which signals excellent working relationships going forward. We are determined to maintain this pace and build on this level of
co-operation, with the support of our sponsor American Airlines and our other partners, to enable JAL to complete the joining process as soon as possible.

We expect to complete this process in early 2007, at which time the full range of oneworld services and benefits will be extended to Japan Airlines. We very much look forward to that time.

oneworld Managing Partner John McCulloch:

See separate Powerpoint presentation and speaking notes

Now we would be happy to take your questions.

Oneworld welcomes Japan Airlines to the growing alliance
Paris, June 4th 2006


Questions and Answers


- Question 1: Daphné Benoit, Agence France Presse
I had a couple of questions; first of all you mentioned joint purchasing in terms of fuel, could you tell us what it represents in the 250 million dollars that you mentioned? And does it also include common hedging policy? Second question, could you tell us a little bit more about your prospects in India, are you currently in discussions with a potential partner? Thank you.
- Answer: John McCulloch
The first question was about fuel and what proportion does fuel represent to that 250 million dollars. We deliberately don’t give that figure out, it’s a figure that we like to consolidate so we avoid specifying exactly where each part of our cost savings breaks out, but I’d just like to say on that basis, a lot of, well fuel procurement is a particularly interesting, particularly difficult joint procurement activity and very often we make far better progress bilaterally or trilaterally in the key markets that these carriers operate, than in sitting down and trying to combine as a group of four, five, six or more. So, to answer your question on common hedge, there is no facility for that, we don’t get involved with that at all, the airlines individually hedge against their fuel requirements so there is no Oneworld role there and we do not, unlike some of our rivals, have a separate fuel procurement company, we don’t see the point in that, we don’t see where it adds any value.
The final question was around India. India is a market of great interest to us, I think all the alliances have been down in there in the last couple of years, it’s changing very fast as you’re well aware as commentators on this industry, we’re talking to all of the major players, I think to be frank it’s going to take longer than some of the other regions that were mentioned by our chairman earlier today, it’s going to take India a lot longer to “shake out” perhaps is the best word, but when it does we’ll be there, just as everybody else will, looking for a partner because it’s a huge market, it’s expanding rapidly and we have to be, but I think it will take some time.


- Question 2: Andreas, German Aviation Journalist
I would like to ask about the Chinese market. China recently announced it’s intention to join Star, I know that Cathay Pacific is a partial owner of Air China and there was some talk that Cathay might have tried to lure Air China into the Oneworld camp, so I would like to know if there was a realistic perspective at any stage of that happening, and also I would like to ask how far the negotiations are with China Eastern.
- Answer: John McCulloch
As you know, you can see the Chinese market and there are three major carries there, but there are a number of other carriers and three alliances. We’ve had a carrier that has operated into China, the Hong-Kong flag carrier since our inception. We continue to watch the market very carefully, I obviously wouldn’t tip our hand as to what the next steps are, as with India, it’s a very interesting and complicated story and I think as commentators you are going to see a lot more happen yet in China before we’re all settled. But yes we do recognize we need coverage in that space, there are a number of options, they are slightly narrower than they were three weeks ago but Air China made a decision as all of our carriers do that suited their best interests and we wish them the best of luck. We were talking to them in addition to Star and of course we talked to virtually everybody in all markets because it’s a two way process, the fit needs to be not only for that carrier into an alliance but for the alliance partners with that carrier.


- Question 3: Journalist from Jordan
My question: why did you choose Royal Jordanian as the only Arab carrier to join the alliance and how do you asses the progress the company has made so far to match your requirements by the end of the year? Thank you.
- Answer: John McCulloch
The first question is why did we choose Royal Jordanian, as I mentioned it’s a mutual choice, it’s as much an effort to attract a carrier as a choice. Royal Jordanian has a strategy that fits very closely what we are looking for in the sense that they have a fleet plan and an expansion strategy that is regional in that part of the Middle East. We have a number of hubs that feed their network and also a number of carriers with plans to link to them. So we’re looking for partners that don’t necessarily conflict or compete with the existing networks, so Royal Jordanian is not only their network strategy and their fleet plan strategy fits with ours very closely, but their product is of a quality that we feel very strongly fits well with Oneworld.
Your second question was: how have they done so far in implementation? They are well ahead of plan; we’re very impressed with the decisions that have been made and the speed with which they’ve moved to meet the requirements that we put on a carrier for interlining and exchange of passengers in the environment that we operate.


- Question 4: Grant, Business Travel Executive
If I read your material correctly, in Tokyo you are going to have a number of separate lounges for the carriers which seems to run contrary to the idea that by putting things together you both increase the brand awareness for the alliance and also cut cost by sharing facilities. What is the reason for not going together as opposed to splitting apart?
- Answer: John McCulloch
I was quite careful in my remarks although they are probably not in the press pack, to say that we collocate facilities where we feel it makes business sense and the only way it is going to make business sense is where the individual carriers that are part of that facility or joint procurement feel it fits with their plan. We do a lot of sharing of two carriers or three carriers sharing their lounges, we don’t collocate into a combined brand which some of our rivals do. We believe there is a very good reason for that, it means we can maintain control of the quality, you can certainly argue from the alliance philosophy perspective that there might be some additional benefits from combining in a multilateral sense and running it independently, we haven’t found that yet, it could always change in the future. But underlying that question that you raised about Narita is the sense that for the carriers in the current business environment we will not collocate into a single or a couple of lounges but we will maintain the quality that all of them have, and we will share that quality, there will be some sharing of lounge facilities, but it’s not our philosophy to collocate for the sake of collocation, it’s to collocate where it makes business sense to these airlines through our group.

- Question 5: (Person did not introduce themselves)
Seeing what Jordanian Airlines have been giving you, what are you giving in return?
- Answer: John McCulloch
We are giving them a huge network to feed. Personally for me, I’ve been through all of the implementations with these three carriers, I get quite involved personally, I think, and I hope this is borne out by our three now colleagues, I think that the access to the shared learning and the resources of the carrier group is the first benefit that hits home, because suddenly, in our case, they have eight carriers from which to ask advice on anything. We all do the same sorts of business so the benefits range across the revenue earn, the cost reduced, but also the access to this base of knowledge.


- Question 6: Tom Ballantine, Orient Aviation Magazine
I wonder if you can tell us where you are at in terms of Chinese mainland carriers, I realize that you have Cathay Pacific as a member, but Star Airlines recently signed on two Mainland Chinese carriers. Where are you? What are your intentions? How long do you expect it to take before you sign up a mainland carrier?
- Answer: John McCulloch
As I mentioned before, it’s a complicated market, it’s not a simple one to speak about in general terms, there are other options still there, I don’t think it takes a rocket scientist to work out where we’re looking and who we’re talking to. There are issues and it’s not to do with China specifically but there certainly are issues with our alliance, as I think our three new members will attest, where we come with a set of quite stringent requirements that are getting more difficult as we grow, for instance complete conformity with Interline electronic ticketing. There are some other developments which we are producing which will be standard for Oneworld, so it’s almost as though the longer you wait to join the alliance, the more you’ve got to catch up and that is not a comment directed at China or any other particular market, but one of the surprises that new carriers encounter when they come on board is the number of requirements that are standard for being a member of an alliance in order to transfer seamlessly. So all of this has to be taken into account and I can’t give a time frame but I know where I’ll be travelling quite a bit the next year and a half, I’m sure.


- Question 7: Mark,
I think you are still the only alliance grouping to announce what you make or save so I thank you for that, but it still is arguably a relatively modest amount considering the size of the carriers, I just wondered if you could share with us, perhaps some of the CEO’s, what are the more radical or innovative ideas you would like to consider with your colleagues to increase those revenues, or indeed to save more?
- Answer: John McCulloch
We do have a couple of good ideas in the pipeline, we’d be the last people to talk about it, I think your comment is well taken you know, if you are sitting at a central alliance management company or indeed in any of these alliances, or outside of them looking in as an academic or as a commentator, the potential looks enormous and it is enormous, but it’s as much proving to these carriers that the alliance is of practical benefit, and don’t forget the last five years has been very much almost a survival game, and we concentrated as Fernando Conte outlined, on saving money for the last five years, we didn’t expand our membership, we didn’t take on any additional costs and so forth, and we did quite a good job in saving money and consolidating what we had. Yes there is enormous potential out there, I think you are just beginning to see it, I optimised 650 million Dollars of revenue last year, that really started from a standing base of nothing four years ago so we would certainly like to see it grow at 20 or 30% for the coming years, and the customer is the one who’s demanding it, we’re getting more and more corporate clients globally and what we call local company, local corporates, coming to us and saying: “We would like you to bid as Oneworld for our corporate deals and so forth, and we would like to buy brand world alliance tickets now.” That’s the consumer and the consumer is the one who will drive this business, so I think you will see this growing certainly at the pace it is and I certainly hope faster and we do need to do more for the customer to make it seamless, we talk about seamless a lot, we talk about smooth travel with no hassle, but we do need to put more infrastructure behind that, but again it takes money and money hasn’t been easy to come by in the last five years.
- Mark:
Four years ago did you consider if the alliance was worth having or not in that light?
- John: Well I think when the crisis broke in the industry in 2001, well it was prior to 2001 as you all know, but financially in 2001 it certainly began to bite, alliances were rather than marketing investments, became perhaps expenses and everybody was looking at expenses and no, there was never any consideration to shut it down or to change it in any way, but certainly a view strategically that we should stop spending money. And you are beginning to see us invest again and the new members are one of the pieces of that.


- Question 9: Financial Times
Could you clear a couple of the figures? The profits and losses for the alliance, is that for the year 2004?
- Answer: John McCulloch
It’s the latest financial figures released by each of those carriers so I suppose you could say it’s a bit of a muddle, but what we take is their latest financial year and aggregate those, so you will find it hard to compare it to anything you see in the Financial Times or whatever.
- FT: But essentially it’s 2004, not 2005?
- Michael Blunt: No, it is the latest full financial year so it includes the airlines who have reported their results for 2005, some airlines of course end their financial years at the end of March and some at the end of June, so it is the latest accumulated full sets of accounts so some will be for the full year after 2005, some to March 31st 2006.
- FT: Because the slide says US Dollars combine results ending 2004 so I was just wondering whether.
- John: That is probably a misprint on the slide.
- FT: And the share of world capacity, the 19.2%, is that with or without Aer Lingus?
- John: That is with Aer Lingus because we wrote the slide before the announcement this week. Aer Lingus are less than 2% of our grouping capacity.
- FT: And what is the share of the other two alliances?
- John: We can get that for you afterwards.


- Question 10: Russel Barling, South China Morning Post
Gentlemen I think we have to accept that China is the great potential market, yet you are the only one of the three alliances to not have a mainland carrier in your network now, I’m wondering: how important is it for you to sign a mainland carrier this year, and can you rule out Air China as being that carrier?
- Answer: John McCulloch
First question was: how important is it for us to sign one this year? We feel under no pressure in terms of time, to sign a Chinese mainland carrier, it’s a market that’s going to be there for a while, I think it’s going to develop for a period of time, as I’ve already said earlier, it’s as much of finding a match for us as it is finding a carrier in the region. A new membership negotiation takes a lot more than just signing an MOU and going ahead and making an announcement, there’s a tremendous amount going on behind the scene and we need to do a lot of looking at any new member and they need to do a lot of looking at us, so to answer the question I don’t feel any pressure to make any kind of announcement this year. And as for ruling out Air China, I’d be surprised if the MOU was rescinded in any way from their Star announcement recently, but other things, stranger things have happened in this game, but I certainly wouldn’t be putting that into our strategic plan as one of the possibilities. It could change.


After final Q&A….

I’d like now to invite all oneworld’s existing and incoming CEOs to gather around Fernando, Gerard and Nishimatsu-san for a family photograph.

BA’s Willie Walsh and Malév’s Janos Gonci will then sign the bilateral agreement their airlines concluded today, while those CEOs who can stay on make themselves available to you at the various coffee table spots around the conference room.

Thanks for joining us today.

End of conference

It looks like this answers the question about lounges at NRT with the move to T2: no common OW lounge. And an interesting reason for not having common lounge facilities: to maintain lounge quality (implying that the various OW airlines have different ideas about lounge quality). Hardly a surprise, but confirms what we already know about the lounge philosophies. Still it seems rather wasteful to be building separate lounges and doesn't bode well for increasing the future co-operation levels of OW if they cannot even agree on what a lounge should be like.

To go along with this, there are four press releases on the OW site from yesterday:

http://www.oneworld.com/pressroom/releases/releases.cfm