Here is a really informative article concerning the effects so far of the alliance between CO and NW.
A couple of highlights:
Wings looks to be right around the corner;
CO is finding that, while the perception still exists that NW's service is not up to the CO standard, it is in fact not the case(as other threads have touched on recently)
Both are seeing strong benefits financially
Read on and please post your comments.
March 24, 2001, 10:43PM
Airline alliance's benefits taking off
Continental, Northwest find mutual profits after legalities resolved
By LAURA GOLDBERG
Copyright 2001 Houston Chronicle
At various times over the past two years, Continental and Northwest airlines lobbed public and not-so-public insults at each other. They battled in legal briefs and in front of a federal judge.
Despite the drama, an operating alliance between the two continued in the background, drawing thousands of extra passengers to each airline every day.
Continental took in an extra $134 million in revenues from the alliance last year, up from $97 million the year before.
Since January, when the legal issues were resolved and the alliance extended to run another 14 years through 2025, the two have been working to deepen the already profitable partnership and wring more benefits from it.
"What we've accomplished so far is really the fairly easy and low-hanging fruit of alliance activity," said David Grizzle, Continental's senior vice president of corporate development.
That includes selling seats on each others' flights and making frequent flier programs and airport lounge memberships reciprocal.
Now, the two are focusing on landing and maintaining joint corporate business accounts and looking for ways to save on costs.
"We've barely scratched the surface in terms of achieving synergies on the cost side of the business," Grizzle said.
They also are striving to eliminate any lingering negative feelings the airlines' employees may have about each other.
Executives from each carrier recently discussed sending the same messages to their employees emphasizing how beneficial the alliance is, said Douglas Birdsall, senior vice president for alliances at Eagan, Minn.-based Northwest.
An upcoming issue of Northwest's employee magazine will "herald all the work we've done with Continental and the new efforts," he said.
Such an effort probably wouldn't have flown before. As the alliance began, executives at Houston-based Continental questioned Northwest's customer service abilities, while rank-and-file employees also worried.
"Continental had built such a premier service reputation," Grizzle said. "Continental employees were concerned about that reputation being sullied by association with Northwest, especially at a time when it seemed that every other day you were reading about some Northwest customer service debacle."
And now? "Northwest has improved significantly, customer complaints are down, and both executives and other employees of Continental are optimistic that customer perception will catch up to service reality and there will be no reservations about the Northwest product," he said.
The airlines haven't done a marketing campaign to build awareness of the alliance among the general public, leaving one industry expert to question Continental's commitment to it.
"I think they have to be more aggressive in their cross-marketing, and I'm not sure Continental wants to be," said Helane Becker, an airline stock analyst with Buckingham Research Group in New York.
At times, it appears to her that Continental may want out the deal, Becker said.
But Continental, which says it is strongly committed to the alliance, and Northwest are touting the partnership in ways that have succeeded in drawing business, Grizzle said. That includes promotions to members of both frequent flier programs and appeals to corporate customers and travel agents.
The question of how KLM Royal Dutch Airlines, which has its own tightly integrated alliance partnership with Northwest, will fit into the Northwest-Continental relationship has held up any co-branding efforts.
Wings, an umbrella alliance brand designed to include the three airlines and other potential partners, stalled because of the KLM question. The moniker is nonetheless used by some industry insiders to describe the three airlines.
If the matter isn't resolved soon, Northwest and Continental, without fanfare or an official launch, may simply start using the Wings name.
"We, in fact, have a Wings logo. It exists," Birdsall said. "Even though we haven't formally announced Wings, we are getting all the benefits."
Continental faced choice
Northwest and Continental were brought together in early 1998, when Continental faced a choice: be bought by and merged into Delta Air Lines or remain a stand-alone airline and form an operating alliance with Northwest.
Northwest, which also bought a controlling stake in Continental from an investor group, prevailed.
But the Justice Department sued the two, saying Northwest's ownership stake violated antitrust laws and would harm consumers by reducing competition in the industry.
The government never challenged the alliance, and when it kicked into gear at the end of 1998, Continental executives expressed concerns about Northwest's customer service.
Months later, Continental asked Northwest to sell it the Continental stock. Northwest refused, and as Justice lawyers readied the antitrust case for trial, Continental sided with the government against its partner.
After two days of courtroom testimony at the end of last year, the two airlines reached a settlement in which Northwest agreed to sell Continental most of the stock. The deal, which closed in January, also extended the alliance.
"It took a while to get some things implemented simply because of some of the uncertainty that was caused by the Justice Department position on the stock," Birdsall said.
New destinations open up
Because of the alliance, Continental passengers can reach new destinations by flying part of their trips on Northwest. Or they may take Northwest part of the way because the flight is more convenient or the price cheaper.
In 1999, an average of 1,731 passengers connected between the two airlines each day. Last year, it was up to 2,017, with the average now hitting about 2,500.
The two connect passengers across the vast majority of their domestic networks.
In the 12 airports, including Boston, Los Angeles and La Guardia in New York, where they don't, their gates are too far apart or the setups would confuse passengers.
By year's end, the number should drop to nine. For others, the airlines have started developing long-term plans to relocate gates where possible.
"Given the certainty of a longer-term relationship, one can look at more significant capital investment in order to accommodate that," Birdsall said.
Internationally, passengers connect through Tokyo to and from Northwest's Pacific route system, and to and from Latin America, where Continental is strong.
They don't work together in Europe, where Northwest partner KLM is the holdup. The alliance deal between Northwest and Continental also calls for Continental to work with KLM.
But Continental and KLM couldn't agree on how to structure a relationship. Discussions were put on hold because of talks among European airlines, including KLM, about various mergers or alliances. The picture there remains unsettled.
Continental, which has its own menu of European flights from its Newark, N.J., hub,has said other airlines need a European partner more than it does. But, Grizzle said, it would be useful to be able to connect passengers to places where Continental won't have nonstop service from Newark.
Northwest and Continental are in early stage discussions about initial steps that Continental and KLM could take to cooperate, such as linking frequent flier programs for travel across the North Atlantic, Birdsall said.
Popular destinations via Northwest for passengers flying Continental on their first leg have been Salt Lake City from Minneapolis and Taipei from Tokyo.
For those starting on Northwest, Continental flights to Latin America, as well those to New Orleans and Tampa, Fla., from Houston are popular.
The airlines have worked to provide passengers connecting between them consistency, changing some, but not all, of their policies to match the other's.
For example, Continental is adopting Northwest's procedures for handling lost tickets, while Northwest added restrictions to its rules on children traveling alone on overnight flights.
And Northwest is using Continental's procedures for handling customers during so-called irregularities, such as long weather delays.
Continental will copy Northwest's mobile "rebook hot line," a bank of phones that can be wheeled in as needed to cut down on long lines passengers may face when flights are canceled. The phones connect passengers to reservation agents, and the calls get priority.
Both carriers offer self-service check-in machines for those using electronic tickets, and passengers can select Northwest or Continental flights.
The carriers don't have immunity from antitrust laws, meaning they can only go so far in working together. For example, they can't jointly set fares or determine what routes to fly.
Fixing minor problems
Houston resident Regina Scruggs recently took her first Northwest-Continental trip.
She flew Continental to Memphis, Tenn., where Northwest has a hub. From there, she took Northwest to Jackson, Miss. While she could have flown Continental nonstop, this way let her earn more frequent flier miles, and she wanted to give Northwest a try.
In an e-mail interview, she described her trip as "basically OK, although there were a few minor bumps along the way."
Among them: getting to Memphis on her return trip and not being able to find the gate for her Continental flight on any monitor.
A Continental spokeswoman said Northwest is installing new flight monitor systems in Memphis so Continental flights can be listed.
Business travelers also are using the combined networks as the airlines have joint contracts with about 120 corporations. In some cases, the company already had a relationship with Continental or Northwest.
Corporations sign agreements, sometimes with more than one airline, for discounted ticket prices in return for doing a certain level of business on the carrier. Employees are steered to airlines under contract but may not be prohibited from flying others.
Indianapolis-based Thomson Multimedia, which makes consumer electronics products, signed a joint contract with Northwest and Continental in September 1999.
The company had worked with Northwest for the previous 10 years but dropped its travel contract with another airline after it signing the joint deal, said Cindy Heston, the company's manager for corporate travel worldwide.
Among the reasons she choose Continental/Northwest: The size of the discount and the joint deal let her cut down on administrative work otherwise required to deal with two separate contracts. She also liked the customer service benefits, such as reciprocal frequent flier miles and airport lounge access, afforded the 3,000 employees who fly under the contract.
Since the deal, Thomson has doubled its spending on Continental, she said. El Paso, across the border from Juarez, Mexico, where Thomson has five plants, is among the company's population Continental destinations.
Each airline has the potential to save as much annually as is gained in extra revenues, Grizzle said. But such big payoffs are much further down the road.
The carriers are just starting a review of which computer systems and related technology they are likely to need in five to 10 years that can be developed jointly. Hypothetically, that could be a new revenue accounting system.
Even as uncertainty surrounds the industry about potential mergers, Grizzle said the two airlines aren't holding back on alliance planning.
If the federal regulators approve a planned United-US Airways merger, Continental may attempt its own merger, perhaps with Delta Air Lines.
"We are moving ahead," Grizzle said. "There are no Northwest initiatives that we are deferring because of uncertainty about consolidation."