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SERVICE, not price, will be the key for airlines when trying to win pharmaceutical business, according to Dave Brooks, president cargo for American Airlines.

“When we are working with customers on this product, price is the last thing they talk about,” he says. “Instead they want to be convinced that they can have as much confidence in you as their customers have in them.

“That is not something you can do by just sending a brochure. You have to spend a lot of time with both forwarders and shippers going over your operating procedures, where the shipment will transit and whether employees are trained.”

For this reason, he is not too worried by the fact that more and more airlines are offering pharmaceutical products. “Those who come in and think they can get traffic on price won’t succeed,” he says. “But for those who can produce the right level of service, there will be enough business to go round.”

AMERICAN Airlines is negotiating with China Eastern Airlines to have it join the Oneworld alliance.

Tom Horton, chief financial officer of American’s parent company, AMR, also revealed that American is also in talks with a Brazilian carrier to do the same (probably Gol Linheas Aereas Inteligentes, which began code-sharing with American last year).

“There are some opportunities for cost savings, though not to the extent one might be able to achieve with a full merger. You can cooperate in areas such as procurement, co-locate at airports.”

Horton said the reason for increased alliances rather than mergers was primarily due to restrictions on foreign ownership of US airlines of only 25 per cent of voting stock.

“It is an impediment to cross-border mergers,” he said. “I think we are seeing an evolution, seeing these alliances become tighter-knit partnerships. They started as loose marketing agreements, for code-sharing, frequent linkages, emergence of global alliance groupings. We are now seeing those groupings forming tight economic relationships.”

American Airlines and British Airways have just been given permission from the US government to cooperate with Iberia on lucrative trans-Atlantic services, after trying and being denied twice before.

DEREK Kerr, US Airways’ chief financial officer has announced that the carrier is looking to merge with another US airline. It has yet to approach any other carrier as Kerr says, “it takes two to tango”.

According to Kerr, there are too many competing airlines for the US domestic market and consolidation is necessary to reduce capacity. This would therefore, he added, rule out merging with a foreign carrier, as that would not cut capacity.

“I don’t think that will make a difference,” he said. “Domestic is where there is too much fragmentation and there are too many airlines. It’s five major carriers; it’s too fragmented. We believe that it needs to be consolidated. Consolidation is one of the major ways this industry can become profitable.”

US Airways is the US’ fifth-largest airline, so when Kerr was asked why it was not approaching any other carrier, Kerr said: “It’s difficult for the number five player to make a move on numbers one through four.” The four being American Airlines, Continental Airlines, Delta and United Airlines.

Earlier in the week, United Airlines’ chief financial officer, Kathryn Mikells, also said that it was considering a merger.

US Airways tried to negotiate a merger with United in 2008, but this stalled when United went after an alliance with Continental instead.

United Airlines and US Airways are both part of Star Alliance, a global network of carriers that allows them to streamline costs while sharing revenue.

American Airlines has upped the ante in a bidding war with rival Delta Air Lines for a stake in Japan Airlines, which is teetering on the verge of bankruptcy.

American Airlines and its partners lifted their proposed investment in Asia’s biggest carrier to $US1.4 billion ($1.5 billion), from a previous offer of $US1.1 billion ($1.2 billion), the US carrier announced at a Tokyo news conference today.

In addition, they will guarantee $US2 billion in revenue over the next three years if JAL stays in the oneworld alliance.

American has teamed up with its Oneworld alliance partners – among them Qantas – and private equity company TPG to woo JAL, which has also been offered a $US1 billion financial package from Delta, the world’s largest carrier.

American and Delta are competing to tie-up with JAL and increase their share of the lucrative Asian market.

‘‘This proposal demonstrates Oneworld’s extraordinary commitment to JAL,’’ American Airlines executive vice president Thomas Horton said in the statement. ‘‘It brings stability and certainty to Japan Airlines at a time when it is most needed, as it faces turbulent times over the coming weeks and months.’’

Delta, which belongs to the SkyTeam airline alliance, is seeking to lure JAL away from the Oneworld grouping.

JAL delisting?

JAL shares dived almost 45 per cent in early trade on Tuesday, battered by deepening fears that investors will see their stakes wiped out under a widely expected bankruptcy filing.

Media reports said that the debt-ridden airline is likely to be delisted from the Tokyo Stock Exchange.

JAL, which lost about $US1.5 billion in the six months to September, is seeking its fourth government bailout since 2001 to enable it to keep flying in the face of mounting debts.

Hatoyama, who ended half a century of near-continuous rule by the LDP last year, declined to comment on the possibility of JAL being delisted when speaking to reporters today in Tokyo. The government has previously said that JAL, unprofitable in three of the last four years, will continue flying. JAL spokeswoman Sze Hunn Yap declined to comment.

All Nippon Airways, Japan’s No.2 carrier, rose as much as 7.4 per cent in Tokyo trading, the most since July. Skymark Airlines Inc., the nation’s largest discount carrier, jumped as much as 21 per cent.

Delta Air Lines and AMR Corp.’s American Airlines, which are competing to invest in Tokyo-based JAL, both said last week that a bankruptcy wouldn’t deter them as they want access to the airline’s networks in Japan and China. AMR Corp.’s American will meet the press today at 2 p.m. in Tokyo to discuss its plans, according to a statement.

Travel slump

JAL, which has at least 1.5 trillion yen ($18 billion) of liabilities, has struggled because of competition from All Nippon, Skymark and bullet trains. Worldwide international air travel also likely fell about 4.1 per cent last year, according to the International Air Transport Association, as the global recession sapped demand.

”Japanese airlines haven’t been doing well for a long time,” Tan Teng Boo, who oversees $US300 million as managing director at iCapital Global Fund, said from Singapore. ”They need some form of catalyst.” Tan said he has never owned JAL shares.

The global recession also caused General Motors Corp. and Chrysler to seek bankruptcy as consumers pared spending on job concerns. Mesa Air Group, which operates flights for major US carriers including Delta and UAL Corp.’s United Airlines, filed for Chapter 11 bankruptcy in the US earlier this month.

Restructuring plan

Under the proposed restructuring plan for JAL, Enterprise Turnaround Initiative of Corp. of Japan, a state-affiliated fund, will provide 300 billion yen of capital to JAL and a 400 billion yen credit line, the Yomiuri newspaper said last week. Creditors will be asked for about 350 billion yen in debt waivers and debt-for-equity swaps, the report said. An Enterprise Turnaround spokesman declined to comment.

The carrier plans to shed 13,000 jobs during a three-year restructuring by offering early retirements and shedding units, the Nikkei said today, without citing anyone. Haruka Nishimatsu, 62, chief executive of JAL since 2006, has already said he will step down.

JAL’s four biggest lenders, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Mizuho Financial Group and state-owned Development Bank of Japan were owed 429 billion yen at the end of March, according to the carrier.

JAL previously won emergency loans from Development Bank under LDP administrations following the Sept. 11 terrorist attacks in 2001, the 2003 SARS outbreak and again last year as Japan suffered its worst postwar recession.

GM, the largest U.S. automaker, filed for Chapter 11 bankruptcy in June with $US172.8 billion of liabilities. A US government-backed restructuring allowed a smaller automaker to re-emerge the following month with about $11 billion in US debt and a focus on fewer brands.

Bloomberg News, with Reuters

The United States and Japan will hold negotiations aimed at liberalizing air traffic, known as “open skies” talks, in Washington next week, an official told AFP Thursday.

The discussions will be held Monday, said Bill Mosley, a Department of Transportation DOT spokesman.

“This is the next round of the talks” that have been held “over the years,” he said, confirming in part a report by the Nikkei business daily.

According to Nikkei, the US and Japan are expected to sign an “open skies” agreement shortly, with the deal possibly initialled in three-day talks due to start Monday in Washington.

Mosley declined to say whether the talks would extend beyond Monday, saying it depended on the circumstances.

He said the State Department leads the US side in the talks that include DOT officials.

In Tokyo Thursday, struggling Japan Airlines was offered a 1.1 billion dollar lifeline from partners led by American Airlines, amid a bidding war with Delta Air Lines for a piece of Asia’s biggest carrier.

American and Delta have both sought a stake in JAL, hoping to expand their Asian operations ahead of the anticipated “open skies” agreement.

AFP