American carriers are rushing to go global--but not just by buying new jets and adding routes. Instead, they're teaming up with foreign carriers to create huge worldwide alliances that generate healthy profits at little extra cost.
United Airlines Inc. set the standard last year with its eight-airline Star Alliance. American Airlines Inc. followed suit last month in a deal with four foreign carriers called oneworld. Continental and Northwest are in talks with KLM, Air France, and Alitalia.
NO AUTHORITY. Travelers might cheer the convenience offered by such "code-sharing" deals, which allow them one ticket for a multicarrier itinerary. But regulators and watchdog groups are growing worried--as well they should. In the frenzy to get a foothold in emerging markets, many deals are pairing U.S. carriers to foreign airlines with sub-par or suspect safety records. Delta Air Lines, for example, teams up AeroPeru. Continental's partners include Brazil's VASP. All have fatal accident rates 4 to 32 times higher than major U.S. carriers.
Delta is now negotiating with Aeroflot. And American passengers to Beijing could end up flying China Eastern, which has a fatal-accident rate almost 20 times higher than the average of the major U.S. carriers.
What can the FAA do? Not much. The U.S. Transportation Dept. has no authority to impose safety rules on foreign carriers unless they touch down on U.S. soil. But just because the government lacks authority to regulate code shares, U.S. airlines should insist that their partners adhere to the same safety standards required of them.
The DOT's top watchdog has the same concern. Inspector General Kenneth M. Mead says he'll be looking into code-share pacts later this year. "I get multiple explanations [from the FAA] to what extent U.S. safety rules apply to foreign carriers," Mead told BUSINESS WEEK. "Doesn't the consumer have a reasonable expectation that the level of safety on that code-sharing partner will be comparable?"
At least one airline may be getting the message. This summer, United reached an accord with its Star Alliance on safety standards. Among other things, it calls for internal safety audits and protection for whistle-blowers who spot flaws. But even that small step was slow going. "One just doesn't leap out and take an `ugly American' position and say, `By the way, we're going to come audit you,"' says Edmund L. Soliday, United's head of corporate safety and security.
Other carriers say they'll carefully assess a foreign carrier's safety standards before considering an alliance. But that's often as far as it goes. One executive at a major airline confides that his carrier won't perform safety audits on code-share partners because the company's lawyers fear legal exposure in the event its foreign partner has an accident.
FAA Administrator Jane F. Garvey wants the International Civil Aviation Organization, a U.N. group that monitors world aviation laws, to take the lead in policing safety for all carriers. That's well-intentioned, but ICAO isn't known for playing an aggressive role.
If U.S. airlines don't tackle this problem, they'll likely be forced to take direction from the courts. In the first suit arising out of an international code-sharing deal, Delta Air Lines Inc. has been sued by several survivors of Delta ticket holders who were aboard Swissair 111, which crashed off the coast of Nova Scotia on Sept. 2. Although Swissair had one of the industry's best safety records, the suits allege Delta was responsible for its passengers' safety. Delta and Swissair say it's Swissair's problem. If the courts side with passengers in this case, imagine how vulnerable airlines will be if they hook up with a carrier with a poor safety record.
Here's some cheap legal advice: U.S. airlines shouldn't wait for the subpoenas. They should demand higher standards from partners in return for granting easy access to U.S. travelers. Safety should never take a backseat to profits.