As partners evolve – Qatar-oneworld, Air France-Etihad/airberlin – how promiscuous can airlines be?


The dominos are falling for airline partnerships breaking out of a mould and aligning with once sworn enemies in the Middle East as well as crossing alliance lines to find more strategic, and profitable, partners. The industry is getting a sudden rush with the oneworld alliance announcing on 08-Oct-2012 that Qatar Airways has been elected as a new member. The oneworld announcement came just a few hours after SkyTeam member Air France-KLM announced a partnership with Etihad Airways as well as Etihad partner and oneworld member airberlin.

As airlines find themselves in this new and relatively uncharted territory, they must seek to integrate their new partners with existing ones - a complex and contradictory process. Overlap will be common, giving rise to an airline's partners mistrusting each other. Incredible potential and synergies could be unlocked from them all, but airlines must find the limit: if Qantas, aligned with Emirates, can work with Qatar; if Emirates can work with American and JetBlue; and if American can bypass British Airways for Qatar's African network? How promiscuous can they be?

  • Airline partnerships in the Middle East are breaking traditional alliances and forming new strategic partnerships.
  • Qatar Airways has been elected as a new member of the oneworld alliance, increasing the alliance's traction and potential.
  • Air France-KLM has formed a partnership with Etihad Airways and airberlin, crossing alliance lines and strengthening against common competitor Lufthansa.
  • The partnerships between Air France-KLM-Etihad and Etihad-airberlin are expected to grow and potentially encroach on each other's territories.
  • SkyTeam is seeking to add value by bringing in hybrid and low-cost carriers, allowing them to choose which carriers to work with within the alliance.
  • The reordering of airline partnerships will continue as markets change and competitors respond, with Lufthansa's response potentially influencing other Star Alliance members.

Global developments all, not coincidentally, on one day

The deals are individually a tremendous outcome, both for the network benefits and ideological change that had to occur. Collectively, including the Sep-2012 Emirates-Qantas partnership, they amount to a reordering. With each carrying weight and implications for competitors, it is no coincidence they were announced on the same day, 08-Oct-2012, although flagged up well in advance.

Qatar's joining of the oneworld alliance is in some regards the widest of the agreements owing to the number of carriers that had to approve bringing the carrier in and establishing basic reciprocal recognition including frequent flier programmes, the glue that binds the market to certain airlines and their partners. It represents an opportunity for oneworld to gain traction after not only being the smallest of the three marketing alliances but losing members in recent years, including Malev and Mexicana, as well as member-elect Kingfisher. Yet even with all oneworld carriers accepting Qatar, the welcome mat may not be unfurled, and Qatar's addition could only further separate the already loosely affiliated oneworld members.

The carrier's addition will shift 0.6% of global capacity, but that is an efficient 0.6% of traffic and Qatar will have a growing share. There are a handful of second and third tier cities Qatar will bring online to oneworld as well as strength in Africa and the Middle East.

Global capacity (% of seats) by alliance

Excluding Qatar joining oneworld
Including Qatar joining oneworld

See related article: With Qatar Airways as new member, oneworld seeks to regain momentum but may become more divisive

Willie Walsh, CEO of oneworld's IAG, has brought Qatar into the fold, and has had an open mind of Middle East network carriers. "Many of my European counterparts will complain about the way the Middle East carriers operate; they think that it is unfair competition. I don't buy into that," he said to Business Travel News in Jun-2010. While other carriers questioned the books of Middle East network carriers and initiated conspiracy theories about subsidies, Mr Walsh said Emirates' accounts looked transparent and fair. He has also praised Qatar Airways CEO Akbar Al Baker.

Until recently, Air France-KLM took a different view. "The Gulf companies are killing our industry," Jean-Cyril Spinetta, current CEO of the combined Air France-KLM group, said about two years ago. A call to arms was made by former Air France CEO Pierre-Henri Gourgeon, who told Bloomberg in Oct-2011 shortly before leaving that Europe is "at the crossroads of international air travel, and this is a role we need to value and defend".

Mr Gourgeon's words still hold and indeed are being practiced by Air France-KLM, but the context has changed. No longer must Air France-KLM defend itself from Middle East carriers, it has to now prop itself against its long-standing continental competition that includes Middle East carriers. Air France-KLM tried to beat them, but now must join them, which makes its new arrangement with Etihad, which goes well beyond codesharing, significantly deep at the ideological level.

See related article: Air France-KLM to partner with Etihad? - If you can't beat them, join them

The Air France-KLM-airberlin deal may be the smallest but a loud alarm to alliances. Deep partnerships have been formed between alliance-aligned carriers and those that are independent, such as Middle East network carriers, but in the Air France-KLM and airberlin partnership, each side is jumping squarely into another alliance. There is rationale: the partnership strengthens the two against a common competitor - Lufthansa - and also Air France pressured Etihad into bringing airberlin, of which it owns 29.99%, to it. As Mr Spinetta told Die Welt in Apr-2012, "A partnership with Etihad would only make sense for us on the Paris-Abu Dhabi route and to other hubs. On the other hand, a wider partnership would be possible if it included airberlin and its network in the German market."

airberlin has not been close to oneworld members since joining the alliance in Mar-2012, partially a result of insignificant oneworld capacity at airberlin's namesake hub, as well as airberlin having Etihad to work with for services to the east. Its partnership with Air France-KLM underscores the pressure marketing alliances are under to create value, and the possibility airlines will increasingly favour a strategy of being unaligned but working with relevant and strategic partners (as Alaska Airlines has done, but is tilting towards Delta).

To keep such a thought within the confinement of alliances, SkyTeam is seeking to add value by bringing in hybrid and low-cost carriers. Yet these "partners", distinctly not "members", would be free to choose which carriers to work with in the alliance, as well as have relationships with carriers outside of SkyTeam.

See related articles:

With framework completed, details await

While SkyTeam is ready to implement its hybrid and LCC platform, it remains to be seen what flexibility will be tolerated of fully-fledged members, as well as the reactions from members who want to work with the hybrid or LCC partners but are turned away. It is not difficult to imagine tipping points.

More immediately a tangle of partnerships must be worked out in the wake of these developments. At oneworld that centres around Emirates, which is with Qantas and is open to working with American Airlines, but also includes AA's and airberlin's existing partnership with Etihad.

The initial codeshares between Air-France-KLM-Etihad and Etihad-airberlin are tame with little confliction. But no doubt they will grow into encroaching territory.

Air France-KLM-Etihad and Air France-KLM-airberlin codeshare services: as of 08-Oct-2012

Marketing carrier Operating carrier Routes
Air France Etihad Via Abu Dhabi: Colombo (Sri Lanka), Dhaka (Bangladesh), Katmandu (Nepal), Mahe (Seychelles), and Male (Maldives)
KLM Etihad

Via Abu Dhabi: Colombo (Sri Lanka), Islamabad (Pakistan), Lahore (Pakistan), Melbourne (Australia), and Sydney (Australia)

Etihad Air France Via Paris CDG: Bordeaux, Copenhagen, Madrid, Nice and Toulouse
Etihad KLM Via Amsterdam: Billund, Cardiff, Newcastle, Oslo, and Stavanger
Air France airberlin Via Berlin: Krakow (Poland), Gdansk (Poland), Graz (Austria). Via Düsseldorf: Dresden (Germany)
KLM airberlin Via Berlin: Krakow (Poland), Gdansk (Poland) and Kaliningrad (Russia)
airberlin Air France

Via Paris CDG and Orly: Bordeaux, Lyon, Marseilles, Montpellier, Nantes, Nice, and Toulouse

airberlin KLM Berlin-Amsterdam as well as via Amsterdam: Edinburgh (UK), Glasgow (UK) and Manchester

One initial detail to be worked through is the topic of Australian services. Air France had a close partnership with Qantas, but that will end with Qantas aligning with Emirates. Australian routes are included with the Etihad-KLM codeshare (possibly at expense of current KLM partner Malaysia Airlines, which is joining oneworld) but not included between Air France and Etihad. Air France may be looking for a deeper solution. Etihad's network in Australia does not rival Qantas - but fellow SkyTeam carrier China Southern is making deep inroads.

Leaps forward with more opportunities remaining

How much airlines can gain out of all these new partnerships depends to a large degree on what overlap they tolerate or what other partnerships must be sacrificed. The big picture outcome is the pipe effect in which an airline does the comparatively easy work - scheduling a flight and connections - while partners do the grunt work of marketing the seats.

Etihad Airways is a purveyor of this, and in its 3Q2012 results reported that revenue from partners increased 51% to comprise 18% of total passenger revenue. Air France and KLM represent its 39th and 40th codeshare partners, giving the carrier a network of over 300 destinations. These are figures many a carrier would aspire to, and they can be realised.

This re-ordering of partners will be a continuous process, not only as markets change but as competitors respond too.

Suddenly Lufthansa is looking behind. As the anchor of Star Alliance, its response could influence other members, such as notoriously anti-Gulf Air Canada. With short-haul networks under pressure in many regions, battles must be picked. As these new partnerships show, enemies can be very good friends.

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