"Etihad Airways Partners" Alliance accounts for 2.6% of global ASKs, 2.0% of seats

Etihad-established 'Etihad Airways Partners' has six founding members

Etihad Partners will have only about 2.6% of global ASKs compared to 18% to 24% each for the three big alliances, according to CAPA and OAG data. But it will serve half as many countries as the main alliances. It will be some time before the market at large sees Partners as a viable fourth alliance option.

But in the immediate future, Etihad Partners is trying to offer more than the established alliances, consistent with Etihad's dogma of quality over quantity. Alliances have focused most on revenue synergies, although all alliances have varying levels of cooperation.

Etihad Partners is looking for deeper cooperation on the revenue side and also tackling the cost side. Etihad Partners says membership is not exclusive. For example airberlin is a member of both oneworld and Etihad Partners.

Etihad owns stakes in the five launch airlines in the Partners programme. Future growth may be challenging. Others alliances could prohibit Partners membership, while other airlines could find the alliance too Etihad-centric.

In announcing "Etihad Airways Partners" on 8-Oct-2014, Etihad described Partners not as an alliance but a "brand". Etihad is likely intentionally avoiding "alliance", but conversely alliances are increasingly seen as marketing platforms, i.e. brands. The six founding members are airberlin, Air Serbia, Air Seychelles, India's Jet Airways, Darwin Airline and Etihad Airways. Only airberlin is currently in a global alliance.

Three airlines Etihad has stakes in are not yet members of Partners: Aer Lingus, Alitalia (pending regulatory approval) and Virgin Australia. Virgin Australia has made the clearest statement that it does not intend to join partners, although it said that is so only because it has an existing portfolio of partners. Virgin Australia and Aer Lingus are not members of an alliance while Alitalia is a member of SkyTeam.

Partners 'brand' has all the trademarks of an alliance, but Etihad seeks more

Etihad's description of Partners could be applied to any of the three alliances, with Etihad saying Partners "brings together like-minded airlines to offer customers more choice through improved networks and schedules and enhanced frequent flyer benefits." Etihad CEO James Hogan said in a statement said the Partners logo "will be displayed on aircraft and on branded materials by a group of airlines working together to connect travellers around the world, and increasingly to harmonise standards in the air and on the ground."

Perhaps the key difference of Partners from the existing alliances is Etihad's statement (emphasis added) of Partner members having "a strong commercial partnership and shared values". The three main alliances are arguably fragmented, with various levels of cooperation between members.

Even in dogmatic Star Alliance, there are multiple joint ventures but also limited cooperation from some members which prefers a hands-off approach. Strong commercial partnerships and shared values (beyond the basics) are seldom found alliance-wide. Likewise, Mr Hogan's reference to standards in the air and on the ground seldom extend beyond basic elements like member recognition. With Etihad clearly at the helm, it may be able to go further in cooperation.

Passenger benefit from Partners may be mixed in the short term. Partners says it will "remove the complexity and confusion that exists within the global alliances" by having a "consistent experience for frequent flyers when they travel, as well as a consistent framework for earning and using their miles".

Such confusion and various standards is typically the result of airlines holding independence, such as frequent flyer earning rates (highly subjective to fare classes) and differing award seat availability (if seats are made available at all: Singapore's new products are only available to its own frequent flyers).

Changing this however would require airlines to surrender autonomy. This will likely be more viable with the airlines Etihad has stakes in, as well as smaller future members. On the other hand, Partner's small size - initially at least - will restrict scale.

The distinction between Partners and other alliances may be greater to airlines than passengers. Alliances have stopped short of delivering meaningful cost synergies. Some have tried and others continue to explore cost savings, but this is generally small-scale with shared lounges and joint procurement of pillows or even economy class seats.

The issue has historically been each airline's autonomy and preference precluding scale, be it aircraft orders or business class seats. Mr Hogan said Partners would extend "well beyond pure commercial cooperation". Examples were vague but include: access to economies of scale and operational synergies such as centres of excellence, shared sales teams in certain destinations, joint procurement of services and supplies, and shared pilot and cabin crew training at the Etihad Airways facilities in Abu Dhabi.

Etihad Partners has network of almost 250 destinations in 80 countries

Etihad Airways Partners is small in terms of global capacity share but is launching with six members whereas the other alliances launched with no more than five members. However some of the founding airlines in Partners are significantly smaller than the founding members of the other alliances.

Like the three main alliances, Etihad Partners has a higher share of ASKs than seats, reflecting the numerous unaligned short-haul carriers, notably LCCs. Etihad's approximately 2.6% share of global ASKs includes airberlin, which is also counted in the statistics below for oneworld. airberlin accounts for about 0.8% of global ASKs.

Etihad Partners may be a fraction of the size of the three main alliances, but it serves about half as many countries as the main alliances. This gives Etihad Partners more presence than its mere share of seats or ASKs may suggest.

Alliance comparison: 2014

	Etihad Partners	oneworld	SkyTeam	Star Alliance
Global Seat Share	2.0%	15.4%	18.8%	20.5%
Global ASK Share	2.6%	18.2%	19.9%	23.7%
Members	6	16	19	27
Fleet	351	3,324	3,054	4,456
Destinations	245	994	1,052	1,316
Countries	80	152	177	192
Establishment	2014	1999	2000	1997
Number of airlines at establishment	6	4	5	5

Source: CAPA - Centre for Aviation, OAG (for week commencing 13-Oct-2014), oneworld (as of Jun-2014), SkyTeam (as of Jul-2014) and Star Alliance (as of Jul-2014)

Partners may do very well for Etihad without impacting the status quo

Partners brings to Etihad a more formal and branded front for its extensive partnership portfolio, which has different levels of engagement. As of 2Q2014, Etihad had 47 codeshare partners, most of which were straightforward codeshare arrangements while others involved commercial projects and others are airlines in which Etihad has a minority stake.

See related reports:

• Etihad 3Q2014: partner revenue reaches 27%, but clouded by Germany's codeshare rejection
• Etihad & Alitalia agree and affirm their partnership vision. Protectionist voices will become louder
• Etihad raises its Europe profile with codeshares and equity, expanding indirect connections

With some very close partners, combined with Etihad's growing involvement in the frequent flyer business (through purchases or having other airlines use Etihad's own), comes the opportunity for a sub-group of airlines to be formally acknowledged as being closer to Etihad.

The frequent flyer alignment (and existing equity stakes and commercial projects) would have brought many of the benefits Partners will, so this is an opportunity to seize what would have been created through loose and undefined labels, and focus greater attention and potential on it. Having the Partners brand may also incentivise others to become closer to Etihad.

The brand also ends discussion of Etihad's alliance role - Etihad now effectively has one bearing its own name - while raising the profile (and passenger flows) of Etihad and Abu Dhabi. After a late start, and in the company of some giants, Etihad needs to make itself as visible as possible. Its presence is arguably disproportionately larger than its actual size, such is Etihad's success at marketing.

Etihad Partners does not pose much of a threat to the global alliances

Such strong benefits to Etihad and its partnership portfolio do not necessarily bring immediate threats to global alliances. The global alliances are fractured and with various issues. But it would require significant defections before the alliances could be considered to be in terminal decline, as some have suggested in the wake of the Partners announcement.

Even if Etihad boosts its membership, with a current 2.6% share of ASKs, it will still have some way to go before it encroaches on the alliances. But the Etihad grouping relies more on the quality of membership and the impact on standardising the product across the various airlines than do the others. Seamlessness, or lack if it, between many major alliance members' services is a constant concern for travellers and for the alliances themselves. Being large and disparate makes standardisation complex.

There will be matters of details, such as coverage throughout the world and behind gateway access. With most of the world's major carriers now aligned in the three global alliances, there are limited opportunities for Partners to find new members. The global alliances may not permit existing members to also join Partners. There are variances in rules, written and unwritten, among the large groupings.

Growth of Etihad Partners will be commensurate with the increasing global reception of Gulf carriers. Partners has a strong doctrine of cooperation among each of the partners and supporting Etihad and its Abu Dhabi hub. For airlines used to autonomy - let alone sceptical of the new Gulf hubs - these can be big asks. The solution though is in the trade off of benefits which can be developed jointly.

In an industry laced with inefficiency, legacy thinking and reluctance to adopt new ways of doing business, Etihad's new approach is one form of evolution that should be welcomed by travellers and regulators alike. Putting barriers in the way of its expansion is not only to stifle Etihad, but also to cast a roadblock across necessary evolution of the creaking aviation regulatory infrastructure.