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Air France-KLM to partner with Etihad? - If you can’t beat them, join them

Enfin, si vous ne pouvez pas les battre, joignez-les …. After adopting one of the most aggressive stances against the Gulf carriers, Air France-KLM is to conclude an apparently substantial codeshare agreement with Etihad, according to a news report from Le Figaro yesterday.

It seems that Air France, now under a new CEO, Alexander Juniac, may have had a change of heart. Just over a year ago, Jean-Cyril Spinetta, CEO of the combined Air France-KLM group, told the newspaper: "The Gulf companies are killing our industry."

And Pierre-Henri Gourgeon, Air France’s former DG strenuously maintained to anyone who would listen that the Gulf carriers were indulging in unfair competition, being (unlike Air France) subsidised by their governments. Shortly before he left Air France, M. Gourgeon told Bloomberg, in Oct-2011, that Europe is “at the crossroads of international air travel, and this is a role we need to value and defend.”

Now however, even if the reports of a new codeshare are overblown, merely the fact that Air France is even dealing with one of the main invaders takes on a major significance. It could help tilt the always-uneven playing field even further.

Emirates, and more recently Etihad and Qatar Airways, have begun to transform global aviation, using a new model tailored around holistic national aviation policies that positioned the airline at the centre of an airport, tourism and economic planning design. From their unique geographic situation, they are now able to meet a large proportion of global air travel demand by flying one-stop over the gulf. In doing so they have created a new aviation centre of gravity in the region.

All this has been particularly threatening to the legacy airlines of Europe, which similarly, over many years, had gained their powerful sixth freedom operating positions through a combination of subsidy and protection That these sixth freedom roles are now being seriously challenged – with little clear path to retaining their traditional traffic flows – has prompted “strategies” consisting mainly of trying to slow the process of liberalisation.

The timing of the Gulf carriers’ rise is unfortunate because the Europeans are also being attacked from within, as powerful and lower cost LCCs like Ryanair and easyJet – but also newer rivals like Norwegian and airberlin – strike at their shorthaul spokes.

Meanwhile, too the European airlines are being seriously handicapped by unhelpful attitudes of the EU and most governments, seemingly more interested in taxing their airlines out of business, preventing airport expansion and imposing new regulations on a weekly basis – at the same time as perpetuating a costly and highly inefficient airways system. And internally, the legacy airlines’ unions are largely unwilling to introduce efficiencies that would help reduce costs. The legacy majors might justly feel they are on a hiding to nothing these days.

On the other hand, from its outset, a little over eight years ago, Etihad Airways has enjoyed an enlightened government’s attitude to developing infrastructure, as well as encouraging an open skies approach which opens access to diverse new markets, all within a comprehensive economic strategy. Full service it is; legacy it is not. The carrier, under CEO James Hogan’s leadership, has from the start also actively pursued a strategy of developing a diverse network of interline agreements, codeshares and partnership agreements.

Then last year it took its ownership stake in airberlin to 29.2%, becoming the European carrier’s largest single shareholding and entering an extensive alliance agreement with the carrier. Earlier this year, Etihad took a 40% stake in the troubled Air Seychelles. It also has a major alliance agreement with Virgin Australia.

These partnership moves are in contrast to the Europeans’ “real” enemy – Emirates – whose inroads into Europe have stung the big legacies to the quick, but which prefers an organic approach to its expansion. Partly this is intentional, although there are areas where the established airlines are closing them out of codesharing partnerships or from establishing joint frequent flyer programmes.

Now, as details emerge of the new Air France-KLM and Etihad relationship, the repercussions are likely to spread across the world. It was always going to be a threat to the other legacies if one of their number broke ranks and engaged with one of the new breed. Last year Lufthansa came close to an agreement with Etihad and British Airways toyed with the idea. But few would have expected Air France to be in the vanguard.