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Qatar Airways and Vueling to codeshare as LCC partnerships establish new models

Partnerships of any kind between Europe's principal LCCs and full service airlines are rare. The new codeshare between Qatar Airways and Vueling builds on the interline deal signed between the two in Oct-2014. Moreover, it marks a further deepening of the relationship between the Doha-based super connector and IAG, of which it now owns 20%. Vueling joins IAG-owned airline British Airways in codesharing with Qatar Airways, but the new agreement is more extensive.

Vueling is now carrying Qatar Airways' QR code on 67 European routes. These routes are from/to Barcelona El Prat and Rome Fiumicino, which are Vueling's two biggest bases, and both served twice daily by Qatar Airways from Doha. The accord significantly expands Qatar's offline network, but the value of this and two-stop connections is difficult to gauge.

Lufthansa's LCC Eurowings and AF-KLM's LCC Transavia already have some codeshares, but these LCCs are far smaller than those of the continent's heavyweights. Ryanair and easyJet discuss partnerships but have yet to cement anything. Other big European LCCs Wizz and Norwegian also do not have extensive partnerships yet. Other LCCs will join Vueling's partnership approach. Vueling's partnerships can be expected to grow both within and outside oneworld, the alliance of its owner, IAG.

Vueling carries Qatar Airways code to 52 destinations in Europe (mainly SW Europe)

The 67 routes on which Vueling is carrying the QR code comprise 49 routes from Barcelona, from where it operates 144 routes in total, and 19 from Rome FCO (out of the 59 routes it operates there in total).

Qatar Airways is not carrying Vueling's VY code into its network.

The 52 unique destinations covered by the agreement are principally (but not exclusively) in South Western Europe, with 24 in Spain, 16 in Italy, four in Portugal, two in France, two in Croatia and one in each of Germany, Malta, the Netherlands, and the Czech Republic. The codeshares from Barcelona are mostly to domestic Spanish points, or they entail backtracking to Italian domestic points. There are also codeshares to other European points; some like Lisbon that are geographically convenient from Barcelona, and others like Dubrovnik that entail significant backtracking.

Vueling routes from Barcelona carrying the QR code

Destinations in Spain (23)

Destinations in Italy (15)

Destinations in other countries (11)

Alicante

Ancona

Dubrovnik

Almería

Bari

Faro

Asturias

Bologna

Fuerteventura

Barcelona

Brindisi

Lisbon

Bilbao

Cagliari

Madeira

Gran Canaria

Catania

Malta

Granada

Florence

Porto

Ibiza

Genoa

Prague

Jerez

Naples

Rotterdam

La Coruna

Olbia

Split

Lanzarote

Palermo

Stuttgart

Málaga

Pisa

 

Menorca

Trieste

 

Palma de Mallorca

Turin

 

San Sebastián

Verona

 

Santa Cruz de la Palma

 

 

Santander

 

 

Santiago del Compostela

 

 

Seville

 

 

Tenerife Norte

 

 

Tenerife Sur

 

 

Valladolid

 

 

Vigo

 

 

Codeshares from Rome are fewer, if only representing Vueling's smaller (more nascent) presence there. Qatar will code to more destinations in Spain than Italy.

Vueling routes from Rome Fiumicino carrying the QR code

Destinations in Spain (9)

Destinations in Italy (3)

Destinations in other countries (7)

Alicante

Catania

Dubrovnik

Bilbao

Lampedusa

Malta

Ibiza

Palermo

Nice

Málaga

 

Paris Orly

Menorca

 

Prague

Palma de Mallorca

 

Split

Santiago del Compostela

 

Stuttgart

Seville

 

 

Valencia

 

 

Vueling codeshare is more extensive than British Airways-Qatar partnership

In terms of the number of routes, this new codeshare with Vueling is now the most significant partnership between Qatar Airways and any IAG-owned airline. Qatar does not currently codeshare with IAG's other Spanish airline, Iberia, and its codeshare with British Airways involves only 14 routes in total.

Under the BA-Qatar Airways codeshare agreement the QR code is carried to seven destinations from London Heathrow and one from Manchester. These are all in North Western Europe (see table below), but are not as extensive as the access provided by Vueling to Qatar Airways to destinations in South Western Europe – particularly in Spain and Italy.

Four of the eight destinations to which BA carries the QR code are in the UK and there is one destination in each of Germany, Ireland, the Netherlands and Denmark. In addition, the QR code is carried on BA franchise business jet services from Oslo to Aalborg and Aarhus in Denmark, operated by Evergreen Helicopters.

Although the BA-QR partnership is less extensive than the Vueling-Qatar agreement, it has the additional feature of being a reciprocal agreement. In addition to the routes on which BA carries the QR code, Qatar Airways carries the BA code from Doha to five destinations in Pakistan and one in Africa (see table below).

Routes covered by British Airways-Qatar Airways codeshare agreement

Qatar Airways routes from Doha carrying BA code

BA routes from London Heathrow carrying QR code

BA routes from Manchester carrying QR code

BA routes from Oslo* carrying QR code

Addis Ababa

Amsterdam

Billund

Aalborg

Dhaka

Belfast City

 

Aarhus

Islamabad

Dublin

 

 

Karachi

Glasgow

 

 

Lahore

Hamburg

 

 

Peshawar

Leeds Bradford

 

 

 

Newcastle

 

 

The new agreement significantly increases the number of QR-coded destinations in Europe

Qatar Airways flies direct to 37 airports in Europe from its hub in Doha. Excluding the Vueling codeshare, it has offline access to a further 44 European destinations via other codeshare partners.

Apart from its Western European codeshare destinations via British Airways, as noted above, the majority of the rest of these offline European destinations are in Russia (through S7 Airlines). In addition, its codeshare with Royal Air Maroc gives it offline access via Casablanca to four European cities that are now also part of the Vueling agreement – Lisbon, Malaga, Tenerife Norte and Valencia.

The Vueling partnership allows Qatar Airways to offer its customers a further 48 unique offline European destinations – more than doubling the number of its codeshare destinations.

It will also allow it to offer passengers in these European cities easier access to its network. Apart from Doha, Qatar Airways' 150 global nonstop destinations include 27 in the Middle East, 50 in Asia Pacific and 18 in Africa.

Passengers in all these destinations can now make two-stop trips (via Doha and either Barcelona or Rome FCO) under a single code to European cities in Vueling's network.

Vueling benefits from additional feed, and partners are seldom controversial

For its part, Vueling should benefit from additional feed from Qatar Airways' network into its routes at Rome and Barcelona. With two years of experience of cooperation through an interline agreement to exploit, plus its knowledge of its own transfer product at the two airports, Vueling should be well placed to handle connecting passengers.

The LCC's Chairman and CEO Javier Sánchez-Prieto said: “There are increasingly closer ties between Qatar Airways and Vueling, and this agreement will enable passengers from both airlines to benefit from the flexibility and convenience provided by the code-share on different European and Middle Eastern routes”.

Without any flying of its own to the markets that Qatar links, codeshares from Qatar are not directly very controversial. Assuming the commercial agreement is sound, Vueling receives the upside with little downside at risk. There may be broader IAG group-level concerns, such as if the codeshare benefits the group or hinders it – perhaps (to play devil's advocate), because the traffic should flow under British Airways or Iberia. Yet Iberia's eastward network is minimal, British Airways has stronger O&D emphasis, and overall IAG is pragmatic and often lets its member airlines run their own business.  

Codeshares involving European LCCs are rare

The deal is significant for Vueling in being only its third codeshare agreement and, more significantly perhaps, in being its sole codeshare with an airline from outside IAG.

Moreover, codeshares remain fairly rare among Europe's principal LCCs. Indeed, none of the leading independent LCCs in Europe – Ryanair, easyJet, Wizz Air and Norwegian – currently operates any codeshares.

Even interline agreements remain rare for European LCCs. Ryanair has openly mused over the possibility of its providing short haul feed into other airlines' long haul networks, but has so far not reached agreement with any prospective partner (not least because of the difficulty in agreeing how to allocate costs if a passenger misses a connection).

Nevertheless, it seems likely that Ryanair will conclude such an agreement at some point, particularly given its growing presence at primary airports. It has also indicated plans to introduce a trial transfer service for its passengers at London Stansted and Barcelona. That said, Ryanair will stop short of pursuing codeshare agreements any time soon.

See related report: Ryanair transfer traffic & interlining; closing the gap with FSCs on product, but not on costs

Europe's legacy-owned LCCs have codeshares with FSCs in the same group and with their parents' alliance partners

Like Vueling, the other LCC subsidiaries of European legacy airline groups also employ codeshare partnerships. Nevertheless, these are confined to partnerships between airlines in the same group, and with members of the global alliance to which the parent airline belongs. This is the case with Vueling and Qatar Airways, which is a member of oneworld.

The Lufthansa Group's Eurowings codeshares with fellow group airlines Lufthansa, SWISS and Austrian, in addition to Star members Air Canada, ANA and United. Lufthansa's Germanwings subsidiary also codeshares with these partners and additionally with Brussels Airlines and Condor (the latter two might be expected to extend their agreements to Eurowings as it increasingly assumes operations from Germanwings).

Air France-KLM's Transavia codeshares with its sister airline KLM and with SkyTeam's Delta. Its Paris-based arm, Transavia France, has no codeshare agreements.

Vueling's premium product helps to overcome one of the hurdles to LCC/FSC partnerships

One of the traditional obstacles to LCC-FSC codeshare agreements is the difference in service quality. In this respect Vueling, which has always had more of a hybrid model, is better placed than many European LCCs to mesh with a full service product.

Vueling has a business cabin, which includes a class divider and extra legroom, in addition to premium features such as priority boarding, on-board service including hot meals and towels, fast-track security and lounge access. Other European LCCs have also moved in this direction, but Vueling has been offering a premium product for longer, and offers more premium features.

Qatar Airways' premium customers will have access to Vueling's Excellence Class and its frequent flier members can earn Qmiles on Vueling codeshare flights.

The necessity for Qatar Airways' equity stake in IAG is debatable

When Qatar Airways first took a 10% stake in IAG in early 2015 CAPA wrote an analysis report suggesting that a deepening of the commercial relationship between the two would bring significant benefits, but that this did not require an equity stake on either side. The report postulated that, perhaps, it was Qatar Airways' way of demonstrating that it was serious about a commercial partnership that is both close and long-term.

See related report: Qatar Airways buys its 10% stake in IAG, showing it wants a serious relationship

The only factor that changed materially from then to the time when the stake was raised to 20% in Jul-2016 was that IAG's share price fell below its level in early 2015.

Qatar Airways said on 1-Aug-2016 that its interest in IAG was "purely financial" and that the "recent market valuation of one of the world's leading airline groups has provided what we believe is an attractive opportunity to increase our shareholding". However, it also said that the increased stake signalled its continued strategic support for IAG.

As a financial investment, there are safer and more profitable ways to look for a return than investing in airlines, so the strategic signalling is the more important motivation.

Before it took the initial IAG stake Qatar Airways had not followed the path of equity stakes favoured by Etihad, but the increased IAG stake comes soon after the announcement of a planned 49% stake in Meridiana (albeit for geopolitical reasons) and a minority acquisition in LATAM, which has very low geographic relevance for a Gulf hub. It is too early to say Qatar Airways is looking to develop a more M&A-based expansion strategy.

A broader relationship awaits: a BA-Qatar JV

The two main challenges to Europe's big three legacy airline groups in recent years have come from LCCs and from Gulf airlines. IAG has led the Lufthansa Group and Air France-KLM in its response to these threats. Conversely, it might be considered the threat to IAG from these factors is lower than to AF-KLM and Lufthansa.

Whatever the nuances of the equity link between IAG and its Gulf-based investor might be, the new codeshare agreement between Vueling and Qatar Airways demonstrates a significant working relationship.

Other airlines may now pursue a codeshare with Vueling. This could include members of oneworld – the alliance for IAG's full service units (but not Vueling itself) – but also other airlines where a partnership is beneficial.

Far more important to both IAG and Qatar is concluding a long-discussed joint venture between British Airways (and perhaps Iberia too) and Qatar Airways. The Vueling-Qatar codeshare is largely one-way, with little downside. A JV is far more comprehensive. It will be quite a leap to make.

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