Alliances, mergers, codeshares, consolidations - the relationships between the world’s airlines are becoming more complex, reports Lucy Siebert
GULF CARRIERS HAVE ALREADY changed the shape of aviation, particularly in Europe, and now their alliance and partnership manoeuvrings look set to once again reshape the airline landscape.
For years, the chief executives of Emirates, Etihad and Qatar have brushed aside speculation about whether they would ever join an airline alliance, but today the world of airline alliances, partnerships and special relationships is looking very different.
By the end of this year Qatar Airways will be formally inducted into Oneworld, becoming the first of the ‘big three’ Gulf carriers to join an alliance.
Qatar will be looking to leverage its new alliance membership to jockey for a bigger slice of the transatlantic pie, particularly via Heathrow, but a corporate travel buyer at a European multinational points out that Qatar’s alliance credentials are likely to be a major boost for the overall attractiveness of Oneworld’s network reach.
He confirms that Qatar’s Oneworld entry is likely to see more of his US$300 million air travel budget going to that alliance. “It will, if we can negotiate the fares in that direction. At the moment if you look at Oneworld it is very heavily biased to the transatlantic, whereas if we were to do the fares with Qatar, then we can use it for Asia as well as transatlantic,” he says.
Oneworld’s director of sales, Jose Maria Alvarado, is also quick to stress the significance of Qatar’s entry into the alliance. “Until Qatar joined Oneworld, no global alliances were able to offer the network of a big Gulf carrier, and no big Gulf carrier could offer the benefits and services of a global airline alliance,” he says.
“Qatar Airways will make Oneworld the leading global alliance in the Middle East, the world’s fastest growing region for air travel demand, and, with [member elect] Sri Lankan Airlines, in the Indian subcontinent too.
“It will also add many attractive network options between, for example, Asia and Africa, southern Europe and South America.”
Oneworld is certainly keeping busy during 2013, having already welcomed Malaysian Airlines into the fold earlier this year. Lan Colombia will join its other Lan partners in the alliance during the final quarter of the year, while Brazilian carrier Tam will switch from Star Alliance to Oneworld in the second quarter of 2014.
In the States, US Airways’ merger with founding Oneworld member American Airlines (AA) was set to see the former shortly making the switch from Star Alliance to Oneworld – until the US Department of Justice (DOJ) threw a spanner in the works by filing a last-minute lawsuit against the merger. The DOJ claimed the merger would restrict competition. The two airlines said they would defend the merger, but in the meantime it means the only certainty is a delay in any plans.
If the merger does eventually happen, it would not only mean Oneworld becomes home to the world’s largest carrier, the merged AA, but also raise some intriguing alliance and partnership prospects. While AA has a long-standing codeshare agreement with Etihad, US Airways has an agreement with its soon-to-be Oneworld partner Qatar. Despite these existing relationships, Emirates’ president Tim Clark has publicly courted AA, following the Dubai carrier’s signing of its landmark joint venture with Qantas last year. Where that would leave the famously fierce rivalry between the three Gulf carriers is anyone’s guess.
BREAKING TIES
Much has been written about the forging of the Emirates-Qantas joint venture, particularly about how the non-revenue sharing deal meant the Australian carrier had to break ties with its long-term Oneworld partner British Airways.
Under the Emirates deal, Qantas remains a Oneworld member, but no longer works with BA on the kangaroo route from London to Australia. It has also abandoned Singapore as its hub for its flights to Europe in favour of Emirates’ Dubai base, and it now operates an extensive codeshare agreement with the Gulf carrier. Through Dubai, Qantas passengers can connect to almost 50 destinations with Emirates.
Despite the Emirates tie-up, both Qantas and Oneworld have stressed their relationship remains a strong one. Alvarado says the Emirates deal “made Qantas stronger – and that is good for Oneworld”.
He adds: “Qantas entered into its relationship with Emirates to help it stop bleeding money on its routes between Australia and Europe. But it has emphasised how important Oneworld is to it, and how vital its links with the alliance’s other members are.”
Meanwhile Qantas’s UK general manager Erik Jelinek insists the airline is sticking with its alliance. “As a founding member of Oneworld, we remain a committed member of the alliance and will also continue to have strong bilateral partnerships with airlines from around the world,” he says. “We continue to work with British Airways and maintain our codeshare partnerships with Lan on flights to South America. Our Joint Business Agreement with AA will continue to provide customers with coordination of flight schedules and a variety of connection options between Australia/New Zealand and the US.”
Jelinek adds early signs indicate passengers appreciate the convenience of connecting through Dubai. “In the first two months of the partnership, Qantas had a six-fold increase in bookings to Europe compared with the same period last year. We expect the momentum to continue and we see some exciting opportunities ahead as the partnership evolves,” he says.
While the Qantas-Emirates deal only went ahead after getting the green light from the Australian Competition and Consumer Commission, the aforementioned multinational travel buyer says he still has some concerns about the agreement’s impact on competition on routes to Australia. “You look at London to Australia – we’ve effectively lost one carrier [British Airways]. Now it’s Emirates and Qantas, and that is basically one carrier, with one set of fares,” he says.
Mark Clarkson, commercial director at aviation intelligence provider OAG, adds that for corporates this type of airline partnership is mainly beneficial from a scheduling point of view. “The main benefit for travellers and corporate buyers is derived through the greater integration of schedules, such as British Airways and American Airlines on the Heathrow-JFK route, and, arguably, the simplification or streamlining of fares,” he says. “For corporates, consolidation in some regions means a weaker bargaining position, such as on the transatlantic, but in others, such as from Europe to or from the Middle East or Asia-Pacific, more choice equals stronger negotiation.”
HIGH STAKES
Qatar’s alliance choice and Emirates’ Qantas deal have grabbed headlines, but Etihad’s strategy of forging codeshare agreements – it now has 34 – and buying equity stakes in other carriers, some of which are alliance members, is also attracting a lot of interest in airline circles.
Etihad owns 40 per cent of Air Seychelles, along with nearly 30 per cent of Oneworld member Air Berlin. It also holds just under 3 per cent of Aer Lingus, 20 per cent of Virgin Australia and 49 per cent of Air Serbia – formerly known as Jat Airways – and it looks set to increase its stake in India’s Jet Airways to 24 per cent.
It is the scale and reach of these partnerships and codeshares that have really made the wider aviation industry sit up and take notice, particularly as Etihad has consistently shunned traditional alliances. Chief executive James Hogan said, at the CAPA Australian-Pacific Aviation Summit in August, that Etihad has no plans to join an alliance, which he has described as “slow-to-respond, bureaucratic organisations”.
Hogan’s reiteration came just after the airline had closed an equity deal with Air Serbia and ahead of it inking an agreement with Jet Airways. The combination of Hogan’s clearly-stated comments, and these deals, should put to rest speculation about the potential of Etihad joining Air Berlin in Oneworld. Instead, it is now clear that Etihad is building a ‘mega carrier’ through integrating its partners’ networks, leveraging joint buying power and directing key airline functions to different parts of the world, where they can be most efficiently carried out.
Alessandro Ciancimino, general manager in Europe for Sabre Airline Solutions, explains: “The airlines involved in equity-based partnership models have what the Americans call ‘skin in the game’. The Etihad-led group and its partners each have a tangible stake,” he says. “That does not exist in traditional alliances. It means the participants in equity-based alliances are much closer. There is co-ordination of networks and schedules, product offering, and customer experience, all underpinned by meaningful synergies from a cost perspective. The goal for the equity-based alliance is the profitability of the group, rather than the individual carriers.”
Ciancimino adds: “From a technology standpoint this means effectively managing the network of the alliance, the revenue management of the alliance and the customer experience across the alliance, as if the alliance was a virtual single mega carrier.”
Despite the interest that Etihad’s moves are attracting, Star Alliance spokesman Markus Ruediger insists that alliances remain the strongest proposition in the market, particularly from a corporate perspective. “These developments show that some in the industry have realised that they cannot offer a global network purely based on organic growth, and that this can only be achieved through various forms of co-operation,” he says. “If you look at the number of flights and destinations to which Star Alliance can offer seamless travel, matching this is no easy task. After all, it took more than 16 years to build the current customer proposition.”
IN ON THE ACT
While the alliance and partnership manoeuvring continues apace, one part of the airline industry that has never had any desire to enter into complex partnership agreements or to join the sometimes bureaucratic alliances, has been the low-fares sector.
The likes of Easyjet and Ryanair are some of the most financially successful airlines in Europe and have been more than happy to continue with their simple model of shuttling short-haul passengers between points, while keeping their costs to a minimum. The very nature of these LCC’s business models requires quick decision-making and flexibility – something that is not always possible when you are part of a larger grouping or have a partner along for the ride.
But as Easyjet’s own transformation from a leisure focused, no-frills airline to a business-friendly carrier, complete with a presence on the global distribution systems and a dedicated corporate sales team, shows anything is possible in the changing world of airlines. This was illustrated late last year when Easyjet and Emirates quietly revealed a new agreement that allows Emirates’ Skywards members to use their Skyward miles for Easyjet flights.
Far from just offering the stressed-out long-haul business traveller a well-deserved weekend break in Paris or Rome, it illustrates how two very different airlines, operating two completely diverse business models, with traditionally no ties, are changing the nature of the game by looking for – and entering into – previously unimaginable new partnerships.
It’s a prospect that is a tantalising one for our corporate buyer, who says: “If you have low-cost carriers working with mainline carriers, that would be a very interesting development. If Easyjet started to feed into the Emirates network in Europe – for example, if you could fly on Easyjet from Toulouse to Paris and then get on Emirates from Paris to Dubai, that is clearly what Emirates would be looking for. From our travellers’ point of view, that would make using Easyjet a lot easier. At the moment you can’t connect with Easyjet, so you have to buy two tickets. If it was a seamless service that would give us a different option.”
Being able to hop from an Easyjet flight straight on to a Dubai-bound or beyond-Emirates service might sound great for the corporates, but it is something that could add significant cost to Easyjet’s operation, which means the low-cost carrier would look long and hard before considering any such option.
Still, with the rules of airline relationships and partnerships being rewritten at such a pace amid continuing economic challenges, it would seem that nothing is beyond the realm of possibility.
SWAP SHOP
Shifting airline allegiances can sometimes read like a sky-bound soap opera…
ONCE UPON A TIME an alliance would announce that an airline was joining its group, then a year or so later the new member would officially be branded with the alliance logo, and it would simply remain in the grouping from that point on.
However, mergers, soaring fuel costs and squeezed margins mean airlines have found that sometimes they simply have to switch alliances, or bail out of them altogether. Brazil’s Tam, for example, will soon make the switch from Star to Oneworld, as a result of its merger with Chile’s Lan.
Star Alliance spokesman Markus Ruediger insists the majority of alliance resignations are down to other factors, rather than the alliance itself. “There is no denying that any member leaving has an effect on the alliance, mainly in terms of flights, destinations and frequent flyer proposition. However, the reasons for the impending exits are due to mergers and changes in ownership,” he says.