If this month of September is synonymous with going back to school for most of us, it will be synonymous with big maneuvers in the airline world. If we have seen in the last few years a gradual transformation of the airline landscape, the next few weeks and months are likely to bring about a profound recomposition with a number of chain reactions. A number of things have fallen into place over the last few months, and it is now inevitable that things will unravel very soon on a number of subjects with a major impact on the airlines and alliance strategies.
Joon, alliances: things will change at Air France-KLM
Let’s start with what is closest to us.After an announcement made this summer, we will know more about Joon, the new Air France airline, in the coming weeks. The issues at stake are anything but neutral: which destinations, which positioning in the airline’s offer, which is not always clear to the general public, and above all which target clientele? The “millenials” positioning displayed this summer is anything but clear and if it was chosen in a logic of communication we are curious – even skeptical – as to how it will materialize. And in the long run, the question arises as to the future of this not yet launched product. If this fails, Air France will be back to square one. In case of success, the airline will have succeeded in the bet missed by so many businesses: if you have to be “disrupted” in the long run, you might as well create the one that will do it rather than let a competitor do it. But with the limitation of the airline’s fleet to 25 aircraft conceded to the unions, the success, if it is achieved, will be only marginal. If it works, the Joon model will only remain a niche and will not be able to serve as a growth relay because it cannot be scaled up. The art of protecting oneself from success.
Air France-KLM is still waiting impatiently for the consequences of the airline’s acquisition of a stake in Virgin Atlantic. This is neither more nor less than Delta’s takeover of the British airline (Delta already owns 49% of Virgin Atlantic and has just acquired a 10% stake in Air France). It is hard to imagine that the operation will not result in a partnership, codeshare and the arrival of Virgin in Skyteam. This reinforcement of Air France-KLM and Delta’s position on transatlantic routes comes at a time when Alitalia’s exit from the alliance and the transatlantic joint venture with AFKL and Delta seems inevitable and should happen in the coming months. And a major move in Air France’s alliance strategies. In any case, we expect to have some announcements very soon.
The failure of Ethiad’s alliance strategy
Let’s talk about Alitalia. If the Italian airline continues to make announcements as if nothing had happened and as if its future was assured, the name of its buyer should be known in the coming weeks, the business surviving only thanks to a bridge loan granted by the state to save the vacations of Italians. On the starting line are Ethiad, which already owns 49% of the airline and has decided to stop the costs unless it takes full control), Easyjet, Delta and especially Ryanair, which is very aggressive on the issue. A takeover of all or part of Alitalia by the Irish airline would mean its inevitable exit from Skyteam. It is difficult to see Ethiad persevering with its disastrous alliance strategy And if Delta is today a credible candidate, given its financial strength, we at TravelGuys think that the American airline knows how to choose its battles and would be more interested, in the long run, in taking a stake in Air France KLM, given that the Franco-Dutch airline has failed in its quest for an industrial partner in the Gulf and is in desperate need of cash to accelerate the upgrading of its cabins
And since we are talking about Ethiad, let’s talk about Air Berlin. It is also part of Ethiad’s risky investments and is now for sale. Lufthansa is in pole position with the blessing of the German government but Ryanair does not see it that way and criticizes what it sees as an infringement of European competition rules. Can Ryanair run after both Alitalia and Air Berlin? Here again, there will be some upheaval in the alliances.
Eventually, a concentration of the sector in Europe around 5 to 6 large groups seems inevitable. It remains to be seen which ones.
Gulf Sisters having hard times
While we’re on the subject of Ethiad, let’s look at the Gulf. Ruinous alliance strategy, declining financial performance, the Abu Dhabi airline is suffering. If its losses are mainly due to the depreciation of its holdings in a myriad of airlines, the difficult market context weighs on its profitability. From there to foresee other “exits” that would reshuffle the cards by forcing airlines to find buyers.
Significant drop in profits at Emirates. More cyclical than structural, but here too it seems that reason is returning.
As for Qatar, it is too early to know what impact the embargo will have on the airline. One thing is certain, the ban on using the airspace of some neighboring countries and the closure of routes to Dubai and Abu Dhabi weighs on its regional business. And there are no signs that the situation will improve in the medium run.
Delta an obvious capital partner for Air France-KLM?
If the situation of the Gulf airlines is not too worrying, they have a lot to look forward to, it is clear that their investment policies will suffer. And besides, is there room for 3 major and ambitious airlines in the Gulf? The emerging rumor of a merger between Emirates and Ethiad to create an Emirati leader shows that even there the question is being asked.
As a direct consequence of these persistent questions, a European airline wishing to conclude a major strategic and capital alliance with one of the three will find the door closed. If the hypothesis of a merger between Air France and Ethiad has been long in the making, it is Delta which today has the best profile to bail out the Franco-Dutch airline and give it the cash necessary for its transformation. If the situation at AF-KL is less dramatic than in the past, this is a question that will come up sooner than we think. Unless China Eastern, which has also just taken a 10% stake in Air France…
As we can see, a real game of musical chairs is being set up, and the coming quarter will result in a definite reshaping of the European airline landscape and alliances.
To be continued on TravelGuys….
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