What to expect from the new partnership between Air France-KLM and Etihad?

Air France-KLM recently announced an extended and strengthened partnership with Etihad, which promises interesting synergies and logically raises the question of whether this is the first step towards something much bigger.

It’s been several weeks since the partnership between Air France-KLM and Etihad was announced, and its terms have already been widely presented and discussed, so we’re going to go over them again, but without dwelling on them, to quickly get to the main subject of this article: what does and doesn’t this article tell us about the balance of power between the major airlines and alliances, and the future of the airlines concerned.

The partnership between Air France-KLM and Etihad

Let’s start by summarizing the content of the partnership

– Extension of the 2012 code-sharing and interline agreement. Initially, 40 new routes to Europe, the Middle East, Asia-Pacific and Australia were marketed.

– Flying Blue and Etihad Guest members can earn miles by flying on Air France, KLM and Etihad.

Consolidation, in some cases, of the three airlines’ operations within the same terminal at certain airports, sharing of lounges and cooperation on ground services.

A strong partnership, therefore, which corresponds well to the situation of the two groups concerned and their needs.

Two groups in search of growth drivers

It’s important to understand that the various parties involved are, in varying degrees, looking for a second wind, or at least for new sources of growth.

This is especially true for Etihad, which has been in a bad way for years, and is struggling to carve out a place in the sun between its sister Emirates and enemy Qatar Airways. With its fleet of 74 aircraft, it lacks the critical size that would enable it to offer a vast network likely to attract a large customer base, and it would seem that its quality of service is no longer what it once was.

As a member of no alliance, it can’t count on its partners to boost its traffic, and while it has forged a number of partnerships outside alliances, they remain modest in their ambition. Let’s face it: the failure of our equity investment strategy and of Etihad Partners has hurt us enormously, isolating us and limiting our ability to invest.

We never imagined that Etihad could survive on its own for long, and if a marriage with Emirates seemed politically complicated, despite a timid partnership, the only salvation was to join forces with a European or Asian major in order to make the most of its hub location.

As for Air France-KLM, although all the indicators now seem to be in the green under Ben Smith’s leadership, it cannot be satisfied with organic growth alone in the face of an acquisition-hungry Lufthansa Group and IAG, which is about to get its hands on Air Europa. Let’s add another subject not often enough mentioned in our opinion: the programmed loss of competitiveness of its Amsterdam Schiphol hub. With a limited number of flights and an announced tax on transit passengers, what used to be a major asset for the group risks becoming a millstone around its neck, and this is a risk Ben Smith is fully aware of. Just as it is aware that, after the rise of the Gulf airlines, a new threat is on its doorstep in the form of the ambitious Turkish Airlines.

After missing out on the opportunity to buy ITA, external growth opportunities are few and far between, if you consider that the hunting ground can only be European: today there’s TAP and that’s it (and it’s far from won).

Of course, the acquisition of SAS changes the situation, but not enormously. Bigger than ITA, however, it doesn’t represent a large enough pool of customers to make a difference.

So to enrich its offer and its network, even if only indirectly, partnerships were the best way to go, and given its geographical position and the fact that it is not a member of any alliance, Etihad was certainly the best. This is all the more true given that its mainly Asian-oriented network perfectly complements that of Air France-KLM, which has focused its efforts mainly on North America (to think that they no longer even serve Vietnam other than through Vietnam Airlines is crazy…), a part of the globe where Skyteam is even weaker than its competitors. And Etihad also opens the doors to Oceania.

The Abu Dhabi airline also offers Air France-KLM the hub in the Gulf that Skyteam does not give it, as Saudia does not weigh enough and the arrival of Riyadh Air could even lead to fears of its downgrading.

While SAS brings three hubs to the group, their location makes them economically inefficient for Asian routes, and the Scandinavian airline’s long-haul network is so small that it adds little.

The two parties have therefore found each other very well through a partnership that makes sense on both sides.

Gulf airlines are no longer pests

The first thing this announcement tells us, or rather confirms, is that the days when the European and American majors were shooting the Gulf Sisters in the foot are over: they’re not fighting the ME3s, they’re allying with them. Qatar Airways has joined OneWorld, Etihad is moving closer to Air France-KLM, and if Emirates remains on its own, it’s not because nobody wants it, but because it doesn’t want anybody, which doesn’t stop it from multiplying its partnerships.

As for the European airlines, their problem is no longer in the Gulf but on the shores of the Bosphorus, but that’s another subject.

Now it remains to be seen how far this partnership can go.

Etihad in Skyteam? Why not?

For some, this partnership is the first step towards Etihad joining Skyteam. While it’s still too early to say for sure, we do think it’s a possibility, and indeed it’s been a recurring topic of discussion for years.

For Skyteam, this would indeed make sense. The alliance is, in our view, the weakest of the 3 international alliances, lacking truly premium airlines, and is weak in the Gulf region where OneWorld has Qatar Airways and Oman Air and where, without being present, Star Alliance benefits from the proximity of Turkish Airlines and its huge hub ideally located between Europe and Asia.

For Etihad, the interest is there, but not as obvious. After all, why join an alliance when you can multiply partnerships?

And to join an alliance is, according to some, to lose a little of one’s independence, which is one of the reasons why it is almost improbable that Emirates will join Star Alliance that makes eyes at it : we don’t see Emirates being in any way accountable to United or Lufthansa, especially not CEO Tim Clark.

But what’s true for Emirates may not be so for its neighbors. After all, Qatar Airways did join OneWorld, mainly because unlike its neighbor it doesn’t have the critical mass to go it alone. The same logic would apply with even greater force to Etihad….

So, Etihad in Skyteam? It’s possible, one day, but not obvious.

Etihad taken over?

Much more far-fetched is the idea of a takeover! Not from an industrial point of view, but for simple political and diplomatic considerations.

We’ve mentioned the idea of an Etihad takeover many times in the past, and for the excellent reasons outlined above: the airline is too small and too fragile to compete with its Gulf neighbors. But if there is a takeover, we can only see Emirates as a potential buyer, even if the rivalry between Dubai and Abu Dhabi makes things complicated.

As for a takeover by a foreign airline (which we’re not saying wouldn’t be interesting from an economic and operational point of view), it’s totally unthinkable today: the Gulf powers have their pride and will never tolerate one of their airlines falling into foreign hands.

If joining an alliance can be complicated, let’s not even talk about a takeover

So yes, an Air France-KLM-Etihad group would look great, but it’s pure fantasy and an idea unlikely to have come to the mind of any of the parties involved.

Bottom line

Air France-KLM and Etihad have signed a partnership that has all the makings of a win-win situation. As to whether this prefigures the airline’s integration into Skyteam, it’s too early to say. This is certainly a possibility, but there’s no guarantee that it’s the airline’s intention. But maybe it won’t have a choice.

What do you think of this partnership? Do you think Etihad can survive on its own, or is joining an alliance an inevitable conclusion? Tell us in the comments.

Image : A380 Etihad by IanC66 via Shutterstock

Bertrand Duperrin
Bertrand Duperrinhttp://www.duperrin.com
Compulsive traveler, present in the French #avgeek community since the late 2000s and passionate about (long) travel since his youth, Bertrand Duperrin co-founded Travel Guys with Olivier Delestre in March 2015.

Trending posts

Recent posts