Air France-KLM ready to make Etihad a strategic partner
 

Air France-KLM and Etihad are studying the establishment of a system of revenue sharing on a number of destinations. Air France could also return on Alitalia if Etihad invests.

A year after having carefully initiated a first commercial partnership with Etihad, Air France-KLM is ready to push much further the relationship, to make the company of Abu Dhabi a strategic partner of the first rank.

At a meeting last week in Berlin, the CEO of Air France-KLM, Alexandre de Juniac and the director general of Etihad, James Hogan, have discussed ways to move from the code-sharing agreement on current flights between Paris, Amsterdam and Abu Dhabi (as well as on a dozen destinations with connection), to the creation of a virtual joint venture, with a sharing of revenues, on a part of their respective networks.

"We have excellent relations with Etihad, which has shown a very fair partner, and we are now working toward the next phase", has confirmed this Thursday Alexandre de Juniac, off a meeting with the press. "We are discussing the establishment of a system of revenue sharing on a number of destinations. But this is a complicated subject, which will take a little time. We have not fixed a date for success".

Such an agreement would lead to eliminate any competition between Air France, KLM and Etihad on the routes concerned, so as to have a common front against the other competitors, in the first rank of which Emirates.

It needs to reach an agreement on the relevant destinations -those on which Air France, KLM and Etihad have no interest to go alone- but also on the fares charged, the aircrafts used, the commercial strategy and the conditions of distribution of the revenues.

A long work, already carried out on a large scale with Delta on the North Atlantic and, to a lesser degree, with China Southern and China Eastern for China.

Etihad thus becomes the strategic ally of Air France-KLM for the Middle East area which encompasses the Indian market, with more than 1 billion potential customers.

The agreement could be extended to Air Berlin, a subsidiary of Etihad, whose network already supplies the long-haul flights of Air France and KLM and would be accompanied by logically to an integration of loyalty programs.

Furthermore, the partnership between Air France-KLM and Etihad could also relate Alitalia. If Air France-KLM has decided not to participate in the recapitalisation of the Italian company failing to see its conditions met, the group could return to the folder with Etihad, which is currently reviewing a possible decision of participation in Alitalia.

"If Etihad may do something with Alialia, Air France-KLM will be interested", assured Alexandre de Juniac. "I have read in the press that the conditions posed by Etihad are similar to ours concerning the restructuring of the debt of Alitalia, industrial restructuring and the conditions of control. If these conditions were met, we would be ready to look at. In addition, Air France-KLM remains an important partner for Alitalia. If someone may ally with them, it has an interest to agree with us".

Source: Les Echos

Wonder if this would lead to the ST membership. They have excellent award availability and would dramatically hike the value of my skypesos.

Sad if AB follows into ST.

Very interesting news, indeed! I've noticed, for some time now, that the KL has been offering codeshares on EY for quite a number of routes: including (not surprisingly) the Europe-OZ trip and (more surprisingly, to me) EUR-AMS->SEZ (Seychelles) via AUH (on EY) rather than via NBO (on KQ) - and the latter is considerably cheaper than the KQ/NBO option!

I've also (IIRC) spotted codeshares on AUH-MLE (Maldives) - a route previously 'inaccessible' to SkyTeam travel.

But a full 'JV' or alliance membership would definitely be a good thing from my perspective.

-- Henry

Le grand mechant loup va les manger tout crus... My sense is that AF don't really know what they are doing. They are finding themselves in nasty spot, still bleeding money while their main competitors seem to have turned the tide, and I think that the story of their behaviour in the past year or so has simply been one of indecision and trying to find a miracle solution while pretending that the elephant in the room (personnel) is simply a mouse.

Whatever can be done to bring EY into one of the 3 alliances is a good thing in my book.

I understand why AFKL would like a closer cooperation with EY, especially in light of AZ.
Harder to understand why EY wants it. I have heard complains by EY frequent flyers who were shocked to get an AF-leased A340 with antique angled J seats for a EY coded/operated flight to CDG. I heard that EY decided to stop the lease, but was not god for their image.
The product quality is so different between AF and EY that it is hard to understand how EY can accept it.

I may be completely off the mark but my guess... I think EY have long wanted to enter the European market properly. Air Berlin has limited potential as has Darwin (now 'Etihad regional), so I expect that they want AF to be their Troy's horse, especially has they have started their airline odyssey much later than EK and even QR and thus need to try something different than the other two to manage to increase their size. I personally think that product quality is a short-term concern in the sense that AF is in such a mess at the moment that whatever their product quality might be in two years is completely open. My guess is that EY will probably want to position itself, wait for AF to keep sliding and then portray itself as a zorro and then try to buy the 49% of the company they would be allowed to own while imposing their own recipe (or diet) to the faltering airline.

I also think that EY is anticipating to become an investor in AF/KL on the long term.

+1 ^

An existing JV on the transatlantic market, an emerging JV with some Chinese partners and another one for the Middle East that can also compensate somewhat for the lack of an Indian partner and help on the route to Australia. Overall, this is a good move for Air France/KLM.

Eithad have no intention of joining any of the alliances. Their business model is obvious and it doesn't involve alliances.

EY are building a network of partnerships with airlines who feed traffic into their AUH hub. They are codesharing on all of them and picking up connecting traffic on all of them and feeding them into their own flights and (to a lesser extent) each other.

They are basically building AUH into a giant hub that they control and that their partners feed into. Their partners are offering some reciprocal loyalty benefits -- in some cases these are substantial (as with VA which is pretty much a whole of network partnership) and in some cases they are the minimal for functional cooperation (eg. apply only to codeshare flights).

Beyond that, they don't really care what alliance or what other partners their partners have providing they feed connecting traffic into AUH where appropriate. They don't want to join Skyteam, they just want AF, KL, AB and anyone else to route Asia/ Africa/ Australia traffic via AUH and they want those airlines to take EY passengers on to secondary markets that EY itself does not yet serve.

I agree that this is their number one goal. But with the way the competition is lining up, they might feel they *have* to join an alliance to meet that goal as OW pushes all their traffic through DXB and DOH. But I agree that if they can get away with partnerships, then they won't need to join ST. We'll see how it shakes out.

To be honest i think it's the other way around. Airlines that should be sending their traffic through their alliance hubs are defecting and signing up for the EY model. The question is not "will EY join an alliance" it is "how many prominent alliance members will EY sign up?"

Right now there are a lot of weaker established carriers and upstart airlines with needs to form global networks quickly for whom the etihad model works. To look at VA who i fly with most often, the Etihad deal took them from almost no global network to having almost as many one stop connections as QF almost overnight. AB have done the same thing in the opposite direction.

Alliances are complex beasts but the proposition of having 20, 40 or 100 one stop destinations added to your network overnight with what appears to be a good revenue sharing system is a good one for anyone who can feed AUH and the promise of feed in the other direction and code-sharing with EY considerably reduces your risk.

+1

The business and operational models are the same for Etihad as any other major airlines (except for the ones who do not pay fuel and staff as the others do).

If you want to feed your hub, you need to be connected with numerous destinations.

To do so, you can play alone only for the major destinations. In any other case, you must work with some partners,

Either you negociate with small companies (or buy them), but then you need to sign numerous agreements (it will cost you some money, because synergies are small and benefits at the level of the - small - market; and if you buy some small companies, it will need a lot of investments for poor additional market shares/additional revenues for the hub).

Either you negociate with a major company. In that case, the synergies will be much bigger (not only more destinations with one agreement, but also synergies on ground operations, maintenance, major procurement, etc.). To prevent any opportunist strategy, the major may kindly ask you to enter its alliance.

And if you are Etihad you say "no."