CEO Blog

Etihad Airways creates a new alliance – what for?

Written by Ravindra Bhagwanani on . Posted in CEO Blog

EY partners

13 October 2014

Etihad Airways has announced the creation of an alliance with five of its equity partners, with FFP benefits being at the heart of the coordinated offering. But does the market need yet another and especially such an alliance?

In 1999, there were still many reputed airlines not participating in an alliance. It was hence widely seen as logical step when Air France, Delta, Korean Air and AeroMexico teamed up to create the third airline alliance, SkyTeam, one year later.

Quick forward to 2014: Hardly any relevant full service airlines does not belong to an alliance anymore, unless it happens out of sheer conviction as it is the case with Emirates. Other late comers feel more and more left behind the alliance game and struggle to define their position. Etihad is the best example for that.

After Qatar Airways joined the oneworld alliance, Etihad had only two options left. Its opportunistic partnership with Air Berlin turned Lufthansa in an even more virulent opponent, blocking it de facto from entering Star Alliance in the foreseeable future. A code-share agreement with Air France KLM, which still doesn’t include an FFP tie-up by the way, was seen by many as potential overture towards SkyTeam – and there were even talks of Etihad wanting to make Air Berlin switching from oneworld to SkyTeam, what has obviously never happened. After Etihad showing its true intentions by buying into Alitalia, the relationship with Air France KLM has moved from the temperature of a mild winter day in Andalusia to the temperature of a chilly Christmas night in Alaska.

Not used to admitting any defeat, Etihad has now surprised the market by announcing its own “alliance” Eithad Airways Partners with five of its equity partners, including oneworld partner Air Berlin and Jet Airways – but interestingly enough not with two of its key partners, Virgin Australia and Alitalia. The alliance will also be open to any other airline, even if they are already member in another alliance. The purpose of the alliance is a coordination of schedules and harmonisation of Frequent Flyer Programs, meaning that the alliance is doing nothing else than reinventing a 17-year old wheel, what looks a bit awkward right from the beginning. There is a big question mark whether such an ordinary approach will really have the potential to change the market or even represent any significant power in the decision process of customers in favour of these airlines.

Customers got used to the benefits of established alliances and will benchmark against them (if ever they care about Eithad Airways Partners in first place at all). And even a comparably small carrier in Star like Shenzhen Airlines risks having more overlap with fellow partners SAS or Air New Zealand than Air Seychelles with Air Serbia or Etihad Regional. Even with some well-noted strange selections of partners notably at Star (Varig, Ansett, Air India etc.), there is nevertheless some selection process taking place at the three major alliances. Eithad Airways Partners, however, is the result of a very opportunistic investment policy of Etihad Airways. Bringing the dots of this “strategy” together doesn’t yet build an alliance network, but rather a patchwork.

A few years ago, El Al – a carrier probably never entering any of the three alliances for political reasons either – announced plans to create an own alliance, dubbed “Western-Eastern”, mainly with Eastern European carriers such as AeroSvit, Armavia (now both out of business…) and UTair. It became silent about this project very quickly after the initial announcement – an indication of what might happen to Etihad Airways Partners as well, at least if you look behind the fanfares of its loud marketing department.