Is the next big aviation alliance going to be an airline?
Star Alliance just got its 27th and newest member, Air India. That makes them even bigger than they already are - the biggest airline alliance, with bragging rights to a combined 18,000 daily departures to 1,269 airports in over 190 countries. SkyTeam is at the #2 spot, with over 15,700 daily flights to more than 1,000 airports in 178 countries. Finally, comes oneworld, with something in the order of 14,000 daily departures to more than 1,000 airports in over 150 countries.
But here's the thing. At the end of the day, all three are only alliances, and not entities. They do not own their member airlines; they don't even have a part equity stake in them. That's because the alliance is just a loose coming together of a bunch of airlines, that have committed to similar (if not identical) systems, policies, and standard of service, all combining to contribute to a seamless experience for passengers. Of course there are benefits for the member airlines, in the form of increased passengers flown resulting in greater revenues. But there's nothing in it for the alliance itself.
Cut to the middle-east. ME-based carriers have been notoriously famous for not joining any of the three large alliances, for the longest time. But growth is essential, and the big three ME airlines - Emirates, Etihad and Qatar Airways - are pursuing different strategies for growth. In October 2013, Qatar joined oneworld, whereas Emirates is looking to grow almost entirely organically. However, Etihad seems to be following its own strategy, and has effectively formed what is now coming to be known as the Etihad Equity Alliance, or EEA. And that, readers, may well be the next big alliance in aviation.
While the specifics are a bit murky, Etihad is owned by the Government of Abu Dhabi, which by definition gives it a virtually unlimited supply of funds. It is exactly these funds that have now been invested in various other airlines, giving Etihad part ownership of equity of those airlines. These investments are:
Most of these are strategic investments. What that means, is that Etihad is able to control, to a large extent, the operations of these airlines, their flight schedules, their codeshares, and how they are able to drive traffic to the Middle East (read Abu Dhabi).
Etihad acquired a 24% stake in Jet Airways, India last year, and has also bought over the JetPrivilege program, which is currently undergoing changes (you can read about those, here and here). Also recently, Etihad announced an operational partnership with Philippines Airlines. While there's no equity stake involved here, this provides another avenue for Etihad to work on some of the Far East market that travels into Europe (though the US would be easier to access flying east, I suppose).
And as fresh off the press as can be, today Etihad CEO James Hogan has announced a €560m investment, part of a €1.758m investment deal to build a reinvigorated Alitalia as a competitive, sustainably profitable business. This is really an investment to save a failing Alitalia, with the balance amount expected to be funded over 3 years.
Effectively, Etihad has brought together a bunch of airlines, strategically located in Europe, Africa, India the Far East and Australia.
So here's what I expect we should be seeing:
In effect, I think that Etihad will start functioning like an airline alliance. Etihad is funded by the Abu Dhabi government, which means they have virtually unlimited cash behind them to support many of these airlines in which Etihad has invested, as also any initiatives that provide better and uniform customer service.
From a passenger perspective, all of this could be great news for a more seamless travel experience. I'm keen to watch the developments in this space.
But here's the thing. At the end of the day, all three are only alliances, and not entities. They do not own their member airlines; they don't even have a part equity stake in them. That's because the alliance is just a loose coming together of a bunch of airlines, that have committed to similar (if not identical) systems, policies, and standard of service, all combining to contribute to a seamless experience for passengers. Of course there are benefits for the member airlines, in the form of increased passengers flown resulting in greater revenues. But there's nothing in it for the alliance itself.
Cut to the middle-east. ME-based carriers have been notoriously famous for not joining any of the three large alliances, for the longest time. But growth is essential, and the big three ME airlines - Emirates, Etihad and Qatar Airways - are pursuing different strategies for growth. In October 2013, Qatar joined oneworld, whereas Emirates is looking to grow almost entirely organically. However, Etihad seems to be following its own strategy, and has effectively formed what is now coming to be known as the Etihad Equity Alliance, or EEA. And that, readers, may well be the next big alliance in aviation.
While the specifics are a bit murky, Etihad is owned by the Government of Abu Dhabi, which by definition gives it a virtually unlimited supply of funds. It is exactly these funds that have now been invested in various other airlines, giving Etihad part ownership of equity of those airlines. These investments are:
- Darwin Airline (34%)
- Air Serbia (49%)
- Air Seychelles (40%)
- Air Berlin (29.21%)
- Jet Airways (24%)
- Virgin Australia (19.9%)
- Aer Lingus (4.1%)
- Alitalia (49%)
Most of these are strategic investments. What that means, is that Etihad is able to control, to a large extent, the operations of these airlines, their flight schedules, their codeshares, and how they are able to drive traffic to the Middle East (read Abu Dhabi).
Etihad acquired a 24% stake in Jet Airways, India last year, and has also bought over the JetPrivilege program, which is currently undergoing changes (you can read about those, here and here). Also recently, Etihad announced an operational partnership with Philippines Airlines. While there's no equity stake involved here, this provides another avenue for Etihad to work on some of the Far East market that travels into Europe (though the US would be easier to access flying east, I suppose).
And as fresh off the press as can be, today Etihad CEO James Hogan has announced a €560m investment, part of a €1.758m investment deal to build a reinvigorated Alitalia as a competitive, sustainably profitable business. This is really an investment to save a failing Alitalia, with the balance amount expected to be funded over 3 years.
Effectively, Etihad has brought together a bunch of airlines, strategically located in Europe, Africa, India the Far East and Australia.
So here's what I expect we should be seeing:
- Short term: some sort of arrangement with Etihad (partnering, codeshares, you name it) by each of those airlines, more than what's happening today; easier interlining arrangements between the airlines and Etihad, as also possibly a more uniform class of services.
- Medium to long term: code shares and arrangements amongst these airlines themselves (like the recent expanded codeshare agreement between Jet and Alitalia); a common alliance-type approach (like Star Alliance) that provides members a uniform and seamless experience across these airlines. We are also likely to see more investments in other airlines - conspicuously missing as of date, is an American investment.
In effect, I think that Etihad will start functioning like an airline alliance. Etihad is funded by the Abu Dhabi government, which means they have virtually unlimited cash behind them to support many of these airlines in which Etihad has invested, as also any initiatives that provide better and uniform customer service.
From a passenger perspective, all of this could be great news for a more seamless travel experience. I'm keen to watch the developments in this space.
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