Top Gulf carriers traditionally spurned alliances
* Now entering industry groups, codeshare deals
* Shaky outlook for global economy is one reason
* May help them politically with routes, acquisitions
* Can negotiate from position of strength
DUBAI, Oct 17 - After years as the brash outsiders in the
industry, fast-growing Gulf airlines are starting to take a more cooperative
approach, seeking alliances rather than direct confrontation with big carriers
in the rest of the world.
The shift, which appears to be in response
to tough market conditions and a realisation that the Gulf airlines cannot
sustain their breakneck expansion indefinitely, may benefit consumers by
providing more integrated flight schedules and helping carriers cut costs,
which could in some cases translate into lower fares.
Qatar Airways last week became the first
major Gulf airline to announce plans to join the oneworld alliance. Members of
the alliance, which includes American Airlines, British Airways and Cathay
Pacific, cooperate in areas such as route networks, frequent flyer schemes and
parts procurement.
That deal was announced shortly after
archrival Etihad Airways, Abu Dhabi's flag carrier, sealed a codeshare deal
with Air France-KLM, under which they will share flights.
Emirates entered a codeshare deal with
Australia's Qantas earlier this year, the first for the Dubai-based giant,
which had previously steered clear of alliances and relied on organic growth by
expanding its fleet.
"This is great news for the
consumers," Tony Tyler, chief executive of the International Air Transport
Association (IATA), said at an industry conference in Abu Dhabi on Tuesday.
"Alliances help airlines offer very
competitive fares on other airline networks. So consumers can go around world
at competitive prices."
MARKET SHARE
Airline alliances were set up in the 1990s
to help carriers benefit from each other's marketing efforts and route networks
in the face of national regulators' tight control over traffic rights. In
addition to oneworld, the big alliances are Star, which includes Lufthansa, and
SkyTeam, which includes Air France-KLM and U.S. carrier Delta.
The entry of major Gulf airlines into
alliances took many industry analysts by surprise. The three top carriers,
created over two decades from the mid-1980s, are backed by rich governments,
enjoy modern aviation infrastructure and are based in a part of the world near
several key population centres.
This has allowed them, relying on their own
resources, to transform the Gulf into an intercontinental hub. In doing so,
they took away a big chunk of market share from the older airlines; the share
of Middle East and North Africa airlines in international traffic has jumped
from 4.8 percent in 2002 to 11.5 percent, according to IATA.
The Gulf carriers have become huge in the
process. Emirates is one the largest customers of Airbus, ordering over 90 A380
superjumbos, while last week Etihad reported a 19 percent year-on-year rise in
third-quarter revenues, a growth rate far beyond the capabilities of most
Western carriers.
Emirates "have been resolute in going
it alone and with their current performance and planned capacity growth, they
can afford to wait and see hasty marriages of convenience unravel rather than
act in haste," said Sudeep Ghai, partner at consultants Athena Aviation.
At this week's Abu Dhabi conference,
however, the rhetoric was more about cooperation than competition.
"It's a new era of global
aviation," Etihad's chief executive James Hogan told reporters at the
event.
"The old era, like any business cycle,
has to change. We have to change or we die. I think we are seeing the result of
all the Gulf carriers being innovative and taking advantage of our geographic
positioning, and partnering with airlines who see that same opportunity."
SHAKY OUTLOOK
Several factors appear to be behind the
change of heart. One, analysts say, is the shaky outlook for the global economy
and in particular the airline industry, which is prey to fluctations in oil
prices and currencies as well as demand. Even the Gulf carriers are not immune
to these risks.
IATA predicts the world's airline industry
will make a combined net profit of $4.1 billion this year, less than half the
$8.4 billion achieved in 2011. It expects profits will rise next year to $7.5
billion, but with the industry's profit margin staying razor-thin at 1.1
percent in 2013 versus an expected 0.6 percent in 2012.
In this environment, teaming up to cut
costs makes sense even for deep-pocketed Gulf airlines, which are not listed on
stock markets and so do not disclose their profit margins.
"The logic for joining alliances is
that it gives your network more reach. Qantas and Emirates are in an alliance
as they see logic in using each others' network. So it makes sense for
both," said Tyler, adding that he believed more such deals were imminent
in the industry.
Another motive may be that Gulf carriers
now see cooperation with other countries' airlines as politically more helpful
to their growth than a confrontational approach.
Emirates, Etihad and Qatar Airways are
rapidly adding routes around the world. Meanwhile, weak economies have driven
asset prices down to levels where acquisitions look attractive; Etihad has
taken stakes in Air Berlin, Aer Lingus, Virgin Australia and Air Seychelles in
the space of a few months. Qatar Airways has bought part of cargo carrier
Cargolux.
But the Gulf airlines need the goodwill of
national governments in other regions to secure new routes and have their
acquisition plans approved. As these regions struggle economically, it is to
the advantage of Gulf carriers to present themselves as allies of local
airlines.
The Gulf airlines have been forced to
defend themselves against claims of unfair competition by their European
rivals, which have raised questions about state funding and alleged fuel
subsidies. Entering alliances could help to insulate them against such attacks.
And the current strength of the Gulf
airlines compared to other carriers puts them in a good position to negotiate
the terms of their entry into the alliances.
"I guess necessity is the mother of
invention here...The advantage the three gulf carriers have is they have
network, a quality product and funding. They make attractive dance
partners," said Peter Morris, chief economist at aviation consultancy
Ascend.
http://in.reuters.com/article/2012/10/17/gulf-airlines-alliances-idINL5E8LE39920121017
