ATW Editor's Blog

Lufthansa & Etihad: From enemies to partners


Lufthansa and Etihad, in the past, have fought over airberlin codeshare rights specifically and more broadly over Gulf carrier growth and subsidy allegations.

Today, the two became business partners, completing a codeshare and wet-lease agreement that links together Germany’s Lufthansa Group and Abu Dhabi-based Etihad Aviation Group, ironically with airberlin aircraft at the center of the deal.

Etihad, which owns a 29% stake in airberlin, has agreed to wet-lease 38 airberlin Airbus A320 family aircraft to Lufthansa Group, which will use them to operate routes for two of its airline units, Eurowings and Austrian Airlines. The agreement is particularly important for low cost carrier Eurowings, which Lufthansa is looking to grow more rapidly.

Meanwhile, Lufthansa will place its LH code on Etihad Airways’ twice-daily flights between the two airlines’ respective home hubs of Abu Dhabi and Frankfurt, and on twice-daily Abu Dhabi-Munich services. Etihad will put its EY code on Lufthansa’s flights from Frankfurt to Rio de Janeiro and Bogota.

Both elements of the partnering arrangement are subject to regulatory approval, but if accomplished, it will be the latest example of a legacy flagship and a Gulf carrier becoming dance partners. British Airways parent IAG was the icebreaker; IAG CEO Willie Walsh and Qatar Airways Group CEO Akbar Al Baker forged a deal that made Qatar Airways a stakeholder in IAG – a stake later increased to 20%. Walsh was also instrumental in getting Qatar Airways into the oneworld alliance (joining oneworld founder member BA and also, oddly enough, airberlin.) Qatar Airways is now also taking a 10% stake in LATAM Airlines Group.

Some accused Qantas CEO Alan Joyce of doing a deal in 2013 with the devil when he signed a 10-year global partnership with Emirates, the largest of the “big three” Gulf carriers. Although no investment stake was involved, the deal permitted extensive coordination and allowed the Australian flagship to cut back its own European flights and connect to Emirates’ broad European network, even shifting its European connecting hub from Singapore to Dubai. Lucifer has been lucrative; restructuring and partnerships have helped Qantas climb from A$2.8 billion ($2.1 billion) net loss in its fiscal year through June 2014 to a record profit of A$1 billion for the 2015/2016 fiscal year - the best result in its 95-year history.

Now we have Lufthansa and Etihad in a dance, with the Group CEOs of each replacing subsidy barbs with hints of a greater future together.  “We are looking forward to partnering with the Etihad Aviation Group,” Lufthansa Group chairman and CEO Carsten Spohr said. “We will consider extending our cooperation in other areas.”

Etihad Aviation Group president and CEO James Hogan responded, “This new relationship with Lufthansa marks the next step in our commitment to the leading European aviation group.”

Perhaps it’s simply a case of two smart businessmen realizing they are better off working together than fighting in an industry environment that gets only more challenging. Hogan has often noted that Etihad’s two biggest competitors are those in his backyard. Emirates and Qatar Airways have become stronger competitors through their partnerships with legacy and other carriers. Lufthansa Group, though performing well, is still in cost restructuring catchup mode relative to IAG; and both airberlin and Eurowings are loss-making. The new partnership could yield returns across each group’s portfolios and make them more resilient to the competition and economic upheavals in their home markets as well as in the all-important transatlantic market. Most significantly, the Lufthansa-Etihad tie-up perhaps represents the end of any global attempt to constrain the Gulf carriers by regulatory means. From here on, should the US majors choose to continue that fight, they’ve probably lost Lufthansa as a public supporter. And Air France, still mired in its own restructuring, seems to believe it can tackle Gulf competition by starting a low-cost, long-haul carrier dedicated to that purpose.

Keep your friends close, and your enemies closer, the saying goes. Abu Dhabi-German relations have transformed, perhaps by necessity, from chilly to sunny-warm. Let’s see what can be achieved when you quit fighting and start working on how to better compete with your enemy’s enemy.

Karen Walker

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