Menu lock

alliances

Feb 2, 2017

What will happen to Virgin deal after Etihad’s ‘peace treaty’ with Lufthansa?

Etihad and Lufthansa's joint media event tonight was all about Peace being less painful than War

Etihad’s super deluxe flagship (in all classes) the Airbus A380

The big press conference in Abu Dhabi tonight (February 1) by Etihad Airways and Lufthansa didn’t feature the words ‘peace treaty’ nor ‘Virgin Australia’, but what was going on naturally raises questions as to what else may be in store for Etihad and its various allies.

This event was another installment of the Middle East carrier extracting itself from a costly misadventure with AirBerlin, Germany’s distantly second largest scheduled airline.

The embrace of Lufthansa as a means of alleviating the misery of Etihad’s one third equity in AirBerlin, has been going on for some months now, and whatever tonight’s press releases and early reports say, what happened in Abu Dhabi was about a lot more than catering, or engineering, and some changes in code sharing, none of which have any relevance in their own right in the Australian market, where Etihad looks to be trucking along as fine as one might expect even if there was no relationship with Virgin Australia.

It definitely sends a signal, but at this stage, no clear message as to likely outcomes, to those who watch the performance of Virgin Australia and ask, for all manner of good reasons, what the fate of its involvement with Etihad Airways might be in this market.

Etihad is by a slim margin the largest investor in Virgin Australia Holdings with a 21.8 percent stake after the excitement of last year in which Air New Zealand stormed out of the board room and two PRC investors came on board, while Singapore Airlines, with almost as much equity as Etihad quietly filed its nails in the background and professed disinterest in ever taking over as much of the entity as might be allowed under Australian laws.

The presence of both Singapore Airlines and Etihad Airways in Virgin Australia Holdings (which is structured to keep Virgin Australia’s modest international network technically independently Australian owned) has always looked odd from the outside.

SingaporeAir and Etihad represent the massive ambitions of their respective hubs in Singapore and Abu Dhabi, and compete for many of the same customers in terms of travel between Australia and Europe with large fleets of exceptionally well appointed airliners.

Virgin Australia gives both of them a competitive alternative to the Qantas domestic networks and its alliance with Emirates, and the relevance, for those that believe in loyalty programs, of alternative participation in the Virgin program.

But as Etihad underlined by its actions in Abu Dhabi tonight, it is in effect undoing at least part of its growth strategy of taking minority chunks of a wide range of carriers, in Europe, in India, in Australia, and even in the Indian Ocean, and seeking to galvanise or reorganise them into coherent parts of a global whole.

Etihad’s capitulation to the might of Lufthansa has naturally led to massive speculation that it could also undo an apparently underperforming investment in Alitalia, while India’s flag carrier Jet Airways, quarter owned by Etihad, seems to have embraced the money but not all the mentoring that its generous investor from the UAE provided.

The media event in Abu Dhabi was somewhat untidy in that both parties left various longer term issues hanging in the air, while focusing on food and engineering.  The UAE news and analysis site, the National, has archived this live blog which captures the situation through the statements made in response to questions by both airlines.

As in this extract:

Will this become a full joint venture eventually? Will views on Gulf carriers change? Spohr (Lufthansa): “This marks the beginning of more partnerships. With subsidies it is our view that we treat this industry as if it is part of WTO. But still we move ahead.”

What is the difference in today’s agreement and those between Etihad and its agreements with other airlines? Hogan (Etihad): “This is not an equity partnership. It is a codeshare with a strong catering and engineering platform. We will see how our network airlines align.”

Will Lufthansa have an MRO base in the Middle East, say Abu Dhabi? Spohr: “We have activities at Dubai South but that is not part of today’s partnership.”

Etihad in 2016 and its restructuring, will it improve in coming years? Hogan: “The results for 2016 have not been released yet but the key KPIs were achieved. The restructuring is about strength. The business needs to accelerate and adjust.”

The only way reporters can make sense of exchanges like these is to keep a focus on why they are in a room with the heads of two airlines that have previously fought tooth and nail over traffic rights and radically differing positions as to the real purposes of their enterprises.

They are there because Peace will be less painful than War.

We recommend

From around the web

Powered by Taboola

1 comments

Leave a comment

One thought on “What will happen to Virgin deal after Etihad’s ‘peace treaty’ with Lufthansa?

  1. Dan Dair

    Perhaps the Etihad ‘partnership’strategy is seriously flawed.?
    or perhaps, they’re going to have to take the loss & allow one of their ‘partner’ airlines to fail,
    in order to show all the rest that they’re really serious about the necessary reforms & restructuring
    which Etihad expects as part of the ‘partnership’ arrangement.?

    They’ll have lost money on Air Berlin over this arrangement with Lufthansa, but will save money on it in the longer term.