Etihad deepens Lufthansa cooperation - will greater passenger and cargo collaboration be next step?

While this week’s announcement on an extended cooperation between Etihad Airways and Lufthansa didn’t run as deep as some had suggested, collaborations in the fields of catering and aircraft maintenance, repair and overhaul continue a courtship that could bring these unlikely partners together in marriage.

As the chief executives of both airline groups spelled out this week, there are clear development plans to broaden the commercial partnership as they explore further cooperation in a number of areas, including freight operations, procurement and passenger services to improve their competitive offering globally and in the European market.

Etihad’s struggles restructuring airberlin have turned the Abu Dhabi-based airline and Lufthansa into surprising partners. The German flag carrier has for a long time been critical of the growth of the major Gulf hub carriers and has actively lobbied the local regulator to retain restrictive bilateral agreements with the United Arab Emirates (UAE) to limit the penetration of Emirates Airline and Etihad Airways in the German market.

But, it is clear, that as the global aviation sector continue to evolve, increasing pressure is now being put on the Gulf carriers. After dominating the industry through the 2000s and first half of the 2010s with aggressive growth, the Gulf carriers are now having to look a little differently at the future and even perhaps adopt a more defensive stance as fragmentation and the growth of long-haul low-cost put pressures on their own models.

Etihad’s investments in other airlines have failed to deliver the expected returns, but while it has struggled with overcoming legacy issues at Alitalia and airberlin, it has seen success at both Air Seychelles and Air Serbia and similarly at Jet Airways in the emerging Indian market.

“Partnerships are at the heart of our strategy and remain fundamental for us to compete effectively and efficiently in a complex and competitive global market,” said James Hogan, the departing president and chief executive officer, Etihad Aviation Group. “Our collaboration with one of the aviation industry’s most established and recognised brands is undoubtedly the most significant non-equity partnership with an airline we have ever announced.”

The Lufthansa cooperation has seen the launch of a new codeshare arrangement from February 1, 2017 for flights between Abu Dhabi and Germany. Lufthansa will place its ‘LH’ code on Etihad Airways’ twice daily flights between its Abu Dhabi hub and both Frankfurt and Munich.

Similarly, Etihad will put its ‘EY’ code on Lufthansa’s long-haul, non-stop intercontinental services between its home base of Frankfurt, the business and commercial capital of Germany, and Rio de Janeiro in Brazil and the Colombian capital, Bogota as soon as government approval is obtained.

The codeshare agreement will grow both carriers’ global networks, giving Lufthansa increased access to important feeder markets throughout the Indian Subcontinent via Abu Dhabi, while Etihad will gain access into South America through Germany. To facilitate both connectivity and the customer experience associated with this codeshare, the Abu Dhabi-based airline is also moving its operations at Lufthansa’s hubs, from Terminal 2 to Terminal 1 in Frankfurt, and Terminal 1 to Terminal 2 in Munich.

“This partnership is the platform for a much wider strategic collaboration between our two organisations,” acknowledged Hogan, who added that it demonstrates the commitment of the Etihad Aviation Group Board and Abu Dhabi to a European growth strategy.

The further deepening of this cooperation has now seen the signing of a $100 million, four-year, global catering agreement which will see Lufthansa’s LSG Sky Chefs provide catering services to Etihad Airways in 16 cities in Europe, Asia and the Americas. This makes LSG the largest provider of catering services to the UAE’s national airline, outside its Abu Dhabi home base.

A MoU has also been signed between Etihad Aviation Group and Lufthansa Technik to explore cooperation in maintenance, repair and overhaul services across Etihad Airways and its airline equity partners, and opportunities for synergies with Etihad Airways Engineering.

Etihad Airways and Lufthansa are known to be exploring further cooperation in a number of areas, including freight operations, procurement and passenger services to improve their competitive offering globally and in particular in the European market. Carsten Spohr, Lufthansa Group’s chairman and chief executive officer, said the strengthening of ties “can create added value” for customers and shareholders and “fits perfectly” the Lufthansa Group’s global strategy for its passenger airlines and service companies.

Lufthansa is already benefitting from a network viewpoint from Etihad Aviation Group’s equity involvement at airberlin and the ongoing restructuring of its German rival. The downsizing of the business to a focused network carrier model with a dual-hub strategy at Berlin and Dusseldorf airports is seeing 38 short-haul aircraft being wet-leased and operated for Lufthansa group airlines for an initial term of six-years. Lufthansa’s point-to-point carrier Eurowings will wet-lease 33 aircraft, and Austrian Airlines, will take on five aircraft. The first is due to enter service with Eurowings on February 10, 2017.

As our Airlineroute news channel highlights, these wet-leased aircraft will help facilitate Eurowings’ activities at Stuttgart, its Austrian base in Vienna, support its network into Palma de Mallorca and the introduction of operations from Munich, complementing the hub activity of Lufthansa. They may also be used to support Eurowings point-to-point operations from Frankfurt in the future serving mainly leisure markets alongside Lufthansa's premium operation.

Through Etihad’s 28 per cent equity stake in airberlin there are suggestions that future collaboration with Lufthansa could see new synergies being developed between the German airlines. airberlin’s Berlin and Dusseldorf focus complements Lufthansa’s Frankfurt and Munich hub strategy and the airline is now being piloted by Thomas Winkelmann, who has two decades of experience at Lufthansa, initially in the Americas, for a long time at the helm of Germanwings and most recently boss of the Lufthansa Hub in Munich.

In the meantime, Etihad is growing its presence in the German market by taking over the operation of airberlin’s daily Düsseldorf – Abu Dhabi flight from March 26, 2017. This means it will now serve the route with its own equipment twice each day with the new A330-200 operated flight complementing its existing daily Boeing 787-9 service. The new flight will enable Etihad to offer own-metal connectivity between Düsseldorf and additional markets across Asia and Australia, including Brisbane, Beijing, Shanghai, Chengdu, Seoul, Ho Chi Minh City, Jakarta, Phuket, Kathmandu and Seychelles.

With the additional capacity, Etihad’s frequency between Abu Dhabi and its three German gateways of Düsseldorf, Frankfurt and Munich rises from 35 to 42 services a week, ensuring consistency of double daily flights to each city. airberlin also continues to operate twice-daily flights between Berlin and Abu Dhabi and gives Etihad access to the German capital.

Alongside its own and partner flights, the UAE carrier is also building its European presence through the formation of a new European leisure airline group in partnership with tour operator TUI, focused on point-to-point flying to connect key tourist markets. This will see the touristic operations of airberlin and the German carrier TUIfly brought together to found the new business, based in Vienna.

Already approved by both TUI's supervisory board and the Etihad Aviation group board, the business will have a fleet of around 60 aircraft, offering 15 million seats capacity per year, focused on point-to-point flying to connect key European tourist markets from April 2017. TUI will hold 24.8 per cent of the joint venture company, Etihad will have a 25 per cent stake and the remaining 50.2 per cent will continue to be held by the existing private foundation NIKI Privatstiftung.