Etihad finds code sharing opens up a new world

The Philippine Airlines PR

By Ivan Gale

A wide variety of code-sharing agreements has enabled Etihad Airways to position itself for growth over the next few years. Andrew Parsons / The National

If doing more with less is the mantra of the business world nowadays, then Etihad Airways should win high marks for using aircraft and networks of other airlines for its own advantage. It is using one tool – the airline-to-airline code share – to not only bypass restrictive bilateral air rights, but also to minimise risk in these uncertain times, and put it on more solid footing in rivalling Emirates Airline.

In the past two years Etihad has whipped up a blizzard of code-sharing alliances, growing from three deals to 14. The focus on these tie-ups is largely due to James Hogan, who joined as chief executive in October 2006.

A code share is an agreement between two airlines that allows them to share resources. It lets them both put their code numbers on a single flight. Both can sell tickets for the flight, regardless of which carrier’s aeroplane and crew are being used. Both are also able to offer frequent-flier miles to their customers, and the two also share the revenues.

With existing code-sharing arrangements with Middle East Airlines, bmi and Brussels Airline forged by previous management, Mr Hogan has ratcheted up the pace. New partnerships were formed with Aer Arann, Bangkok Airways, Jet Airways, Kuwait Airways, Malaysia Airlines, Philippine Airlines, Royal Air Maroc, Saudi Arabia Airlines, Sri Lankan Airlines, Yemen Airways and, last week, Qantas.

The real advantage for Etihad is that it is able to use other airlines to feed travellers into its high-yield flights to Europe, Australia and the US. In Ireland, an Aer Arann customer would be able to book one ticket to Sydney flying from Cork to Dublin on Aer Arann and from there using the Etihad network.

While deals with small outfits arouse little mention in the press, the Qantas deal has caught the imagination in Australia due to the implications that Qantas and Eithad are joining forces to compete with Emirates Airline.

Qantas has no service to the Middle East, while Etihad is just tapping into the Australia market with flights to Sydney, Brisbane and, from next week, Melbourne. Instantly, the two are able to offer to their customers destinations that were previously available only on Emirates.

With the tie-up, Etihad customers can fly to Melbourne and then hop on a Qantas flight to Auckland, and rack up Etihad frequent-flier miles in the process. Qantas customers can now fly to Amman and Beirut on Etihad while gaining their own loyalty miles. “The announcement addresses a weakness in the flying kangaroo’s network that Emirates has aggressively exploited,” said one newspaper article, referring to Qantas by its popular nickname.

Etihad is also using code sharing to circumvent restrictive landing rights that foreign governments have placed to protect their own airlines. The Abu Dhabi-based airline’s stated aim used to be flying several flights a day to Mumbai, as Emirates does. But India and the UAE are yet to agree on the increased air rights. So what Etihad did was turn to Jet Airways for a code share and feed more Indian travellers onto its flights to Europe and the US.

The same goes for its tie-up with Philippine Airways. At the time, Etihad had rights for only five flights a week. With the code share, Etihad is able to sell tickets on two additional flights, operated by the Philippine carrier, and offer its customers the all-important daily service.

The tie-ups work especially well in these uncertain times, with passenger demand falling sharply in recent months. Etihad can offer more flights while using fewer resources and aircraft. It has less to lose in a down market when the seats go empty, although it also has less to gain in an up market when it shares revenues with the other airline.

Emirates’ strategy of launching non-stop, direct services on wide-bodied aircraft to points all over the globe meant it profited hugely from the recent global economic boom to earn US$1.37 billion (Dh5.03bn) in net profits in 2007-2008.

However, Etihad has 100-plus aircraft on order, which will give it the muscle it needs to fly its own routes when demand returns. At only five years old, Etihad is a relative newcomer to global aviation. It has grand aspirations to increase its passenger numbers from six million last year to 25 million by 2020, but growing an airline is fraught with risk.

Adding new routes depends on government-to-government talks on air rights and the availability of expensive aircraft. Since new routes take three to five years to become profitable, there is a real risk of overextending yourself due to the cyclical nature of air travel.

Etihad’s mix of new aircraft deliveries, plus an active code-sharing policy, will help it in the fluctuating times ahead.

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