Gulf's booming airlines forge new links abroad

[August 01, 2012]  DUBAI, United Arab Emirates (AP) -- During a demonstration flight of Boeing's new 787 high above the United Arab Emirates this summer, one of the plane-maker's representatives jokingly asked an Etihad Airways executive what was next on the airline's shopping list.

It wasn't planes he was talking about, but chunks of other airlines. Abu Dhabi-based Etihad has snapped up stakes in four different carriers just since December, prompting speculation in aviation circles of more deals to come.

Etihad is not alone. The Gulf's three big airlines are all increasingly forging cross-border partnerships to extend their reach deeper into international markets. They are doing so even as they rapidly grow their own route networks and expand their fleets with billions of dollars' worth of new fuel-efficient planes.

Etihad and Aer Lingus announced a codeshare deal Monday designed to feed traffic into one another's networks, just months after Etihad bought a slice of the Irish carrier. Australia's Qantas says it is in talks with Dubai-based Emirates about potential alliances.

Qatar Airways, which last year bought more than a third of European freight airline Cargolux, wants to launch a new carrier to serve next-door Saudi Arabia's domestic market.

While their strategies differ, the airlines' push is likely to further strengthen their increasingly formidable Gulf hubs at a time when older airlines from the United States to Australia are struggling to stay competitive.

All three Gulf carriers woo economy-class transit passengers with generous hot meals and a wide range of back-of-seat entertainment options that would be the envy of most domestic American airlines. In the battle for lucrative business and first-class flyers, they try to outdo one another with offerings that include plush private cabins, gourmet chefs and even onboard showers.

The airports Emirates and Eithad call home are undergoing significant expansions, while Qatar Airways is preparing to move to a brand-new airport scheduled to open later this year.

"It's all about feed. These guys have these tremendous emerging hub-and-spoke networks. The more feed you can get with partners or by yourselves, the more effective your network becomes over those hubs," said Russell Shaw, a transportation and aviation analyst at Australia's Macquarie Group.

The Mideast's biggest airline, Emirates, has traditionally focused on growing its network in-house. It has shown little interest in joining any of the big airline alliances such as Oneworld or Skyteam that dominate intercontinental air travel.

That has not stopped it from seeking out bilateral partnerships with individual airlines that can expand its network and route more traffic through its Dubai hub. In April, it sealed a deal with JetBlue Airways that tacks an Emirates flight number onto a dozen routes operated by the New York-based airline.

Although such codeshare deals have been around in the industry for years, it is Emirates' first with an American carrier. The airlines began allowing passengers to earn miles on each other's frequent flyer plans beginning last month.

More deals could be on the way.

"We routinely look at ways we can work with other airlines in order to offer customers the most convenient and seamless service possible," Emirates said in a written statement responding to questions about codeshares this week.

One potential partner is Qantas. The Australian flag carrier disclosed Thursday that it is in talks with airlines including Emirates about setting up some sort of alliance. The news sent its shares soaring. Emirates has declined to comment.

Analysts say a codeshare or other partnership would let cash-strapped Qantas tap into Emirates' long list of European destinations while it focuses more on Asian markets closer to home. Such a deal could shift some Qantas stopover traffic from Singapore to Dubai and reduce its reliance on European hubs such as London's Heathrow and Frankfurt, Germany -- strongholds of British Airways and Lufthansa.

Emirates airline is part of state-owned Emirates Group, which is doing deals on the ground too. Its travel service and cargo division Dnata last year acquired British online travel agency Travel Republic and half of a South African in-flight catering company.

Qantas' talks with Emirates follow Etihad's June announcement that it acquired a stake in Qantas' competitor Virgin Australia.

Australian regulators recently gave Etihad the green light to boost its stake in the Australian airline to 10 percent.

The younger Etihad sees its investments in overseas airlines and a fast-growing network of codeshare partners as a way to gain an edge over its larger Gulf rivals.

In early July, it said its strategy of partnering with other airlines helped drive sales more than 30 percent higher in the second quarter. "To stretch our market, these partnerships are key," Etihad President and CEO James Hogan told The Associated Press at the time.

The deals help cement Etihad's relationships with its partner airlines and could lead to cost savings, though analysts say it is tough to quantify how much advantage the acquisitions bring.

"Even if there are incremental benefits, minority ownership does not equate to control," said Sudeep Ghai, partner at London-based airline consultants Athena Aviation.

In addition to its Virgin Australia and Aer Lingus stakes, Etihad owns nearly 30 percent of Germany's second-biggest airline, Air Berlin, and 40 percent of Air Seychelles, the island country's national carrier.

Qatar Airways, meanwhile, is looking for cross-border opportunities closer to home.

Its chief executive recently held talks with Saudi officials about launching a new airline registered in the oil-rich kingdom, though he expressed concerns about price caps imposed by Riyadh.

There is strong demand for flights within the vast country, the largest Arab economy. Foreign carriers are able to fly to and from Saudi cities from abroad, but only Saudi Arabian Airlines and budget airline NasAir operate domestic routes.

Saudi officials have invited bids from airlines interested in gaining a license to operate domestic flights. They are expected to make a decision later this year.

[Associated Press; By ADAM SCHRECK]

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