Alitalia To Discontinue Partnership With Air France/KLM… Ciao SkyTeam?

Earlier in the month I wrote about Alitalia’s restructuring plan, whereby they’re trying to become a five star airline in the coming years.

Alitalia-A330

Impact of Etihad buying a 49% stake in Alitalia

Last year Etihad bought a 49% stake in Alitalia, making Alitalia one of the more than handful of airlines that Etihad has invested in. The strategy is sort of brilliant, when framed in the context of the battle the big Middle Eastern carriers are facing in light of Open Skies. The more airlines Etihad can take control of, the more “soft” political power they have, especially in Europe.

Etihad-Alliance

Alitalia’s restructuring plan is interesting, in that they’re really trying to turn into a premium airline, by focusing on the business class experience. They’ll be introducing new seats, new service concepts, and will be installing wifi throughout their fleet. They finally “get” that while it’s important to fill economy seats as well, airlines ultimately make money with premium passengers.

Alitalia already belongs to SkyTeam, though as we know nowadays, alliances don’t really limit outside partnerships. Emirates has a huge joint venture with Qantas, and Etihad has a huge joint venture with airberlin, yet both Qantas and airberlin belong to oneworld.

Emirates-Qantas

Alitalia will discontinue Air France/KLM partnership

While surprising news on the surface, I actually get it. Etihad Alitalia announced today that they’ll be discontinuing their joint venture and partnership with Air France/KLM as of January 2017, which is when the current contract expires.

Via the Financial Times:

Italy’s Alitalia announced it will not renew its partnership and joint venture agreements with Air France-KLM.

The decision was taken as “these agreements are no longer beneficial, either commercially or strategically, to the new Alitalia and its ambitious turnaround plan,” says Silvano Cassano, chief executive, in a company statement on Tuesday.

“They were negotiated when Alitalia was in a very different position, with the result that the agreements in their current forms favour the other party,” he adds.

According to Mr Cassano the agreements with Air France – KLM, “are undermining our ability to restructure our network and the airline effectively to achieve the long term sustainability of our business.

He added, however that Alitalia was “open to further discussions to achieve a mutually acceptable solution.”

This refers specifically to the joint venture between Alitalia and Air France/KLM, and is separate from the transatlantic joint venture which Alitalia has with Air France/KLM and Delta (the largest transatlantic joint venture there is). I believe the transatlantic joint venture is valid for another five years, so I doubt that will be discontinued at the same time.

Joint-Venture

What’s behind Alitalia discontinuing their partnership with Air France/KLM? There’s certainly an argument to be made that Air France/KLM were using Alitalia for access to Italy and for feed onto their longhaul flights. I guess you could say Air France/KLM were treating Alitalia like their red-headed stepchild (which they have been for many years), and that doesn’t fit into Alitalia’s new plan. And for that matter with Etihad’s funding they don’t have to do it anymore.

Long term I’m fairly certain Etihad would be more than happy to operate as many flights from Italy to the US as they could get their hands on. 😉

Could Alitalia leave SkyTeam?

I think it’s worth clarifying that as of now Alitalia has only announced that they’re discontinuing their specific partnership with Air France/KLM. This doesn’t necessarily mean that they’ll leave SkyTeam.

SkyTeam

Ultimately it’s up to Etihad, I presume. As such I don’t think Etihad has problems with their equity partners being in alliances, and in many cases they might even like it, since it increases their power. In other words, if Alitalia is basically run by Etihad, and Alitalia has a say in SkyTeam, then indirectly Etihad has a say in SkyTeam.

But I also think it’s worth understanding that alliances are becoming increasingly irrelevant from airlines’ perspectives. The alliances have gotten so big that individual airlines don’t necessarily benefit from other airlines in the alliance. For example, do you think Qantas cares more about their huge joint venture with Emirates or the fact that they’re partners with Finnair through oneworld? One partnership makes them a lot more money than the other.

That’s part of the reason we’ve seen so many new joint ventures lately. The alliances have gotten so big that they’re not actually adding much value anymore.

I could see Alitalia’s participation in SkyTeam going either way. Perhaps Etihad wants to keep Alitalia in SkyTeam so they have more “indirect” power, or maybe eventually they’ll want airberlin and Alitalia to leave their respective alliances, and they’ll form a “true” fourth alliance, which will be focused on close relations as opposed to sheer size.

Bottom line

For a long time I’ve been scratching my head at Etihad’s airline acquisition strategy. But it’s starting to make more sense. Etihad is trying to take over the world, one airline at a time. And they’re doing a damn good job at it, as long as they keep having the money to fund it.

The degree to which the “big” Middle Eastern carriers are interconnecting the airline industry never ceases to amaze me. Etihad owns a stake in Aer Lingus. Qatar owns a stake in British Airways, and British Airways owns a stake in Aer Lingus. Pretty soon they’ll need Maury to figure this stuff out!

Maury-1

Comments

  1. ooOooOOoOoOOo!
    Can we please have a showdown on maury
    Richard, Doug & $MI/J
    vs
    Clark, Hogan & His Excellency

    I wonder who would be first to throw a chair and run backstage.

  2. Flying business on Alitalia in September. Think I’ll see any of the changes/upgrades they are instituting?

  3. @ Bill — I would be surprised if we see any major changes by then, but I could be wrong.

  4. @ Chao — Correct, the partnership would continue through SkyTeam, but the point is that the “direct” partnership with Air France/KLM is ending.

  5. @Bill

    Alitalia already has a great business class. Enjoy it. That’s actually the irony in this restructuring plan – AZ is already one of the better TATL business class products. I haven’t flown SQ or EK’s TATL routes, so that’s all I’ll hold out as potentially better when it comes to crossing the Atlantic. Competitive hard product with lay flat seats. Great soft product all around, arguably (in my opinion definitely) the best food. It’s the ground services that need work. AZ has pretty shitty lounges, outside of the one FCO lounge with a flight simulator in it. FCO itself is a giant mess, before the fire, rivaling only LHR and CDG in chaos. Ground staff are hit or miss, despite the in flight crews being very good.

  6. What are the chances of Etihad joining Skyteam? With Qatar part of OneWorld and Emirates not giving a damn about global airline “alliances”, I think it would be a great idea.

  7. what will be (if any) the consequences for the frequent flyers of both airlines? And more generally the choice of a FF program is going to be less and less about the alliance ? If so we have to keep track of the good/bad partnerships between airlines individually …

  8. I flew Alitalia 6 times over the course of 2 weeks and one thing I noticed in all of my flights are delays, delays, delays! It’s a stark contrast from Delta actually. I understand FCO had a fire back on May 6th, but my LAX-FCO flight was on May 7th and though I’m glad it wasn’t cancelled, that flight was delayed 2 hours, thus resulting in missing my connecting flight. If it were Delta, they would have automatically booked me on the next flight, but I was surprised with Alitalia having to manually rebook me at the ticketing counter (which had long queues btw but luckily I had access to the AZ lounge ticketing office.) For those who have flights with Alitalia and have cancellation/delay ticketing changes at FCO, go directly to the Dolce Vita lounge if you have access since the waiting times there are better than the one in the departing terminal.
    I look forward to the changes EY makes on AZ since the operations itself has a lot of room for improvement. Since I spent over 8 hours waiting for my next flight in FCO, I noticed Alitalia cancels a good number of their european flights during the day. However, the first and last flight almost always never gets cancelled. I wouldn’t want to be a green jacket working at the transfer/ticketing desk at FCO. To their credit, AZ employees handed out free bottled water at the airport to help appease frustrated passengers. 😉
    As for the big 3 middle eastern airlines, it would be interesting to see if they ever put a stake into one of the 3 major US carriers.

  9. Would be nice if some of these JV could earn elite status miles. Like earning QF points on EK (and vice versa) and Alitalia on EY (vice versa). Not just earning award miles. Maybe down the road….

  10. @ Matthieu — Indeed. As of now alliances are still useful from the perspective of a frequent flyer with an airline, though less so on the numbers side from the airlines’ perspectives. So for now I don’t think anything major will change. But in a decade or two, all bets are off…

  11. @ Kit Reyes — Slim to none. Keep in mind Etihad is trying to form their own alliance. As far as Etihad is concerned, the big three alliances are a fad which are on their way out.

  12. I think Alitalia will remain in Skyteam, they are a longtime member and are happy with the network. I think this is the equivalent of American and Finnair ending their joint venture. I don’t think Etihad really cares what alliance you’re in as they do codeshare across the alliances. They do own stakes in multiple airlines but so do many others like Singapore had a huge stake in Virgin Atlantic for years and it never joined star alliance. I think you are a Skyteam hater and are unfortunately biased towards Oneworld

  13. PS I think they will keep the Delta partnership despite Richard Andersons views on Gulf Carriers. Air France-KLM has (like Lufthansa) a pretty clueless management. The conflict between the two seemed mainly to be about transatlantic routes, Anderson will probably keep Alitalia because it’s a lucrative partner on the Atlantic front despite their “dealing with the enemy”

  14. “They finally ‘get’ that while it’s important to fill economy seats as well, airlines ultimately make money with premium passengers.”

    This claim always falls flat upon further inspection. There are numerous economy only airlines that are currently making good money. Can you name any premium only airlines that are making good money today? Many (most?) airlines with premium seats are filling half or more of those seats with upgraded pax rather than revenue pax. The claim of the premium cabin bringing the bulk of the revenue is drifting further and further into unsubstantiated myth.

  15. @ Dax — Of course low cost carriers can work, because they have cost structures which reflect what they’re going for. Similarly, all premium airlines don’t work. What works is a hybrid, though. Essentially you break even on costs in economy, and you make your profits up front.

  16. Most Premium flyers are flying on upgrades or miles. Or they are flying on business where the business has negotiated corporate rates. Economy flyers are on the other hand flying because they really need to and many of them pay large amounts for last minute tickets.
    How does having premium cabins help make airlines money?
    One Business seat takes up the space of 3 economy seats plus its twice as expensive in food and service for the airline. For the business seat to make the same amount of profit it would need to be 5 times as expensive as an economy seat but its not.
    One must not confuse absolute numbers with percentages. If I make a profit of 1 dollar on a 5 dollar cost I am much better off than making a profit of 3 dollars on a 20 dollar cost. It may seem that I am making most of my profit on the 20 dollar business seat but I could have made 4 dollars if I had sold 4 Economy seats for the same cost.

  17. Pretty neat article. One may still wonder what’s on the bosses’ minds. AZ cancelling all code share with AFKL serms more like some kind of retaliation or pressure on DL for the TATL joint-venture. However, why leave before the busy peak summer season? AZ marketing is poor in many places although they could still sell tickets and generate revenue without much investment.
    AZ will become the shadow of what it could have been. Sad news for the industry.

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