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.
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.
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.
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.
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.
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.
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!