Lufthansa & Singapore Announce A Joint Venture

The Gulf carriers (in particular Emirates, Etihad, and Qatar) have been giving “legacy” airlines globally a run for their money, by offering extensive global route networks, great onboard products, and affordable fares. Between that and the rise of low cost carriers, more “traditional” airlines in Asia and Europe have really been disrupted.

Emirates-A380-First-Class-01

For example, in August I posted about how almost all of Singapore Airlines’ longhaul routes have been losing money for the past six years. This is due to low cost carriers driving down their yields in economy, while airlines like Emirates drive down their fares and steal their premium cabin customers as well.

Singapore-A380

Carriers are having to get more creative to be profitable, and unfortunately that largely comes in the form of consolidation, as we’ve seen in the US.

Lufthansa & Singapore Airlines announce a joint venture

To try and compete globally, Lufthansa and Singapore Airlines have just announced a joint venture. The joint venture will cover all Lufthansa, Singapore, and Swiss flights between Singapore and Germany/Switzerland, including Singapore Airlines’ new Airbus A350 flight between Singapore and Dusseldorf, which launches in July 2016.

Here are the full details of the extended partnership, per the joint venture press release:

Flights between Singapore and both Frankfurt and Munich, as well as flights between Singapore and Zurich, are to be operated under revenue-sharing arrangements. New SIA-operated flights between Singapore and Düsseldorf, which are to be launched in July 2016, will also be covered under such arrangements.

The two airline groups also intend to co-operate in key markets in Europe, Southeast Asia and Australia, co-ordinating schedules to provide customers more convenient connections between route networks, offering joint fare promotions, aligning corporate programmes to strengthen the proposition to corporate customers, and exploring enhancements to existing frequent-flyer programme ties.

In addition to SIA and Lufthansa, the agreement includes SIA subsidiary SilkAir, and Lufthansa subsidiaries Austrian Airlines and Swiss.

The expanded codeshare ties  will provide SIA customers with convenient access to and from points in Austria, Belgium, Germany and Switzerland, via the transfer hubs of Frankfurt, Munich and Zurich, with more than 20 new codeshare routes. Lufthansa and Swiss will in turn codeshare with SIA and regional arm SilkAir on more routes serving destinations in Southeast Asia and the Southwest Pacific. Codeshare co-operation is expected to be expanded to more destinations in future.

Lufthansa-747-8

Is a joint venture good or bad for consumers? 

This joint venture makes a lot of sense from the airlines’ perspectives, as it allows them to compete more globally with the likes of Emirates. By synching schedules and fares they’ll more easily be able to sell tickets between Europe and Australia, for example. So it’s totally a win-win for Lufthansa and Singapore.

Closer joint ventures are long overdue for Singapore Airlines, and the lack of them may in part explain why they’ve been doing so poorly on longhaul routes for years.

What about for consumers? The good thing about joint ventures is that it allows the airlines to align schedules, so in theory it gives customers more convenient schedules and a more seamless travel experience. Furthermore, it potentially gives them access to better products, since there will be metal neutrality between Lufthansa and Singapore.

Who wouldn’t rather fly Singapore business class

Singapore-Business-Class

…than Lufthansa business class?

Lufthansa-Business-Class-7478-05

The other side of that coin is that it’s basically the equivalent of eliminating a competitor in the market. Lufthansa and Singapore will align fares, so in terms of pricing it’s like they’re one airlines. Long term this translates into less competition, which is bad for consumers.

Bottom line

This is definitely smart from the perspectives of Lufthansa and Singapore, and might be what Singapore Airlines needs to stop bleeding money on longhaul flights. For consumers, this translates into added convenience, but ultimately higher fares long term, which isn’t good.

What do you make of the new joint venture between Lufthansa and Singapore?

Comments

  1. Think the important questions are:

    So will SQ flyers now get access to FRA FCT? And vice versa for LH in SIN?

    Will SQ now let you book F with LH miles? Will LH let you book Swiss F with SQ miles?

  2. It may not necessarily lead to overall higher fares. After all the competition now is with the Gulf carriers – the likes of Emirates, Etihad and Qatar Airways. And there are still other carriers that would pose a competition to them – e.g. British Airways via LHR.

  3. Ditto on the FCT access. Flying SQ Suites in March for the first time. Access the FCT would be great.

  4. Hmm since they’re both in *A isn’t that already a sort of joint venture? Don’t member airlines already align schedules and other services/features to overall compliment the alliance route network?

    Apart from ‘revenue-sharing’ which I’d presume woulda been possible between alliance members already – but yeah apart from that I’m not sure I see the need for this. What additional benefits do JVs bring to the table for all stakeholders, that the preceding alliance doesn’t already?!

    I’m stumped by similar JVs that AA & BA have transatlantic. Or the JVs AA & JL/QF have transpacific. Considering they are all prominent members of Oneworld already, why the need to form superceding separate ventures. I thought the whole point of the alliance was exactly what they’re trying to supposedly accomplish via JV.

    I can understand DL & Virgin transatlantic JVs since they aren’t alliance members. But once again don’t get UA and one/some of their Asian *A partners with whom they have a transpac JV I believe.

  5. SQ also has JV revenue-sharing arrangements with NZ.

    My take (and this is my personal 2 cents) is that a JV is a deeper engagement between the 2 airlines. In SQ-Air NZ case, instead of each carrier operating 2 flights a day, they each operate 1 flight a day between Auckland and Singapore. Similar story could apply here – which means that overall load increases, revenue per mile goes up higher for both airlines and hence profits naturally rise higher.

    The press statement also spoke about co-ordinating schedules – which is not something all airline alliance members do (it would be impossible to coordinate say Swiss, Lufthansa, SAS, etc… arriving to Singapore and connecting to all the regional/Australia destinations). So in most cases, they don’t co-ordinate these. So a JV would allow the airlines to coordinate in this respect.

    They also spoke about enhancing the frequent flyer program. Although no details are provided, I can only imagine that this would mean that more X class seats (for economy) and the equivalent for F and J would be opened up for their members – effectively means certain flights on Lufthansa would be deemed as “SQ-equivalent miles” or at least require less miles than a full-fledge Star Alliance redemption.

    Naturally, this would be anti-competitive and would trigger anti-trust investigations; hence the airlines would need to file for permission to allow such a JV to go through.

  6. I don’t understand how do they plan to compete with the ME3 on a route from Germany to Australia (for example). Do they expect that someone would rather fly TXL-FRA-SIN-MEL rather than TXL-ME3-MEL?

  7. Not surprised already have JV with SAS in Nordic markets…. I think Copenhagen will be next A350 destination btw. Reasons why? it would give SQ more departures to/from Copenhagen

  8. @Denis: Indeed a very good point you have there. Yes, it would seem like they would expect someone to do a TXL-FRA-SIN-MEL rather than say TXL-DXB-MEL.

  9. @Denis; Wilson Loo:
    While I absolutely get your point, your choice of an example is kind of moot as there is no carrier operating TXL-DXB. For a one-stop trip TXL-MEL via ME, you have to fly via DOH or AUH.

  10. Maybe not TXL, but when the new Berlin airport is up, maybe LH or SQ will fly BER to SIN with coordinated schedules to SYD, MEL, …
    With one stop to Australia from FRA, MUC, BER, DUS, VIE, ZRH and good connections in SIN, the JV can be very competitive against the ME3…

  11. @Denis; Wilson Loo:

    The eastern part of Germany is still much poorer that than the western part (except for parts of Berlin of course), and have much lower population density and much higher average age due to many younger people moving to former west Germany for jobs.

    Demand for trips to AUS or South east Asia is to put it mildly low out of those parts of Germany.

  12. @No Name: LH has been in a JV with UA for years and they don’t allow UA any of those benefits, so it doesn’t seem likely SQ will get them. But we’ll see.

    I have to wonder if this partnership could mean that JFK-FRA on SQ metal is going away. Where they’ve announced plans to run NY nonstop again maybe they’ll keep running it until then for prestige reasons, but that report earlier this year made it sound like those one-stop US flights were particularly painful for SQ’s financials.

  13. @Bgriff: they do, more or less. United Global Services members traveling in First Class do have access to the Lufthansa First Class lounges. Granted, that’s very few passengers, but it’s still noteworthy since otherwise LH FCLs are exclusively for customers of the Lufthansa Group. Also, UA and LH customers can upgrade on each other’s metal with GPUs/confirmed upgrades.

    No two JVs are equal.

    In the case of LH and UA there are tangible benefits for customers, namely the option to upgrade using confirmed instruments (which is far superior to Star Alliance Upgrades which require you to buy full fares.

    In the case of UA and NH, I’m not aware of a single tangible benefit. If anything, the JV has driven consolidation on SEA/NRT with United pulling out of the market and letting NH take over. And while NH has better service, United customers can’t upgrade or receive lifetime miles.

    Airlines form joint ventures in their own interest. That rarely translates into customer benefits, but it can. In the case of LH and SQ I wouldn’t expect much except from schedule and fare alignment.

  14. At this time, when you fly SIA and credit the miles to your Miles & More account, you don’t get the executive bonus for status members. You only get it on LH, LX, UA and some other LH group airlines.
    So I suppose that with the JV, the executive bonus will be applied.

  15. @No Name
    It doesn’t have to be Berlin only, it can be Hamburg, Geneva or other cities outside of Germany/Austria/Switzerland. They can only compete out of hubs (and now Dusseldorf).

  16. Most likely nothing will change for ZRH-SIN, as the “coordination” is already happening since Swiss (LX) started flying to SIN. SQ departs ZRH late morning and arrives SIN early morning +1 with A380, LX departs ZRH just before 11pm with arrival at 6pm on A340. Return flights though are within a 2 hour window around midnight…

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