What the Etihad-Air France pact means to the airline industry

Air France-KLM Group secured an alliance agreement with Etihad Airways, the third-biggest Gulf carrier, extending a trend for Middle Eastern airlines to end an isolationist policy and seek accords with older operators.

Based around code-shares which will allow the companies to sell tickets on each other’s flights beyond Paris, Amsterdam and Abu Dhabi, the pact is intended to be the first phase of a “much larger strategic partnership,” Etihad said in a statement.

Today’s deal brings Etihad closer to Air France’s SkyTeam alliance a month after Qantas Airways Ltd. of Australia, a founder member of the rival Oneworld group, dropped a 17-year pact with British Airways in favor of an accord with Dubai-based Emirates, the biggest Gulf carrier. Regional No. 2 Qatar Airways Ltd. is also looking at alliance options, it said last week.

“Whether Etihad will join SkyTeam isn’t clear, because they can do well enough adding code-shares and buying stakes here and there, but this is the start of bigger things with Air France,” said Donal O’Neill, an analyst at Goodbody Stockbrokers in Dublin. “We’ve gone from a phase of quite outrageous competition from the Gulf carriers to the beginnings of cooperation.”

Air Berlin Boost

The agreement provides Air France and KLM with five Asian or Australian connections apiece on Etihad flights via Abu Dhabi, while the Gulf carrier can sell tickets to 10 European cities beyond Paris and Amsterdam, the carriers said today.

Air Berlin Plc, 29 percent-owned by Etihad, is also included. Passengers with the German carrier, which has been unprofitable since 2007, will be able to fly to seven cities in France through Paris and three U.K. airports via Amsterdam. Air France passengers can connect with four Air Berlin flights from Berlin or Dusseldorf, and KLM with three via Berlin.

Air France-KLM rose as much as 2.4 percent and was trading 1.5 percent higher at 5.49 euros as of 11:24 a.m. in Paris. Air Berlin was priced up 1.2 percent at 1.58 euros in Frankfurt.

“It is an important move,” Air France-KLM Chief Executive Officer Jean-Cyril Spinetta said in a statement, adding that Etihad and Air Berlin will offer its customers “a range of new attractive destinations.” Europe’s largest airline has forecast a loss this year as the sovereign-debt crisis hurts the economy.

Deeper Accord

Etihad was already the most active Persian Gulf carrier in seeking outside links, with the Air France-KLM accord marking its 40th code-share agreement. The United Arab Emirates operator agreed its investment in Air Berlin last year and also owns minority stakes in Aer Lingus Group Plc and Air Seychelles Ltd.

The deal announced today starts on Oct. 28 and will also entail Etihad attaching its code to KLM flights from Abu Dhabi to Amsterdam, with Air France doing likewise on Etihad’s services from Paris Charles de Gaulle to Abu Dhabi.

Other areas of potential cooperation include integrated frequent-flier programs, joint procurement, collaboration on maintenance and repair and other measures aimed at delivering economies of scale, the Gulf carrier said.

Etihad spokesman Tom Clarke declined to comment on whether the accord was a step toward the carrier joining SkyTeam, or if the Air France-KLM tie-up will extend to joint pricing, sales and scheduling in the manner of the Emirates-Qantas agreement.

Qatar Question

For Air France-KLM, today’s announcement is a step toward recovery following a “torrid” few years, according to Goodbody’s O’Neill, who rates the stock “buy.” The Paris-based company is seeking to pare headcount and rationalize short-haul and regional routes and has effectively reined in capacity, he said.

Qatar Air may now be more likely to link up with British Airways in Oneworld, O’Neill said. Joining the group would offer a “much better deal” than would alliance entry for Etihad because the Doha-based company has fewer code-shares, he said.

Oneworld will hold a press briefing in New York today at which it will give details of a “significant membership development,” according to an invitation issued on Oct. 1. The news conference is due to be attended by Willie Walsh, CEO of BA parent International Consolidated Airlines Group SA, and Tom Horton, his counterpart at AMR Corp.’s American Airlines.

Qatar Air could immediately be reached today.

With assistance from Tom Metcalf in London. Editors: Andrew Noel, Tom Lavell. To contact the reporter on this story: Chris Jasper in London at [email protected]. To contact the editors responsible for this story: Chad Thomas at [email protected]; David Risser at [email protected].