Reshuffling the Decks: Can code-shares bring détente to Gulf and Europe?

What it means

First of all, 3PLs must understand that any airfreight benefits will take a back seat to passenger dynamics. “Most Gulf airline partnerships are driven by passenger, not cargo strategy,” explained Will Horton, CAPA’s senior analyst. “Lufthansa needed a solution to Airberlin and there was limited interest in Germany for endless protectionism for Lufthansa. Gulf airlines had been trying for a number of years to partner with Lufthansa.” For Lufthansa, potential partnerships, and perhaps joint ventures, place the carrier beyond the reach of its recalcitrant unions, which tend to prefer the status quo. Etihad, however, is union-free.

Still, there may be secondary cargo benefits that can be found. Teaming up with Etihad increased the German carrier’s penetration into the far east. Gulf airlines, including Etihad, are heavily represented in the Asia-Europe market. “They have ample widebody space on far more frequencies to and from Asia and to and from Europe than European or Asian airlines,” Horton said. “Almost all services are widebodies and not weight-restricted, meaning ample room in the belly… And when there is a need for dedicated freighter service – Hong Kong, Shanghai, Zhengzhou, etc. – there are some [widebody freighters]. Otherwise the number of destinations Gulf airlines serve with passenger flights, and resulting cargo space, is more than competitors.”

Therese Puetz, CEO of Karavan Management Consulting saw a similar opportunity for Lufthansa in the Etihad deal, noting that one strength of their cooperation could be its volume of widebody-to-widebody connections from secondary-to-secondary markets. “If Lufthansa Group airlines were to use existing Etihad widebody flights or add flights from Europe to Abu Dhabi, they could connect cargo to other widebody capacity to the far east, providing customers with a better, faster offer from their hubs and secondary markets.”

In numerical terms, the deal increases the number of destinations that European forwarders can reach in Asia through Lufthansa’s agents and facilities, and presumably creates similar opportunities for their Asian counterparts. And, with IATA’s 2016 numbers underscoring the global demand for German manufacturing output, and the euro devalued, the timing is fortuitous. IATA reported that cargo volumes for European carriers in 2016 rose by 7.6 percent.

Setting a precedent

When asked what the cargo-side of the Lufthansa-Etihad code-share might look like, David Kerr, Etihad’s senior vice president for cargo, pointed to Etihad’s cooperation with Avianca, which opened the market between Italy and Colombia, on a twice-weekly basis. “All of the market data would indicate that all the volume from Europe was heading into Brazil, farther south on the continent,” he said. “But we built a bridge to Bogota, the northern cone of South America.”

Although Etihad is already connected to several cities in Germany, and throughout Europe with their widebody fleet, the impending partnership has the potential to increase Lufthansa’s E.U. connectivity to the Gulf and beyond. Etihad’s ability to partner with Avianca allowed the Gulf carrier to offer end-to-end service in an unrealized gap in the market. “That allowed us to be more relevant to a broader audience,” Kerr said. “We’ve become more of a global carrier.”

Closer to home, Etihad’s partnership and capacity arrangements with Airberlin, are another indicator that Kerr pointed to – specifically traffic, “into and out of Abu Dhabi and across the Atlantic, as well as Alitalia, where we have an ongoing capacity arrangement.” He said that these arrangements “bring growth and choice in our network while supporting the other carrier, and the growth in our network brings more choice to our customer base.”

While Etihad has added capacity through minority stakes and partnerships, it reduced capacity within its organic network in 2016. However, Kerr said that Etihad has plans to “grow the capacity” this year, as a result of the partnership.