Network strategy: Jet's pact with Air France is not good news for Etihad

Jet Airways has charted a network strategy independently of its equity partner Etihad, which has seen a decline in its fortunes amid a slowdown in West Asia and the bankruptcy of two of its investments, Alitalia and Air Berlin.

On Wednesday, Jet Airways announced a pact with Air France-KLM that will involve close collaboration among the partners on network, pricing and schedules and strengthening of hubs in Amsterdam and Paris for India-Europe-US routes. 

Airlines forge commercial partnerships to sell tickets on each others’ flights and such co-operation is not new for Jet Airways, which Naresh Goyal founded in 1993. Even five years ago Jet Airways had code share agreements with 14 airlines from Europe, the US, Canada and Australia.

But the Jet Airways-Etihad deal signed in 2013 was no ordinary agreement. Etihad invested Rs 2,057 crore in Jet Airways for a 24 per cent equity stake. Along with the fund infusion, the two airlines also agreed to collaborate in sales, marketing, cargo, ground handling and joint fuel purchase, resulting in cost savings and revenue synergies.

The carriers also announced, and later operationalised, new India-Abu Dhabi routes and the establishment of a gateway for flights to the US, Europe, Africa and the West Asia. The two airlines have code shares on flights from Abu Dhabi to Europe and the US.

Etihad and Abu Dhabi airport came into prominence as the civil aviation ministry in 2013 allowed a staggered increase in weekly seats between India and Abu Dhabi from 13,000 to 50,000. 

Etihad had a share of 3.45 per cent of India's international traffic in 2014-15 and it was the seventh largest foreign airline in India by passenger traffic. In 2016-17, Etihad’s share rose to 5 per cent and it is now the fifth-largest carrier to and from India, according to the Directorate General of Civil Aviation. 

Air France-KLM's share in India's overseas traffic is less than 2 per cent and it does not feature among top 15 foreign airlines in India by passengers flown. The dominance of Etihad and other West Asian airlines in the Indian market is under challenge with Jet Airways signing a metal neutrality pact with Air France-KLM and launching new services to Amsterdam and Paris.

Dubai and Abu Dhabi are the biggest overseas connecting points for travel to India. Dubai hosts over 4 million transit passengers and Abu Dhabi 2.5 million transit passengers to and from India. These figures do not include passengers whose final destinations were Dubai or Abu Dhabi.

Amsterdam has recorded one of the highest rates of growth in connecting traffic for passengers to and from India in the last 12 months and this number is expected to climb further. 

“Jet Airway's partnership with Etihad will increasingly become less strategic and relevant,” said Kapil Kaul, chief executive officer (South Asia) of aviation consultancy CAPA. He said there could be more strategic developments, including Jet Airways joining Skyteam, an airline alliance led by Air France-KLM, and investment by Delta in the Indian carrier.

Goyal said Jet Airways would not break its ties with Etihad. "We have a great relation with Etihad, which will continue,” he said at a press briefing on Wednesday. He also said the airline would continue to strengthen its presence in the Gulf region. The two-way traffic between India and the Gulf region is over 20 million.

Jet Airways Chief Executive Officer Vinay Dube said the partnership with Air France-KLM should not be an irritant for Etihad. “The pie is growing and at the end of day everyone gets a larger slice. We are not worried about any one party getting a smaller slice than what they have today,” he said, adding Etihad had an agreement with Jet Airways over its decision to align with Air France-KLM.