Over the weekend, rumors came around that Etihad was close to joining Star Alliance. I strongly believe that joining an alliance would be beneficial for the carrier’s network and passenger load factor. However there are many reasons why the airline should not join an alliance too. There are costs associated with joining an alliance, and at the moment Etihad is not in a financial position to pay them. Assuming they could, and assuming they do join an alliance, should Etihad join Star Alliance compared to SkyTeam?
The Arguments in Favor of Star Alliance
The primary arguments in favor of Star Alliance are solid. Etihad has a strong partnership with Lufthansa, a stalwart of the alliance. Joining the alliance would allow passengers from the whole Lufthansa Group to connect through Abu Dhabi, which would boost Etihad’s ability to shuttle passengers between Europe, the Middle East, India, Africa and Australia. Star Alliance lacks a strong partner to take people from Europe to Australia. Etihad’s flights to Sydney and Melbourne are likely more convenient than connecting through Bangkok, Singapore, or Beijing. I think that the main point for passenger growth are from Europe through Abu Dhabi.
A second, very strong argument that has been said is that Etihad’s US/Canada destinations are ideal for connections with Star Alliance. I agree with this sentiment. Etihad flies to Washington Dulles, Chicago and Los Angeles, major hubs for United. The airline also flies to Toronto, a major Air Canada hub. This just leaves their New York JFK flight without any major connectivity. I think that Etihad can sustain their JFK operations without a partner, given that they only fly once daily to NYC now. I see it as possible that, if they join Star, they would launch a flight to Newark to connect with United. There is a muted argument that United has been very hostile to the ME3 carriers, but the truth is the leader in this fight has been Delta, with American fooled to bark at them too. United was wise to sign on to the deal, but not be as vocal as its other US legacy partners.
The Arguments Against Star Alliance
There are equally strong arguments as to why they shouldn’t join Star Alliance, or even that they could. I do not know how Star Alliance works, but I believe that Air India, as a full member, has veto authority over any new member. If I am right, they will likely veto any admission of Etihad because they compete indirectly with them to bring passengers to the Indian Subcontinent. Another reason they would likely veto is Etihad’s equity share in Jet Airways. Jet has been struggling financially, and in an as-dire situation as Etihad. The difference is that Etihad has the financial backing of its local government, while Jet is mostly on its own. Air India is not particularly profitable either. If they allow Jet Airways to partner with another Star Alliance member, this would lead to less connecting traffic for AI flights. If they do not have a veto power, I think the admission of Etihad would push Air India out of Star Alliance. The net positive of admitting Etihad would be lost, since Delta can likely veto Jet Airways replacing AI in Star Alliance.
What About SkyTeam?
I believe that Etihad would benefit the most from joining SkyTeam. They could redirect their flights in the US to match Delta’s hubs, such as changing Chicago to Atlanta. They could codeshare with WestJet out of Toronto. Etihad could leverage their partnership with Jet Airways as an asset they can bring into SkyTeam in the future. They could reconfigure their agreement with Lufthansa and switch it with Air France-KLM, Alitalia and Virgin Atlantic. Partnering with Virgin, via Delta, would benefit their London flights. But there is a problem…
Delta has been vocally opposed to the ME3. The airline is currently their strongest critic, and has actively pushed the US government to limit their access to the US market. Is it possible that Delta could shift its stance? I think so. If it can benefit their overall operations, Delta will quickly change its tone, and likely tone down their rhetoric. [As an aside, this would be a huge blow to American, they would lose access to Etihad award space and devalue AAdvatange. It would also show how inept Doug Parker is, with American losing its access to codeshares with Jet Airways, Qatar Airways, Gulf Air and Etihad. Part of me wants this to happen, to finally show how much of a fool American Airlines has been.]
My Take and Landing Thoughts
I think Etihad should join an alliance, just not yet. They should get their finances in order. Once they have their house cleaned up, they can begin inviting others to their party. I strongly think that they should join SkyTeam over Star Alliance, even if it is at the expense of their Lufthansa partnership. There are more benefits for Etihad in SkyTeam. If Etihad joins Star Alliance, Air India would be pissed, and probably depart Star. This would likely push them into the arms of OneWorld, if and only if Qatar Airways does not invest on another Indian airline before then. Only time will tell what, if anything, will happen. It is a very interesting time to be following aviation news.
What do you think? Should Etihad join Star Alliance? Are they better off in SkyTeam? Should they go it alone for now? Let us know!