Monday, July 17, 2017

Emirates, Flydubai Connect in New Middle East Airline Alliance: Partnership comes at a difficult time for the Middle Eastern carriers

The Wall Street Journal
By Nicolas Parasie
July 17, 2017 6:01 a.m. ET

DUBAI—Emirates Airline and budget carrier Flydubai said they are going to work more closely together through a wide-ranging tie-up, in the latest sign that intensifying political and economic pressures are making Middle East carriers rethink their business plans.

The carriers, both owned by Dubai’s government, announced a partnership that includes collaborating on routes and scheduling, an agreement on code sharing—where airlines list each other’s flights on their reservation systems—and the alignment of their frequent-flier programs.

Emirates Airline, the world’s largest carrier by international traffic, flies Airbus SE A380 superjumbos and Boeing Co. 777 long-range jets world-wide, offering ample amenities. In contrast, Flydubai offers a no-frills service that connects cities using smaller planes. More closely integrating its schedule with Flydubai would allow Emirates to offer access to cities that don’t warrant use of big planes, feeding passengers to and from those destinations to long-haul flights via its Dubai hub to help fill the large planes flying to the U.S., Europe, and Asia.

Emirates and Flydubai said the new partnership should allow them to ”leverage each other’s network to scale up their operations and accelerate growth.” Jointly, the two airlines aim to offer 240 destinations by 2022, up from 216 now, using a combined fleet of 380 aircraft.

The Emirates-Flydubai partnership agreement comes at a difficult time for the Middle Eastern carriers.

After a period of rapid growth, Emirates and its two major regional rivals Etihad Airways and Qatar Airways are facing a prolonged period of turbulence. Low oil prices have hit business travel to and from their home bases while an oversupply of seats has put downward pressure on ticket prices.

Tougher travel-security measures in response to the threat of terror attacks and uncertainty surrounding travel to the U.S. have also weakened demand. More recently, a diplomatic standoff between Qatar and its neighbors including Saudi Arabia and the United Arab Emirates—Dubai is one of the U.A.E.’s seven emirates—has added extra uncertainty to the region’s aviation sector.

The disruption was visible in the latest results from Emirates. The carrier reported an 82% drop in net profit to $340 million for the fiscal year to end-March compared with the previous 12 months.

Though Emirates and Flydubai are owned by Dubai’s sovereign-wealth fund and operate from the same international airport, they have functioned independently and will continue to do so under separate management teams, according to the airlines’ statement.

“[T]his new partnership will unlock the immense value that the complementary models of both companies can bring to consumers, each airline, and to Dubai,” said Sheikh Ahmed bin Saeed Al Maktoum, the Dubai official who is chairman of both companies and heads the Dubai Civil Aviation Authority.

Emirates, which was founded in 1985, became one of the most prolific buyers of widebody planes from Airbus and Boeing in creating a global network from its hub in Dubai. The airline, which today has a fleet of 259 aircraft, is known for its lavish offerings in first and business class such as showers and fine wines.

Flydubai was set up in 2008 with the aim of mirroring the success of budget airlines such as Southwest Airlines Co. in the U.S. and Ryanair Holdings PLC in Europe. The airline operates a fleet of 58 Boeing 737-800 aircraft and will take delivery of more than 100 aircraft by the end of 2023.

“Given the competitive yield pressure Emirates has faced due to falling prices and increased airline competition, Emirates can leverage the strength of Flydubai’s network and dispense the need to buy their own [narrow-body planes],” said Saj Ahmad, chief analyst at StrategicAero Research. “[And] vice versa, Flydubai can offer flights on Emirates’ network and without buying widebodies,” he said.

Emirates and Flydubai said they are working out the commercial, logistical, and technical details of the partnership which would be put in place over the coming months, with the code-sharing agreement starting in the final quarter of 2017.

—Robert Wall in London contributed to this article.

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