Focus: Emirates, flydubai to gain power over rivals with historic tie-up

Emirates and flydubai on Monday announced a tie-up under which they are to operate an “expansive” codeshare agreement with increased schedule alignment, fleet and network sharing to more than 200 destinations.

The agreement will also see alignment of frequent flyer programmes, although the airlines will continue to operate independently.

The deal comes in the wake of dismal financial announcements by both airlines over the past 12 months, as currency volatility and competition hit their bottom lines.

Analysts hailed the partnership as a bold solution, enabling Emirates and flydubai to cut costs and deepen their market share.

Will Horton, senior analyst at the Centre for Aviation (CAPA), told Arabian Business: “This is part of Emirates adapting and becoming more flexible with its business model.

Adding in flydubai’s existing network, plus new growth opportunities, gives Emirates a more unique footprint. (Photo: KARIM SAHIB/AFP/Getty Images)

“The three Gulf superconnectors – Emirates, Etihad and Qatar – largely compete for passengers travelling between the same combinations of cities.

“Adding in flydubai’s existing network, plus new growth opportunities, gives Emirates a more unique footprint. It also improves Emirates’ position on short-haul and regional travel to and from Dubai.”

Impact on other Gulf airlines

For flydubai, the deal means it can offer flights on Emirates’ network and not have to buy widebody planes, said Saj Ahmad, a consultant at Strategic Aero Research, adding that Emirates in turn will dispense with the need to buy narrow body aircraft.

Ahmad said the partnership will help the airlines ratchet up a larger slice of the regional aviation market. “Emirates and flydubai will be able to offer end-to-end services on routes that will allow them to price fares aggressively and capture better market share without eroding profits and gain from higher load factors,” he said.

“The power these two entities will have together will make life hard for Air Arabia and Etihad, as well as Qatar Airways and other fringe carriers like flynas, Jazeera Airways and SalamAir.”

John Strickland, director at JLS Consulting, said the move would, ultimately, strengthen Dubai’s overall aviation footprint, which is already powerful. “The cooperation will increase the strength and flexibility of Dubai’s aviation footprint as well as protecting against new competitive developments.

“The two airlines will be able to reduce some current network duplication and better ensure they have the right aircraft size according to demand on a given route.”

He noted the decision by Emirates and flydubai had echos of similar moves developing in Europe for collaborations between low-cost carriers and legacy airlines.

However,  Andrew Charlton, managing director of Aviation Advocacy, pointed out that many previous consolidations have failed – at least initially – to address difficulties. For example, Air France-KLM’s merger in 2004 plunged the company into the red for years, while Etihad’s investment in Alitalia has so far failed to aid the struggling Italian carrier.

flydubai’s hub at Dubai International’s Terminal 2

Because of this, Emirates and flydubai stopping short of an outright merger is a positive decision, he said.

“History tells us airlines are very bad at combining and consolidating but, at the same time, they need access to broader passenger networks and routes. [The Emirates-flydubai partnership] is another attempt to address that dilemma.

“We have seen a number of models of airline cooperation over the years and the Gulf seems to be something of a petri dish of cooperation models. The Qatar Airways model, to join an alliance and take strategic investments in listed partner airlines is one; Etihad’s buying up of large shares of struggling airlines with the hope of changing them around is another, and the organic growth and limited cross-company model of Emirates is another.

“flyDubai was always an interesting case in the array. The relationship between it and Emirates was friendly, but somewhat arm’s length. Of the 216 destinations they together flew to, only 34 overlap, and only about a million or so passengers a year, out of 65m transferred between the two.

“Thus there was potential for both sides to leverage the networks’ passenger flows. What is interesting, though, is the decision to maintain both sets of management and operate them independently. Looking at the abyssmal record the airline industry has on consolidation and mergers, that looks very sound.”

Connection between DXB terminals

The big question is airports, added Charlton. Currently Emirates and flydubai operate from separate terminals and there is a minimum two-hour connection time.

“Even bringing it down to 90 minutes will not bring it to industry leading edge standards.”

Emirates declined to respond on Monday when Arabian Business asked whether a new link could be built between the two DXB terminals.

Dubai Airport’s Terminal 3 is served by a Dubai Metro link

Meanwhile, there will be logistical issues to resolve as flydubai moves to DWC and Emirates seeks to split its operations between the two airports.

“That said, this is an interesting and welcome move to better manage the Dubai airline offering and better coordinate what is going on. It most certainly does not weaken either airline,” Charlton said.

Saj Ahmad concludes: “The move was a very long time in the making and it is one passengers across the GCC and beyond will embrace with open arms.”