Etihad is the latest carrier to unveil intentions to serve the hot North Texas market when it commences a thrice weekly nonstop flight from Dallas/Ft. Worth to its Abu Dhabi hub next winter, utilizing a Boeing 777-200 long-range aircraft. This news comes a mere week within Qatar Airways’ announcement to start a nonstop flight from DFW to its Doha hub next summer.
Once Etihad lands at DFW in December 2014, Dallas/Ft. Worth International airport (DFW) will join the ranks of New York JFK, Washington Dulles and Sao Paulo Guarulhos airports to become the 4th major city in the Western Hemisphere, and the 3rd in the US, to receive service from all three of the big Persian Gulf carriers, Emirates Airline, Qatar Airways and Etihad Airways. Emirates has been serving the DFW market since February 2012.
Etihad is the youngest airline of the three, but its business model is sound-proof
On many fronts, Etihad’s decision to open up a DFW station was, by far, highly unexpected. One of the most obvious stated reasons why DFW received direct attention from Emirates and Qatar was due to the large amount of “spillover” from DFW on both carriers’ daily services to Houston Bush Intercontinental airport 224 miles to the south. However, Etihad does not serve Houston, and there had to be another logical reason why the carrier sees room in DFW.
A likely explanation could be divergences in business strategy: of the three major carriers, Etihad has always wandered to the beat of a different drummer in terms of seizing on network expansion opportunities. Its coverage in the US is by far the smallest of the three Gulf carriers, but it is also the youngest, having celebrated its decade anniversary this year. For a carrier as young as Etihad is, the amount it has accomplished in such a short time is pretty remarkable.
One might claim that its base in Abu Dhabi renders it a redundant, secondary carrier relative to the 800-pound gorilla, Emirates, nestled its global Dubai hub a mere 72 miles northeast of AUH. Yet, despite being the more “secondary” Emirati city in terms of global prominence, Abu Dhabi and Etihad forged a strong, cooperative relationship during the carriers’ embryonic years, which has, over time, resulted in a consistent profitability streak as the carrier has developed and grown. Under its fearless leader and CEO, James Hogan, Etihad has recorded double digit passenger traffic and revenue growth year-over-year, with a largely low-operating cost base, and a self-proclaimed, “unique company culture” in place.
One core component of Etihad’s business model has been an aggressive focus on pursuing partnerships with other flag carriers, building up its profile of equity acquisitions and all the meanwhile, focusing on its own organic growth. Currently, Etihad has codeshare agreements with over 46 partners, and counting, ranging from big name airlines from all three alliances, such as American, Air New Zealand, Alitalia, Asiana and All Nippon (to name a few, and that’s just the A’s!) as well as some lower-profile, unaligned niche carriers such as NasAir of Saudi Arabia, Air Seychelles of Madagascar, Air Astana of Kazakhstan and Bangkok Airways.
While Etihad has certainly run into stumbling blocks along the way, the results have largely proven to be win-win for both it and its growing list of partners. Typically, Etihad will cozy up to a state-owned, inefficient and unprofitable flag carrier, and through lending its own managerial expertise, joint procurement of assets, reciprocal frequent flier benefits and cross-partner codeshare opportunities, each relationship garners substantial amounts of revenue and traffic growth for both parties.
Taken in this regard, Etihad has been the largest purveyor of creating a new trend known as, “radial alliances” by partnering with encumbered state-owned or end-of-line country carriers, nurturing the company back to life and then granting both participants virtual access to a slew of new markets. On a standalone basis, Etihad’s route map of flights operated on its own metal appears small when compared to the likes of Emirates, Qatar and Turkish, but once its partner airlines’ routes are thrown in the mix, the map takes on a completely new meaning.
DFW fits well within Etihad’s strategy despite its growing market saturation
Etihad’s decision to announce plans to open a DFW station within the same time-scale as one of its major rival carriers came at the shock of many. Although Etihad and American Airlines, who operates its largest and most profitable hub at Dallas/Ft. Worth International, have had a long-standing codeshare agreement, this relationship pales in comparison to that of Qatar Airways’, who joined the OneWorld alliance this quarter. In theory, such a relationship sings the tune of, “blood runs thicker than water” here meaning that Qatar’s OneWorld alliance involvement outpaces Etihad’s limited codeshare agreement with American on any given day. Also, Qatar will also be offering a daily flight into DFW, compared to Etihad’s mere three weekly services.
Some people have argued that the DFW market isn’t large enough to support three Gulf carriers, alongside DFW’s existing European services to London, Frankfurt, Madrid, Paris and Amsterdam (as many of these European markets compete for the same traffic as the Gulf Carriers).
While that notion is possible, it’s unlikely that one of the Gulf carriers will be first to fall. The reality is that DFW airport, despite being one of the top 10 largest airports in the US by foreign traffic and international O&D, is also one of the more unique ones in that its foreign traffic is heavily tilted towards the Indian subcontinent rather than the European continent.
As I mentioned previously in my Qatar Airways article,
Over the past six years, the DFW-India market has grown by leaps and bounds, buoyed by the strong North Texas local economy and increasing job opportunities. Core Indian markets like Dallas/Ft. Worth – Delhi has experienced 98% growth, while others such as Mumbai have only experienced marginal growth at 10%. However, the real diamonds in the rough have come from non-core Indian cities such as Kochi (201%) and Ahmedabad (613%). Numbers to Hyderabad and Bangalore are also on the steady rise at 186% and 311%, respectively.
As such, the double-digit growth in the DFW-subcontinent corridor merits the need for Etihad to compete in the DFW arena and capture its share of this voluminous traffic. Obviously, as long as the relationship remains intact, the codeshare with American certainly won’t hurt matters, either.
Etihad-Jet Airways equity investment in Jet serves as major ace-in-the-hole for DFW
Moreover, the one key ace-in-the-hole for Etihad’s new service to DFW will be its $379M USD equity investment to acquire a 24% stake in Indian carrier Jet Airways. The two carriers received regulatory approval to proceed with this relationship earlier this fall, permitting a substantial increase in seats in the UAE-Indian market, whereas both Qatar Airways and Emirates have maxed out their bilateral restrictions between India and their respective home countries.
Alongside a nearly three-fold increase in weekly seats allowances from 13,600 to 36,670 between India and the Abu Dhabi, the agreement also permits Etihad access to 20 points of call in India from its Abu Dhabi base. Additionally, it also allows a change of aircraft gauge for Indian carriers serving Abu Dhabi, according to CAPA.
Quick to exploit this new advantage, Etihad has already increased frequencies to Delhi and Mumbai from 7 to 14 weekly flights to each market, and will also add second daily rotations to Kochi, Bangalore, Chennai and Hyderabad between June and October 2014, proceeding the DFW route launch (source: routesonline). Etihad will be up-gauging capacity from its narrowbody Airbus A320s on these routes to widebody Airbus A330s and A340s.
Taken hand-in-hand, these two future chapters are not mere coincidences in the Etihad 2014 network expansion timeline. Rather, there is likely plenty of inter-relation between the two associated events.
It’s also a major game-changer for the Indian market as well. Jet Airways is the largest international carrier by traffic to/from India, as well as a well-regarded product. Unfortunately, its long-term success has been hampered by the dismal, corrupt practices of the Indian Civil Aviation Authorities and its unwavering efforts to consistently bail out the state-owned, beleagured flag carrier, Air India. Unlike the political structures in the United Arab Emirates, Qatar and Turkey, who are largely pro-aviation and hands-off in their governing style, the Government of India has basically ruined any hope for transforming the country into a global aviation power player due to decades of greed, mismanagement and poor decision-making policies.
Without much room to grow, and faced with the inevitable option to “beat them or join them,” Jet Airways forged ahead with warming up to the Gulf carriers, partnering with Etihad to create a Western Hemisphere-oriented hub out of Abu Dhabi to serve the Middle East, Americas, Africa and Europe. Jet Airways’ has achieved marginal traction in the long-haul market, having started and dropped services to New York JFK, San Francisco, Johannesburg, Milan and Shanghai. It’s current long-haul network is limited to London, Brussels, Newark and Toronto. Indian carriers simply do not have the bandwidth to operate long-haul services to the same scale that the Middle East carriers can without bleeding heavily.
Overall, the power that these two carriers will be able to leverage over Abu Dhabi and the subcontinent to destinations all across the Western Hemisphere cannot be taken lightly. When viewed in context of the double digit PDEW growth from DFW to India, it makes perfect, logical sense why Etihad sees market potential in North Texas.
That being said, there will inevitably be a loser in this battle, likely a European airline
While this news is exciting, it will likely come at the expense of an existing airline serving DFW. Presently, DFW is connected to five European markets via American Airlines (London Heathrow, Frankfurt, Paris and Madrid), British Airways (London Heathrow), Lufthansa (Frankfurt) and KLM Royal Dutch Airlines (Amsterdam).
Of these, the American Airlines routes are stable, catering to local demand from DFW to important business markets in Europe or plugging OneWorld to OneWorld hubs (i.e. DFW to Madrid) where there is lucrative connecting opportunities. British Airways’ route to Heathrow is also safe as it operates a Joint Venture agreement with American, and the carriers have an anti-trust immunity relationship intact.
That leaves Lufthansa and KLM as the most vulnerable carriers that will take a direct hit from the increase in Gulf carrier capacity at DFW. For decades, Lufthansa, by far, had total monopoly over all foreign traffic heading to Africa, Europe, the Middle East and the Indian subcontinent over its global hub at Frankfurt. Over time, its dominance has become eroded as the region has welcomed new competition. While subcontinent traffic has grown, European traffic has only grown marginally, and not at a rate to offset the losses to competing airlines.
In a similar vein, the Gulf carriers provide the additional advantage of linking smaller cities across the subcontinent to Doha, Dubai and Abu Dhabi to the world beyond, whereas the European airlines have a much more limited presence in the same region as they are more heavily Delhi/Mumbai/Hyderabad/Bangalore/Chennai-focused. Without question, it is hard to convince a largely price-inelastic traveler to double-connect over Europe in what is already a very long voyage if they are headed to Kochi, Lahore, Dhaka or Ahmedabad.
That being said, KLM is likely going to be the first to blink as an airline that has gradually reduced its capacity to DFW since opening the market in March 2008. KLM originally launched DFW utilizing a daily, year-round Airbus A330-200 aircraft in a 2-class cabin configuration. Timing was unideal as it proceeded the global financial crisis, and service then slipped to a 5-weekly rotation, before ultimately converting into a seasonal flight operated between the months of May and October each year.
While the flight braved through the arrival of Emirates in 2012, the likelihood that it will be able to hold its ground against Qatar and Etihad is uncertain to unlikely. The route is highly dependent on connecting traffic to lower-yielding destinations in Africa, the Middle East and Asia. Without a SkyTeam hub on the DFW end, the local market is fairly tiny with less than 30 passengers per day, each way. The flight is still available for booking in the GDS, scheduled to return the first week of May 2014.
Lufthansa has a much more entrenched history in DFW, and while it has also taken a hit from the growth in competition, the local North Texas to Germany market is much larger than to Amsterdam. The flight will likely be able to fight its way through and survive in the long haul, particularly if KLM decides to leave.
Atlanta and Detroit once again are passed over for Middle East competition
The surprising news also once again underscores the fact that the Middle East carriers, despite previously stated intentions, are overlooking markets like Detroit and Atlanta that are underserved to the Middle East and subcontinent. In particular, these two airports are SkyTeam powerhouse hubs for Delta Air Lines, which would make logical sense.
However, a possible explanation for this is once again a testament to the open nature of OneWorld to the Gulf Carriers, by far the most relaxed of the three major global alliances. Allegedly, Delta has been getting into spats with Etihad over its proposed code-share agreement with Air Serbia (formerly known as ‘JAT Airways’). The carrier wanted to code-share on Etihad’s US flights, to which Delta raised a protest to the US DOT to block any agreements, per typical Delta tantrum fashion.
Whether or not this fully played into Etihad’s decision to launch ATL or DTW remains to be decided. Regardless, perhaps the OneWorld neutrality towards the Gulf carriers once again reiterates the phrase, “a foe of my foe’s is my friend,” which will add another nice little boost to the tail lineup at Terminal D at DFW airport come next winter.