Advantage Germany Lufthansa Strikes Tie-Up Deal with Etihad

Lufthansa, Germany's largest airline, has announced a catering, maintenace and flight-sharing deal with its rival Etihad, the national carrier of the United Arab Emirates. The Germans look set to benefit most.
Lufthansa and Etihad will work together on flight routes.

For the outgoing chief executive of Etihad, the announcement of a new partnership with German carrier Lufthansa was a chance to defend his legacy as the United Arab Emirates' national airline undergoes a painful restructuring.

"We're proud to welcome Lufthansa as our new partner," Mr. Hogan said during a press conference in Abu Dhabi on Wednesday, which was also attended by Etihad's Emirati owners. "For us, this is the most important partnership outside of our holdings."

The planned collaboration will not be comprehensive - it will cover catering, maintenance, the joint use of terminals and shared flight numbers. But as a number of costly and unsuccessful investments have weighed on Etihad, Mr. Hogan has been eager to frame the deal as having the potential to reinvigorate the carrier.

Mr. Hogan has been blamed for the company's unprofitable investments in Air Berlin, Germany’s ailing second-largest airline, and Alitalia, moves designed to secure more European feeder flights. Those investments, critics say, were too expensive and the European airlines in question too difficult to streamline. Now, the Australian is set to leave the company in the second half of this year after being at its helm for more than 10 years.

For Lufthansa, the deal with Etihad was not a hard one to stomach. In the end, it gave up little in return for a lot.

The new partnership between Etihad and Lufthansa is primarily an agreement for Lufthansa's catering subsidiary, LSG Sky Chefs, to stock Etihad aircraft with food and beverages outside its main hub for the next four years.

"LSG will become our most important caterer outside Abu Dhabi," Mr. Hogan said. The order volume will be for around €90 million ($96.9 million). Etihad and Lufthansa have also expressed interest in exploring cooperations in the field of aircraft maintenance.

In addition, Etihad will move into the Lufthansa terminals at the German carrier's hubs in Frankfurt and Munich. That will make it easier for passengers on flights run jointly by the two airlines - an arrangement that Etihad and Lufthansa reached last December - to make connections.

"The partnership is good for Etihad and Lufthansa, but also for passengers," Mr. Hogan said.

While the agreement will allow Mr. Hogan to leave the company on a high note, it will also help Lufthansa boss Carsten Spohr present himself as an agile manager.

Mr. Spohr has criticized the Gulf's state-sponsored airlines in the past, pointing to what he identified as a resulting imbalance in the global aviation market. At the same time, however, he is cooperating with Lufthansa's competitors there when it serves his company.

"I agree with James that two players can hold dissenting views and still be partners," Mr. Spohr said at the press conference in Abu Dhabi.

IAG, a British-Spanish multinational airline company that owns British Airways and Iberia, has proven to be a useful role model for such cooperations. Qatar Airways, for instance, now holds a 20 percent stake in IAG.

Carsten Spohr, left, and James Hogan made the announcement in Abu Dhabi.

For Lufthansa, the deal with Etihad was not a hard one to stomach. In the end, it gave up little in return for a lot.

Take the example of jointly operated flights: On the one hand, Etihad flights between Abu Dhabi and Frankfurt or Munich will now get a Lufthansa flight number. But since Lufthansa recently removed Abu Dhabi from the list of destinations it flies into, it won't hurt to sell tickets there for Etihad.

At the same time, Lufthansa flights between Frankfurt and Rio de Janeiro as well as between Frankfurt and Bogota will receive an Etihad flight number. If Etihad helps to fill the seats on those not-so-popular routes, it can only be a good thing for Lufthansa.

The LSG Sky Chefs agreement also makes sense. The catering subsidiary recently lost a long-time German customer, Condor, and has been laying off employees to make up for a shortfall in business. The new deal came at just the right time.

And then there's the loan of 38 aircrafts from Air Berlin, which is 29-percent owned by Etihad. This deal could prove especially useful if the restructuring of Air Berlin fails. Lufthansa has long been positioned - and willing - to come to the rescue.

At the moment, Mr. Hogan has no interest in indulging in such speculation. He said Air Berlin's new boss, the former Lufthansa manager Thomas Winkelmann, had a clear mandate.

"He's supposed to restructure the company," Mr. Hogan said.

02 p19 Lufthansa and Etihad-01


Jens Koenen leads Handelsblatt's coverage of the aviation and space industry. To contact the author: [email protected]