ANALYSIS: Oneworld's Qatar moves shows changing world order

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Confirmation that Qatar Airways is to join the Oneworld alliance and that Air France-KLM will begin codesharing with Etihad Airways and its partner Air Berlin, underscores the seismic changes taking place in the world of airline partnerships.

Qatar was unveiled as Oneworld's latest recruit at a ceremony in New York yesterday and is expected to enter the alliance within the next 18 months. Together with Malaysia Airlines and SriLankan Airlines, it will take Oneworld's partner airlines up to 14.

"Alliances are playing an increasingly important role in the airline industry today--and that will continue long into the future," says Qatar Airways chief executive Akbar Al Baker. "Qatar Airways has carefully reviewed its strategic options and it is very clear that joining Oneworld is by far the best way forward."

Qatar is the second Middle East member for Oneworld after Royal Jordanian Airlines and will join recent SkyTeam recruits Saudia and Middle East Airlines as alliance members from the region. Significantly though, it is the first of the mega-Gulf carriers to join one of the global alliances.

And while Emirates remains resolutely independent and Etihad's multi-partnership strategy has seen it team-up with diverse range of carriers, all three of the Gulf giants are having a significant impact on the wider alliance picture.

Etihad for example has just unveiled details of a new codeshare with SkyTeam co-founder Air France-KLM. The carriers will codeshare on flights linking Abu Dhabi with Paris and Amsterdam, but the link-up also covers co-operation with Air Berlin - the Oneworld carrier in which Etihad holds a minority stake.

Taken together with last month's tie-up between Qantas and Emirates, which will shift the Australian carrier's hub for European flights to Dubai from Singapore, it has seen accords struck between airlines which a few years ago would have seen fanciful.

Back in 2004 an alliance between Air France-KLM and a Gulf mega-carrier seemed far-fetched as chief executive Jean-Cyril Spinetta was hitting out at Emirates business model, or that Qantas would end up partnering with Emirates when a year later its then chairman Margaret Jackson described the idea of the two competing on the same commercial basis as "pure fiction".

Yet it demonstrates how the world has changed for traditional network and Gulf carriers alike. At the time of these complaints over the fairness of Gulf carrier competition - which have abated in some but not all quarters - Emirates, Etihad and Qatar Airways had combined revenues of around $8 billion. Indeed Etihad did not even feature among the top 150 airlines. By the end of last year these revenues totalled almost $28 billion and all three are now among the top 50 airlines by revenue.

"The three alliances have traditionally resisted membership by the fifth freedom gulf carriers," says Michael Kanacher, a partner with Aviado Partners. This was underlined by Star Alliance chief executive Mark Schwab during the recent Airline Business Alliances, Joint Ventures and Partnerships conference in Istanbul. "For the time being we don't see strong home markets being delivered to us and we don't see many new cities being added to the network," he said.

Qatar for example brings a relatively small number of new destinations and countries to the Oneworld network, 15 and three respectively. But it will be the fifth largest member of the alliance by passenger traffic.

Schwab added that although he's "learnt to never say never" and concedes that the geography of the region makes the three airlines interesting, he adds "you don't necessarily have to have a relationship with one of those carriers to be relevant in that marketplace".

At the same conference Aviado Partners managing partner Shakeel Adam asked whether the global alliances could continue to exclude carriers which now account for more than 6% of global traffic and which win accolades from customers. "With the fifth freedom focus of the Gulf carriers, I believe entry of any of them into any of the alliance might be positive for the alliance as a whole, but will hurt some of the current individual members on certain traffic flows," he adds.

Now rivals International Airlines Group and Air France-KLM have struck co-operation deals with Qatar and Etihad, it will be interesting to see if Lufthansa softens its stance and seeks a similar partnership of its own.

These deals though not only illustrate the significance of the Gulf carriers on the global stage, but also the extent to which the challenges facing the traditional network carriers means they are prepared to reconsider long-standing partnerships.

"In general, there are a lot of changes in the airline industry today which, as with any industry, are being determined by the financial health of the airlines themselves," says Adam. "There are currently a large number of stressed and distressed airlines looking for solutions to their woes."

Qantas's new partnership with Emirates is designed to help tackle its loss-making international business. In the process it has also pulled the plug on one of the longest standing immunised relationships in the industry, its partnership with British Airways on the Kangaroo routes. The two have long been partners, not just on the Kangaroo routes, but as founding partners of Oneworld, as former shareholders and who, as recently as 2008, held their own tentative merger talks.

"It is important to recognise that any partnership decisions by an airline affects themselves, their alliance partners, the alliance itself and the other partner," adds Adam.

Certainly Qantas' ditching of its relationship with BA raised questions about the Australian carrier's continued involvement in Oneworld. That is only underscored by the arrival of Qatar Airways in the group.

But the parting of the ways between BA and Qantas has been pretty cordial and was followed by news that another Oneworld founder - American Airlines - has also been holding codeshare talks with Emirates.

Adam highlights the quandary to alliances. "If the Qantas-Emirates relationship works it makes a stronger Qantas and then although it hurts some Oneworld relationships, in the end it means a stronger Oneworld member in Qantas. However, if it becomes strong enough and Qantas continues to strengthen relationships elsewhere outside of Oneworld, what does this mean for their involvement in Oneworld? They have already cancelled the planned JV with Malaysia Airlines, cancelled their JV with BA on the Kangaroo route and have established a low-cost carrier JV cooperation with SkyTeam member China Eastern."

These apparent contradictions to traditional alliance partnerships are increasingly widespread, as consolidation moves around the world muddy the global alliance waters.

Air France-KLM's new partnership with Etihad for example brings with it widespread co-operation with recent Oneworld addition Air Berlin. And the biggest puzzle still to be resolved on the alliance stage is the future of Latin American powerhouse LATAM, the merger that has brought together Star's TAM with long-standing Oneworld member LAN.

While Oneworld has appeared to be in the box-seat - given a competition body ruling preventing LATAM being in the same alliance as recent Star recruit AviancaTaca - the carrier says all options remain open. Speaking at the Istanbul conference, Schwab said this could include "a theoretical possibility that one carrier could be a member of an alliance and the other side of the company could remain unaligned".

All of which underlines that in future, membership of a global alliance may not be as monogamous relationships as they once were or some partners might wish.

"The battle lines are being redrawn and no partnerships are stable," notes Adam. "With this much change and movement, all the models and war games scenarios which have been used by airlines to make the decisions they have made before (e.g. to enter one alliance over another over a bilateral approach) need to be regularly redone to take the new world order into consideration. But one should wait to see how some of these pieces fall before starting that process."